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Congratulations on getting ready to hire your first employee! It’s a huge step for your company — and an exciting and daunting place to be. As a small business owner, bringing on help means getting ready to grow, but it also means taking on new legal obligations, expenses, and paperwork. We hope it also means you might get some sleep once in a while.
To get everything right, we’re here to walk you through the new hire process to avoid any snags as you go from solo entrepreneur to employer.
Before you hire your first employee
There are a few important steps to get your business set up before hiring an employee. While some of these take only a few minutes, others may require a little more planning ahead. Here’s what you need to do to be prepared:
- Apply for an Employer Identification Number (EIN) required for any business that has — or will have — employees. Use IRS Form SS-4 to apply. You probably did this when you launched your enterprise. If not, now’s the time to make it official.
- Register with your state Department of Labor (DOL). This is where you will pay state payroll and unemployment taxes.
- Get workers’ compensation insurance. Most states require that businesses have workers’ compensation insurance, though some have a waiver for small employers. It’s best to contact your local state agency to determine if workers compensation is required where your business is located.
- Display the required DOL posters in a prominent location in your workplace. The best way to find out which ones you need is by using the eLaws Poster Advisor. Be sure to visit your state’s Department of Labor website to determine which, if any state posters will also need to be posted.
- Decide how you will run payroll. Payroll means doing a lot more than just scribbling out a check. The average small business owner spends almost 20 hours a month on payroll, so you should make sure you have a handle on the payroll process upfront, or identify outsourced payroll software that fits your budget.
- Create an employee handbook that details your company policies. There are several templates available online that can be used. Just be sure to run it past an HR professional or employment attorney prior to distribution. This step isn’t mandatory, but it’s a best practice to clearly document your relationship with your new employee.
- If you’re planning on using contract employees, make sure you have an independent contract agreement in place that can be filled out and signed by new contractors.
The hiring process
Bringing in great people to build your business starts with writing a strong job description that communicates both what it’s like to work with you and the job’s responsibilities. Then, you’ll want to share that description with your network and post it where qualified applicants can find it (like hiring websites, LinkedIn, your local newspaper, or the careers page of your website).
A few things to remember as you create your job description and begin interviews:
- Be clear in the application process whether this role is an employee or an independent contractor. The IRS has stringent rules for worker classification, and it’s best to be aware of them before hiring anyone.
- When posting a job listing, add an application deadline, so you won’t continue to have resumes flooding your inbox long after the position is filled.
- Take your time sorting through resumes to find several candidates to interview. Consider scheduling the interviews within the same week so you’ll be able to complete the process quickly and compare candidates while they are fresh in your mind.
- Before you interview an applicant, remember that there are some questions you cannot ask including those directly related to age, race, ethnicity, gender, sex or sexual orientation, and country of origin.
Questions to skip:
- Are you a U.S. citizen?
- What religion are you?
- How old are you?
- Do you have or plan to have children?
- Do you smoke or drink?
- Do you take drugs?
- Have you been ill recently?
- Do you own or rent a home?
- Have you ever filed for bankruptcy?
You can ask an applicant questions that pertain to their eligibility:
- Are you over 18?
- Are you legally able to work in the U.S.?
- Are you able to perform the list of job duties that I have provided?
- Have you ever been convicted of a felony?
- Why are you leaving your current job?
- What are you looking for in a new job?
- Be sure to check references on applicants that you’re interested in hiring. Many employers miss this step (particularly when an interview goes very well) but you need to be sure that the person you’re interested in hiring is the best choice — especially because you’re making your first hire.
- Ready to hire your first employee? Preparing an offer letter is an easy way to lay out start dates, salary, benefits, and more so everyone is on the same page — literally. It also makes you seem more legitimate in the eyes of candidates who may be considering multiple positions. In some states, these are considered legally binding, so make sure you understand the HR regulations you’re operating under.
New employee onboarding: The first day and beyond
Once the perfect candidate has accepted your offer, one of the best ways to help your first employee settle in quickly is to create a comprehensive employee onboarding process. By covering all the essential tasks that they will need to complete, they’ll feel welcomed and be better able to hit the ground running.
You’ll be handing off a lot to your first hire and a lot of things they’ll need to know are probably buried somewhere in your brain, so set time aside to explain day one. And expect that you’re going to be less productive during their first week.
Once you have a plan for training them and getting their workspace set up, you’ll have some paperwork and legalities to take care of.
Required onboarding paperwork:
- An I-9 Employment Eligibility form should be completed on the first day of employment for each employee and needs to be retained in a separate file for at least three years after the date of employment or at least one year after termination.
- An employee’s W-4 form tells payroll how much federal income tax needs to be withheld from your employee’s paycheck. You’ll need this on day one as well. W-4s need to be retained for a minimum of four years. If your state collects state income tax, you’ll also need the appropriate form filled in from your employee.
- If you have hired your new employee as an independent contractor, she or he will have to complete a W-9 form. This information is necessary for filing a year-end 1099-NEC Form required by law.
Additional onboarding paperwork:
- An employee information sheet, including emergency contact information.
- Provide the new employee with a copy of the company handbook (if you have one). Be sure to spend some time going over the policies and procedures, particularly high-interest items such as vacation and sick time, holidays observed, and any other policies that you wish to bring to their attention, such as a social media policy. Don’t forget to have the new staffer sign that they agree to abide by the policies you set out.
- If your company offers direct deposit, be sure to have new employees fill out the necessary forms.
- Are non-disclosure or non-compete agreements standard in your industry? You’ll want to add those to the first-day paperwork too.
Additional hiring requirements for new employees:
- Report that you’ve made a new hire to the appropriate state agency within 20 days of their start date. Some states require you to report sooner, so check with the agency to determine the reporting timeframe for your state.
- Give your new employee an overview of their available benefits. She or he may also have to fill out an application for each type of benefit they wish to participate in. It may also be necessary to fill out a form if she or he chooses to decline them.
It’s important to create a file for each employee and keep all payroll and related records properly filed in case of a future audit or an employment dispute. This information includes the employee’s full name and social security number, mailing address, plus payroll-related information such as pay rate, pay frequency, authorized deduction information.
You should also keep track of paystubs and payroll tax withholding. If you’re doing payroll yourself, you’ll want to add paystubs to your employee’s personnel file. If you outsource payroll, this information should be stored for you.
Employer payroll tax forms
The tax man asks for a lot of paperwork from business owners, and becoming an employer will add a few more pages to the pile. You won’t have any immediate to-dos when you hire your first employee, but the busy work and penalties can quickly pile up if you get behind.
Here’s a quick list of all the tax forms you’ll most likely need to be ready to process and file on a timely basis. Note that requirements can vary for certain types of businesses (like farms), so make sure to consult a tax pro to make sure you’ve got all the bases covered:
- Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return. FUTA tax deposits are typically made monthly or quarterly, with Form 940 used to report federal unemployment taxes for each employee. A percentage of each employee’s wages are paid until the employee reaches $7,000 in taxable wages for the year. You’ll also need to pay state unemployment tax as well, with those forms obtained directly from your state agency.
- Form 941 – Employer’s Quarterly Federal Tax Return. Though 941s are filed quarterly, tax deposits are made on a semi-weekly or monthly basis. Form 941 is used to report federal income tax withheld, as well as Social Security and Medicare tax.
- Form W-2 – Wage and Tax Statement should be filed with the Social Security Administration by January 31 for the previous year. Form W-3 (see below) must accompany the filed W-2 forms. A W-2 form is also provided to each employee, who must also receive the form by January 31.
- Form W-3 – Transmittal of Wage and Tax Statements is the form used to file W-2s with the Social Security Administration.
- Form 1099-NEC is used by businesses that employ contractors. Recipients must receive their Form 1099-NEC by January 31 annually. Business owners will also need to file Form 1099-NEC with the IRS, and if paper filing, Form 1096 must be included.
Growing your team is an exciting milestone — and it’s the perfect time to put a hiring process in place for all your future employees. It may seem like a lot of work, but taking the time to onboard your first employee the right way will limit administrative mistakes and make hiring easier down the road. When in doubt, don’t be afraid to ask for help from a lawyer, accountant, or payroll provider.