5 Things to Know Before Hiring Your First Employee

Is it time for your business to start hiring employees? If you've been a one-person operation until now, hiring your first employee can be an exciting growth step. It can also feel a bit confusing and intimidating. Here are 5 things you need to know if you're ready to hire employees.

Know the Difference Between Employee vs. Independent Contractor

Will you be hiring an employee or subcontracting work out to an independent contractor? It's important to know the difference between the two. Not only does distinguishing between employees and independent contractors impact your bottom line (your total revenue once you've deducted expenses), but it also impacts how you withhold taxes.

Most importantly, understanding the difference between employee vs. contractor can help you remain legally compliant and can help you avoid fines and other penalties from misclassifying your workers.

The IRS says, "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done."

Learn more about the IRS standards for understanding an employee vs. a contractor.

Create a Plan to Pay Employees

Before finding the right person for the job, you'll need to create a plan for paying employees.

The Small Business Association (SBA) recommends the following 10 steps to get ready for paying employees:

  1. Get an Employer Identification Number (EIN)
  2. Find out whether you need state or local tax IDs
  3. Decide if you want an independent contractor or an employee
  4. Ensure new employees return a completed W-4 form
  5. Schedule pay periods to coordinate tax withholding for IRS
  6. Create a compensation plan for holiday, vacation and leave
  7. Choose an in-house or external service for administering payroll
  8. Decide who will manage your payroll system
  9. Know which records must stay on file and for how long
  10. Report payroll taxes as needed on quarterly and annual basis

Remember that you will also be responsible for paying payroll taxes to employees. The IRS Employer's Tax Guide guides all federal tax filing requirements that could apply to your small business. Check with your state tax agency for employer filing stipulations.

Consider What Benefits You'll Offer

Healthcare and other benefits play a significant role in hiring and retaining employees. Some employee benefits are optional, while others are legally required.

Required employee benefits include:

  • Workers' Compensation Insurance: Required by law in almost all states, workers' comp insurance covers employees if they get sick or injured while performing their job.
  • Social Security Taxes: Employers must pay Social Security taxes at the same rate as their employees.
  • Disability Insurance: Disability pay is required in California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico.
  • Leave Benefits: Most leave benefits are optional outside those stipulated in the Family and Medical Leave Act (FMLA).
  • Unemployment Insurance: Varies by state, and you may need to register with your state workforce agency.

Understand Labor Laws

As an employer, you'll have a responsibility to protect workers' rights and your business by adhering to labor laws. This means you must ensure that business practices align with industry regulations and applicable laws for hiring a diverse workforce that includes:

You must also comply with labor laws when terminating an employee, laying off workers, or downsizing your company.

Learn more: Consult the Department of Labor's federal and state law resources.

Train Your New Employees

Put together a plan for training your new employees on how to perform their job duties. There is no federal employee training requirement that is standard for all industries, however, certain laws and agency regulations may apply to specific industries or employers.

For example, there are training requirements for some public-sector employees, occupations considered safety-sensitive (OSHA,) or positions involving the safety of the public (FAA, DOT).

Some states require employees to receive train on the general topic of sexual harassment. Depending on the nature of your business, your employees may be required by state law to take mandated reporter training, such as daycare operators, teachers, and other roles where adults are in close contact with children.

Hiring employees becomes a necessary step when you're ready for your business to scale and grow. You may have started out as a solopreneur, but one person can only do so much with the hours available in a day. By adding to your team, you're taking a great step that will allow you to take on more clients, do more work, and free yourself up to become a leader in your business.




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