How to Hire Your First Employee: 5 Easy-to-Follow Steps

This post covers general information and does not constitute legal or tax advice — for advice specific to your business, be sure to consult with a professional. Finding and hiring the right people to help you run and grow your business is one of the most important tasks you take on as a business owner.

Because hiring is so important, it’s also not easy. That’s why we compiled this checklist to help set you up for success. These are all the things that should be on your to-do list before you ever post a ‘For Wanted’ sign in your window to hire someone.

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1. Choose a Business Structure

Most people would determine their business structure ahead of starting a business, but if you haven’t, doing so before you bring on team members is important. Why? Because certain business structures would allow for team members to share in profits and assets generated by your business. For example, a partnership business structure allows for the share of profits and assets as well as shared liability between all the partners.

You’ll also want to decide on business structure because many of the following steps will require you to know what business structure you are to complete them, so best to get this out of the way first. If you’re curious to learn more about business structures and the differences between them, check out this article.

2. Get an EIN

An EIN is a Federal Employer Identification Number. This number acts like a social security number for your business. Any business that has employees will need an EIN because it’s required to pay employes. You’ll want to do this ahead of hiring so you can make sure that once employees are hired, you’re all set up to pay them. There are a few ways to get your EIN. You can fill out the Form SS-4 and file with the IRS via mail or fax. You can also get one online through the IRS.

3. Set Up Records for Withholding Taxes

You’ll need to make sure you file the right forms and have them on hand for your new employees to complete before they start working. You’ll need paperwork to pay three different types of withholding taxes.

• Federal Income tax withholding: The amount of federal income taxes that are withheld are dictated by what your employee fills out on their W-4 (Employees Tax withholding Certificate). Make sure to have one of these on hand for your employee to fill out before their first day and then file it to the IRS. Note that if the person you hire is a contractor, they will not need to fill out a W-4.
• Federal Wage and Tax Statement: You will need to fill out, file with the Social Security Administration, and furnish to every employee a Form W-2 showing the wages paid and taxes withheld for the year for each employee (note that this is different from the 1099-MISC that contractors fill out). For more information on your W-2, check the IRS website.
• State taxes: Many states require you to fill out withholding paperwork as well. Find your state to see what forms are required for your business.

4. Determine Wages

Pay is one of the most important considerations that candidates make when they’re deciding to take a job, so you’ll need to be thoughtful when you determine the wage you want to pay your new hire. Here are some tips to make sure you pick the right number.

• Check minimum wage requirements in your state and local jurisdiction to be sure what you’re paying is above board.
• You’ll also want to do market research to ensure that what you’re paying is fair for the type of work your new hire will be doing. You can do this by using online salary tools, checking local job listings for similar positions, or asking other business owners in your network what they pay for similar positions.
• Do some math and make sure your budget and current cashflow can handle the rate you’d like to pay. If the person you’re hiring will be hourly, consider the number of hours you think they’ll be working during slower and busier seasons. This will help you get an accurate read on the toll this will take on your budget.

5. Consider Workers’ Comp Insurance

Workers Compensation insurance is to make sure you and your employees are protected in the event of an accident. Almost all states require that you have workers’ compensation insurance if you have W-2 employees. If you’re hiring contractors, you’re not required to have it, but it’s a good idea in case someone gets hurt on the job.

Although this part of owning a business can be stressful, it’s important to take the time to do this right for the sake of your business and your team. So now you’re ready to start hiring! Get the word out about your open role, schedule some interviews and choose wisely. And, if you’re looking for more guidance on all things employer compliance, check out this great tool from Square, the Employer Launchpad.

How to Hire Your First Employee FAQs

What Should I Consider Before Hiring My First Employee?

When considering your first hire, it's important to evaluate the candidate's ability to handle various tasks. It's crucial to determine if your budget allows for competitive compensation without compromising your growth strategy. Additionally, understanding if your company's structure provides clear role definitions for the new employee is essential.

How Do I Create a Plan for Hiring My First Employee?

Creating a hiring plan involves several steps. Firstly, itemize all current and projected tasks. Next, allocate these tasks among your team, pinpointing any gaps. It's also important to review your budget, delineate multifaceted roles, and conduct research on suitable job descriptions.

What Are the Initial Steps to Hiring My First Employee?

The initial steps in hiring your first employee include registering your business with relevant authorities, establishing payroll systems, creating an employee handbook, designing a benefits package, and drafting a comprehensive job description.

How Can I Make My Small Business Attractive to Potential Employees?

To attract potential employees, focus on enhancing your business's employer brand. This can be achieved by emphasizing inclusivity, competitive compensation, safety measures, and opportunities for career progression. Additionally, showcasing the unique benefits your business offers can be advantageous.

What Should Be Included in the Offer Letter to a New Employee?

An offer letter to a new employee should clearly state the terms of employment. This includes specifying the salary, payment frequency, job title, and principal responsibilities.

How Do I Register My Employee with the State Government?

Registration of an employee with state authorities typically involves providing the employee's name and Social Security number. For precise requirements, refer to the website of the Department of Labor for your specific state.

What Are the Tax Considerations When Hiring My First Employee?

For tax considerations, ensure your employee completes I-9 and W-4 forms. Familiarize yourself with state tax withholding rules, and remember to file a W-2 form each year. Also, evaluate whether managing payroll internally or through an external service is more feasible for your business.

How Do I Decide on Payroll Details for My First Employee?

Determining payroll details involves calculating federal income tax withholding based on the W-4 form information of the employee. Additionally, it's important to correctly withhold FICA taxes.

What Should Be Included in the Employee Benefits Package?

The employee benefits package should include legally mandated benefits such as Social Security, unemployment insurance, workers' compensation, Medicare, family and medical leave, and health insurance. Depending on your resources and business strategy, you may also consider offering additional benefits.

What Are Some Key Considerations Before Hiring?

Before proceeding with hiring, it's important to assess several factors. These include the consistency of work availability, industry trends, your financial readiness, your ability to manage employer responsibilities, and the long-term sustainability of your business.