At a certain point in your business, you are going to need help if you want to grow. There are only so many hours in the day and you are only capable of doing so much.
I usually suggest that you start by hiring out the tasks that you don’t love to do. Maybe you’d love someone to take over:
- social media
If you want help developing this list of tasks, Aeolidia has a great exercise to work through. Once you’ve developed your list, it’s time to find your new team member to take over these tasks.
Hiring an employee is expensive, it’s estimated that it costs $4,000 to find, train, and supervise a new employee.
This is why many business owners jump to hiring a team member as an independent contractor. They think that doing so will cost less. But, those initial savings come at a price: lack of control. Independent contractors must:
- provide tools and equipment
- be able to decide how to arrive at the final product
- be able to pick their schedule
- (and several other things)
And calling team members independent contractors when they are employees, can come with hefty penalties. So it’s important to thoughtfully decide if they are employees or independent contractors.
And if you want help deciding if they are employees or independent contractors click the image below to get access to a free worksheet that will help you decide:
Of course, there is more to hiring your first employee than finding the right person. You also have to jump through several legal hoops.
Step #1: Obtain a Federal Employer Identification Number
You must have an employer identification number (EIN) to hire employees. This number will be used on all documents you submit to your employees and the IRS. If you don’t already have an EIN you can order one online from the IRS.
Step #2: Set up a payroll system and report tax payments
As the boss, you’ll need to take taxes out of your employee’s paychecks and forward this money to the IRS. You might also be required to withhold and forward money to your state tax agency. The easiest way to assure that these requirements are being met is to use a payroll service that will take care of all the details for you.
Once you’ve selected a payroll service and set up your account, you’ll provide them a completed W-4 for each employee. This form tells your payroll service the correct amount to deduct from the employee’s paycheck.
Your payroll service should also give each employee a W-2 at the end of the year. They also should forward a copy of each of these W-2 forms to the IRS and prepare IRS forms 940 and 941 summarizing the taxes you have paid.
Step #3: Obtain verification that your employee is eligible to work in the U.S.
Employers are required to have all new employees complete an I-9 form. This form does not need to be filed with any federal agency. But you are required to keep it in a central file for the longer of three years after they are hired or one year after they are terminated. These forms should be kept in a folder exclusively for I-9 forms, not in your employee’s personnel file.
Step #4: Register with your state’s labor department
As an employer, you must contribute to your state’s unemployment compensation fund. In order to pay into this fund, you must register with the appropriate agency in your state. The Department of Labor has compiled a list of each state’s agency here.
Step #5: Obtain worker’s compensation insurance
No matter what kind of business you run, you run the risk of one of your employees being injured while working. To protect your employees, the majority of states require you to get worker’s compensation insurance. To find out the rules in your state, there is a state-by-state list of the worker’s compensation funds.
Step #6: Report new hires
Each state requires that you report new employees within 20 days to a specific state agency. This agency’s job is to locate parents who owe child support. Click here to see a state-by-state list of these agencies.
Step #7: Obtain disability insurance, if required
Several states require that you also obtain disability insurance for your employees. So if you live in California, Hawaii, New Jersey, New York, or Rhode Island you must obtain this coverage before hiring.
Step #8: Post required notices
Many government agencies require employers provide information to their employees. You can use the Poster Advisor to find out which federal posters you are required to post. There is also a list of each state agency so you can assess if your state agency requires any additional posters.
Step #9: Be a good boss
Part of being a good boss is providing tools and resources for your employees. These might be information on:
- how to do their job safely
- the rules surrounding their employment
- benefits you provide
Besides to providing resources, you should keep a personnel file on every employee. This file might contain:
- employee’s full name and social security number
- mailing address, including ZIP code
- time of day and day of the week when employee’s workweek begins, hours worked each day, and total hours worked each workweek
- how wages are paid (weekly, bi-monthly, and so on)
- regular hourly pay rate
- total daily or weekly “straight time” earnings for each workweek
- total overtime earnings for each workweek
- all additions or deductions taken from employee’s wages
- total wages paid each pay period
- date of payment and the pay period covered by the each payment
- job application
- performance evaluations
- IRS Form W-4
While hiring an employee comes with lots of red tape, they can give you the ability to spend time working on your business, not in it.
Have you hired an employee? What lessons have you learned that you wished you had known before you hired? Are you getting ready to hire? If so, does this give you confidence in how to navigate the process?