When you’re an entrepreneur, and you are ready to hire your first employee, it’s an exciting and perhaps daunting time. If you’re hiring an employee, that means that you feel like your business has grown to the point where you can’t do it all on your own.
Hiring someone isn’t as simple as informally checking their background online, and looking at a resume, though.
There are legal considerations, financial ones, and more. The following is a guide to help you get started if you’re considering hiring someone.
What to Consider Before You Hire
There are some questions you need to ask yourself as you decide with finality if you should hire someone. It’s a big responsibility, so consider the following:
- Are you legitimately busy enough? If you have a business with a lot of ups and downs or you’re highly seasonal, you need to make sure that you’re not hiring during a busy time without thinking of the slow times. You want to ensure that even if things slowdown, you still have enough work for an employee. Otherwise, you might hire someone and then have to let them go. If you think more about it and decide you don’t have enough work for an employee, you can also use an independent contractor or temp to fill in the gaps.
- Do you want to hire someone to take your business to the next level? When you’re an entrepreneur running a business, you’re pulled in a lot of directions. A viable reason to consider hiring an employee is if they could bring a skillset to your business that you don’t have or if you’re going to need them to scale up. To make the hiring process more smooth you can always consider visiting websites like seentohire.com.
- Are you truly ready for the expenses of hiring an employee? You have to advertise the job, do background checks, and spend time going over resumes and conducting interviews. After you bring someone on board, you’re going to have to pay their wages, possibly invest in new equipment, and pay taxes. If you’re going to offer benefits, these can end up costing 20% of the employee’s wages, if not more. You’ll also probably have to purchase worker’s compensation insurance.
- There is a lot of red tape that comes with hiring someone as an employee. You have to remain compliant with employment laws at the state and federal levels. These laws apply when you’re advertising a job, interviewing people, and making an offer.
- The bureaucracy and regulations don’t end once you actually hire someone. You have to maintain records of your employees’ work and pay, and you have to follow workplace safety regulations.
What to Do First
Before you do anything else to take a step toward hiring an employee, you need to do the following:
- Get an employer identification number (EIN). You have to register your business with the appropriate state and federal authorities before you hire anyone. The IRS requires you to have an Employer Identification Number, which is a nine-digit number used for tax ID purposes. Your EIN is like a Social Security number for your business, and you can apply for it online. Every state has its own application process.
- Set up your records for tax withholdings. When you’re going to hire an employee, you need to fill out the required paperwork to pay three separate types of withholding taxes. There’s federal income tax withholding, so your employee will have to complete a Form W-4 for this. You’ll have to file Form W-2 for every employee, which is the Federal Wage and Tax Statement. Then many states will also have their own withholding form you’ll need to complete.
- Know exactly what you’re hiring for. It’ll be impossible to find the best candidate if you don’t know what you really need. You need to make a list of the very specific tasks you hope the new employee will be able to manage. You’ll decide on a budget for what you’re willing to pay, and from there, consider the skills and background the ideal candidate will have. Having this information will help you create the clearest, most effective job descriptions.
- After you post your listing and people start applying, you’ll begin to conduct interviews. Remember to include a statement on your job posts that lets people know you are an Equal Opportunity Employer.
- When you find candidates, prepare to conduct interviews. You want to have questions in mind specifically that you want to ask. Try to make them open-ended, such as how the candidate has worked to solve a problem in their jobs in the past.
- Do a background check. This is also known as a pre-employment screening. We’ll talk more about background screenings below because there are legal complexities to keep in mind. Background screenings are important to keep your business and customers safe.
- If you’re going to extend an employment offer to someone, make sure they’re eligible to work in the U.S. If you hire someone who’s not legally allowed to work in the U.S., you could face financial or even criminal penalties. You’ll need the new employee to fill out Form I-9, which includes employment eligibility. They should also show you their ID and employment authorization.
Once you hire a new employee, you should report them to the employment agency in your state.
You will also likely need to get workers’ compensation insurance. These requirements vary by state, but most states do require you to get an insurance policy in case someone working for you gets sick or hurt because of workplace exposure.
Now, you’re ready for onboarding.
Onboarding includes new hire paperwork, introducing your employee to your systems, providing tools and training, and sharing your employee handbook.
You’ll have to set up a system to pay your first employee and manage payroll taxes. You can do it yourself, use your accountant, or you can use a payroll service.
Payroll services are easiest for most small businesses.
If you’re hiring a remote employee, you’ll need to work with a company to help you manage taxes potentially in a different state.
Conducting Background Checks
Employers have to follow a lot of laws, including when it comes to checking the background of potential or current employees.
If you’re an employer, when you ask someone about their background, you have to ask the same questions to every other applicant. You can’t ask certain questions based on race, national origin, sex, sexual orientation, religion, or any other factor along those lines.
If someone is of a certain race, for example, you can’t ask for extra background information.
Employers can’t ask for or check someone’s background for medical information if they haven’t been offered a job or genetic information. An employer might be able to ask for medical information after they offer someone a job or their employment begins, but only on a very limited basis.
An employer has to tell someone before they run a background check and get their permission. Depending on where you’re located, city or state laws might determine how you can run a background check on someone’s criminal or credit history.
As an employer, you have to tell the candidate that you could use the information you find to make a decision about hiring them. You have to give them this information in writing, including in a standalone document.
Employers also have to take certain steps before deciding not to hire someone because of something they see in the report.
If you’re an employer, you have to give the candidate a copy of the report, and a Summary of Rights, so they know how to contact the company you got the report from.
More specifically, laws that govern background checks of employees include:
- The Fair Credit Reporting Act, or FCRA, was originally enacted in 1970. The Fair Credit Reporting Act is one of the main pieces of legislation with regulatory requirements for employee background checks. The FCRA requires that you inform and get consent from applicants and employees before you conduct background checks.
- There are a number of state laws. California, in particular, has some of the most strict employee relations laws. For example, the have the Investigative Consumer Reporting Agencies Act, which addresses investigations into consumer reports that could have information related to someone’s character or reputation.
- So-called ban-the-box laws have become more common at the state and local levels. Ban the box laws prevent employees from asking job applicants about their criminal history. These laws regulate what can be collected and how it can be used.
- If you’re going to do drug screening, you also have to follow state laws. More states have legalized marijuana use, recreationally and medically, so that can make it illegal to screen applicants or employees for the drug.
Finally, the Americans with Disabilities Act protects employees from being discriminated against because of mental or physical impairments, but it only applies to employers with 15 or more employees, so if you’re thinking about hiring your first employee, this might not apply to you yet.