Is business booming? Congratulations! A growing business means more orders and more profits, but also quite a bit more work.
When your business and your list of responsibilities are growing faster than you can manage on your own, it’s usually a sign that it’s time to hire some support. However, knowing how to hire employees for small businesses doesn’t come naturally to most business owners. After all, most small business owners are experts in their craft, not human resources.
Fortunately, like anything else in your self-employment journey, you can learn how to be successful in bringing on help so that your business can continue to thrive. Like most skills, hiring gets easy with a bit of prep and a lot of practice.
Before you hire
Feeling overwhelmed by work makes the prospect of offloading tasks to someone else very attractive. But you’ve built your business. You won’t want to bring in just anyone who might muck things up rather than improve them. That’s why it’s important to know how to hire your first employee.
Before you post a job listing or give the first person who seems right for the part access to your accounts, it’s essential to evaluate your goals with hiring and be sure you and your company are prepared for the expansion.
1. Can you afford to hire?
If you didn’t calculate the cost of employing others in your budget when you were first tabulating how much it costs to start a business, you’re not alone. A growing business means a growing budget.
As you consider a new employee, don’t just think about the tasks you’d like someone else to do, but also consider the monetary aspects. If you can’t afford to hire a full-time employee, you might need to change your strategy to looking for part-time help or simply outsourcing some tasks to contractors or other companies with specialized tasks. How do you know if you can afford to hire an employee?
If you are losing profits by turning away customers or you’re missing opportunities due to a lack of time or resources, it may be time to bring someone on board. If you can’t balance the workload you already have or need someone with specific skills, it might be time to hire in order to expand. After all, a missed opportunity is missed income. Could you capture that income with more hands on deck? If so, your new hire may pay for themself!
But there are costs beyond missed profits to consider. You will need to calculate wages and payroll taxes to cover income taxes, Social Security, and Medicare. If your state requires it, you may need to send state taxes in for your new employee as well.
If you’re not comfortable managing these elements of payroll, you might consider outsourcing the task or investing in a quality payroll system, which will add additional costs.
Beyond wages and payroll withholding, you’ll also need to buy additional insurance to cover worker’s compensation. If you haven’t already, you’ll also need to register as an employer with the Department of Labor in your state and start paying unemployment taxes. (You’ll also report this with your company’s tax return every year.)
Don’t forget to factor in the costs associated with the benefits you’re offering your employee. Are you offering healthcare and dental benefits? Are you offering to match employee contributions to a retirement account? All those things cost money that you should be calculating carefully before proceeding with hiring decisions.
Consider the costs above and your current budget. Revise your business budget to accommodate the help you’re looking to hire. If the numbers work, that means you can afford to hire!
2. Do you have an EIN?
An EIN is an Employer Identification Number issued by the federal government—the Internal Revenue Service uses it to identify your business and tax documents.
Having an EIN is optional for sole proprietors who might also use their Social Security number for this purpose. But once you have employees, withhold taxes on income, and file employment or excise taxes, you are legally required to have an EIN.
If you don’t already have an EIN, you will need one. Even if you decide to hold off on hiring, you will need an EIN to open business bank accounts, open a business credit card, and apply for certain licenses. Plus, it lets you separate your business and personal funds and taxes and limits the need to distribute your Social Security number for various business tasks.
3. Are you set up for withholding taxes?
Whether you outsource the task or handle it yourself, you must be set up for payroll taxes and the necessary documents required by the IRS before bringing in a new hire.
Your new employee will fill out a Form W-4 to tell you how much tax to withhold from their check. Then, you will be responsible for withholding and sending those funds to the IRS on the employee’s behalf. As an employer, you must fill out a W-2 for your employer every year with their earnings and withheld taxes. You may also need to do this for the state if required. These are two of the most important forms for new hires.
Learn more: W-2 and W-4: A Simple Breakdown
Finally, the paperwork from the taxes, salary, and withholding should be stored for at least six years after being used in your company’s own tax filing at the end of the year. Outsourcing your payroll and tax preparation can simplify the withholding and payroll process as well as help you complete the necessary documents for the IRS if you’re not comfortable with the process.
Further reading: How to Hire Employees: 11 Tips for a Great Hiring Process
4. Do you know the role you want to hire for?
Once you’ve got your budget squared away, it’s time to sort through the role you’re hiring for. What specifically do you want this new employee to do?
A vague plan is a recipe for disaster, so take the time to outline the types of support you need. You’ll be able to use this list of tasks later in your job posting and employment agreement as well, so it’s certainly worth your time to get it right now.
Once you have a list of tasks you need help with right now, consider the skills you might need from this employee in the future. Remember, your company will continue to grow, and you probably have big plans for what your company should look like in its super-profitable future. How will this new employee fit into your vision?
Look over your list and match the required skills and tasks with the degrees, licenses, and certifications a successful candidate will need to have. How much experience does your new employee need? Are you able to do a lot of training, or should they be self-sufficient almost from the start?
You’re designing your dream employee with your list of tasks and skills but be sure the salary you’re offering matches the skills required. You can check to make sure you’re in the right ballpark using sites like Glassdoor and other employment listings.
You’re ready to go! You’ve set up the proper accounting systems and written the perfect job description for your new employee. Now it’s time to set up some interviews and find the perfect person for this new role.
Hiring a new employee is a big commitment and one you want to get right the first time, so don’t rush into a hiring decision. Instead, follow careful steps to ensure you’re checking all the boxes in the new hire process. Carefully and thoughtfully—that’s how to hire an employee.
5. Source your candidates
You prepared a list of required tasks and skills, so now it’s time to write up the job description and post it on the relevant job boards. If the position is particularly specialized, you may want to work with a recruiter—just be sure to include the cost in your hiring budget.
If you want to find candidates yourself, there’s no need to rely solely on job posting boards. Ask your current employees (if you have any), LinkedIn connections, or your business community for referrals for qualified candidates. Cast a wide net for employees to ensure you attract the best candidates and then get ready for the hiring process.
6. Conduct interviews
Once you have a pool of candidates ready, it’s time to offer interviews for those who are most qualified. Vet your candidates ahead of the interviews by selecting only the top applicants based on the skills and experience they describe in their resumes. There is no need to go through interviews with anyone who doesn’t meet the minimum requirements of your job posting.
If you have multiple employees already, try to include them in the interview process, if possible. This ensures a range of viewpoints for decision-making and allows all the vested parties a voice in choosing their next colleague.
If you’re hiring your first employee, try to get a more holistic perspective on your candidates by moving the interview away from just hard skills and experience and looking at the whole candidate from a problem-solving and personal experience. Asking scenario-based interview questions and treating the interview like a conversation will help you understand how this person might fit into your company.
7. Check references
No matter how impressive a candidate appears to be in an interview, you should always check references and consider a background check. There is a tendency to disregard references since candidates will only list those who they feel will give positive feedback, but it’s a good idea to call anyway.
When you speak to references, be prepared with a list of questions, and listen to both the answers and how the reference answers you. Are there hesitant pauses? Notable tone shifts? Carefully selected words? These might be signs that the reference is not entirely comfortable with the glowing review they’re offering.
If the reference appears to be dodging your calls or is very short in response to your questions, this may be a sign that they don’t have much positive to offer about the candidate. That is also worth considering, especially since the candidate selected their own references who should be enthusiastically supportive.
Once you’re close to a hiring decision, you might also consider running a background check or pre-employment screening on your potential new employee. However, be extremely mindful that while a background check might be helpful for your peace of mind, there are legal requirements and restrictions on background checks.
Your state may limit the types of criminal history you can pull, or it may require proof that the position’s requirements justify a criminal record check. Some states don’t allow hiring managers to check a candidate’s criminal history at all.
There are also restrictions on how to use the information you find in a background check in your hiring decision, so if you choose to proceed with a check, do so carefully.
Finally, check the candidate’s employment eligibility. Is the person eligible to legally work in the United States? As an employer, it is your responsibility to confirm that your employees are eligible, and you may face fines and possibly criminal penalties if you fail to do so.
8. Select a candidate and extend an offer
Congratulations! You’ve found the right candidate for the position, and they passed your reference check and background screening with flying colors. Now it’s time to extend a job offer.
Even if your job posting included the expected salary or wage, you may need to leave room in your budget for negotiations. Before you send an offer letter, be prepared with a specific figure in mind of how much you can afford to pay for the services you’re seeking.
If the candidate asks for wages that exceed that dollar amount, you may be able to reach a compromise. Consider offering other benefits to accompany your lower amount that might make your offer more enticing. Options like extra vacation days, the opportunity to work from home, flexible schedules, and childcare options may be attractive enough that your ideal candidate is willing to accept your offer.
At last, you have someone to share the burden of your workload! Now you can get back to what’s most important to you while your new employee tackles the list of things you’ve asked them to do.
But before you put the new hire to work, be sure you’ve completed the necessary legal tasks to complete the hiring process and brought the new employee completely up to speed.
You’ve invested valuable time and energy into hiring your new employee. Now it’s time to be sure they are successful in your business.
9. Report new hires to state employment agency
After your new employee has accepted your offer, your first step will be to report your new hire to your state’s employment agency. This will include all the hiring paperwork and start the process on payroll and tax obligations as well.
The U.S. Small Business Administration has guidance on what is required in your state and how to stay legally compliant.
10. Choose a payroll method
There are three parts to payroll to consider. You will need to pay your employee. You will need to pay the IRS and your state the necessary payroll taxes. And finally, you will need to complete and file the accompanying tax forms.
If your business is big enough to bring on a new employee, you’ve graduated beyond calculating your taxes using an Excel spreadsheet. If you have been muddling along with your bookkeeping since you started your company, it’s time to commit to a financial system.
If you’re still in the start-up phase of your business, now is the perfect time to select the right bookkeeping system. You need a payroll solution to help you calculate payroll, run the necessary reports, keep records of employment documents, file payroll taxes and simplify your bookkeeping process.
If you’re still wrapping your head about the basics of payroll and how it works, consider bringing a payroll company or an outsourced bookkeeper or accountant on board to handle the paperwork for you. If you’d like to keep the process in-house, you can use software that handles most of the tasks for you. There are excellent payroll solutions available for just this purpose.
Once you have the back office sorted out, it’s time to bring your new employee on board. Proper onboarding will make your new employee feel comfortable and welcome in your business and ensure that all the hard work you did in finding the perfect candidate doesn’t get undone if that new employee decides to go somewhere else.
Successful onboarding will make the new employee feel welcome and useful on their first day and beyond. It also gives them room to adjust and offer feedback to clarify any issues or questions that come up.
Your onboarding process may vary, but it should look something like this:
Set up a clear training protocol so that your employee can learn exactly what your expectations are for the job and how to do tasks to your satisfaction.
Take the new employee (and their team members if you have other employees) to lunch to let them get to know each other outside the workplace.
Assign a mentor to your new employee or make a point of taking on this role yourself if you are a company of two. A mentor should check in on the employee periodically to offer insight and advice. Their role is to help the new hire understand the big picture of what the company does and understand how things work in your business beyond the formal training process.
Set up regular feedback meetings with your new employee. Consider meeting weekly or bi-weekly for a casual check-in and sharing of thoughts. Be open to suggestions from your new employee who might immediately find ways to improve the areas of your business they are now handling.
How Bench can help
If your small business needs help with bookkeeping and financial matters, you don’t need to go through all the steps to hire a brand-new employee for the task.
As America’s largest professional bookkeeping service for small businesses, we can handle your bookkeeping and tax filing on an outsourced basis. You worry about growing your business and hiring employees. We help you handle the books. Learn more.
Ready to hire?
Small business owners know that there isn’t much downtime in making money. Once you’ve found the areas of your business that can use extra support and you’ve brought that support onboard, it’s time to think about your next area of growth and development. And now that you’ve made one great hiring decision, adding the right future employees to your growing company will be simple.