As your small business grows, you will likely find yourself in the position of having to hire your first employees. While it's a necessary step toward future growth and profitability, becoming an employer is something that can be wrought with pitfalls. Here is a handy 5-step guide to avoiding many of those pitfalls when making your first hire.
Assess Your Goals and Needs
Now that you know what it will take to add an employee to the payroll, consider what you need from your new employee and what you want employees to add to your future plans. Where can you best make use of the additional help? Are you simply looking for an added set of hands during busy times? Or do you need someone with experience in the business or a different way of looking at things? Will adding help in one area of your day-to-day administrative tasks free you up to work on growth in other areas?
Answering questions like these will help you define where you will search for employees, how much you will offer and what you should focus on during the hiring process. While planning in this area, be sure to write out a clear, concise and thorough job description so you can find the right person for the job you really need done.
Budget for Employees
Paying a salary or hourly wage is only one part of the puzzle of how much it costs to have an employee. You also need to figure in costs like:
- Employment taxes -- Social Security (6.2% of salary), Medicare (1.45% of salary), federal unemployment taxes and usually state unemployment as well
- Workers' Compensation -- this cost will vary based on the state you live and the type of work each employee does
- Benefits -- Can vary widely depending on what you can afford and how generous you must be to attract good workers
- Materials -- You may need to provide additional space for employees to work and take breaks, purchase new equipment or provide supplies
These costs can add up quickly, so be sure your personnel budget has enough slack to cover additional expenses beyond the paycheck.
Register With Agencies
There are several oversight agencies you will need to work with and register at in order to be an employer. This is a good time to make sure you have done things like:
- Get an Employer Identification Number from the IRS
- Register with your state's labor department
- Sign up for workers' compensation insurance
- Post required notices
- Know where to register new hires with your state agency
- Create a safe employee work space
As an employer, you will need to create and maintain employee records in a safe location. This will be your responsibility whether you do the payroll in-house or hire a service. Employee records should include Forms W-4 (for withholding taxes) and I-9. Applications, reviews and communications should also be in the employee files. Keep any medical records secure in a separate file.
Hire Professional Help
Once you've settled on your first new employee, you will probably benefit from hiring some help to do the actual payroll. Unless you're intimately familiar with how to do payroll, it's best to let an experienced service calculate wages and taxes, prepare taxes for remittance to federal and state agencies, ensure proper time card record-keeping and create Forms W-2 at the end of the year. Although this may not be the cheapest route, it will save time, headaches and potential fines later on.
Transitioning from a completely owner-operated business to being a bona fide employer is a challenging time. But by knowing the steps you need to take, you can make the change successfully and as painlessly as possible.