How to Hire Your First Employee
Learning how to hire your first employee can be a daunting task for a fledgling small business. Compliance with federal, state, and local laws may not be your area of expertise. Before advertising for a new position, take a moment to make sure you know how to hire your first employee without running afoul of employment laws and regulations, as well as how to onboard them once you’ve made your decision.
Step 1: Classify Your Employee
Employers are required to classify all positions in their business as "exempt" or "non-exempt" based on the position’s job duties and method/amount of compensation. One primary difference between exempt and non-exempt employees is that exempt employees generally receive a salary and are "exempt" from federal rules concerning overtime pay and minimum wage.
Non-exempt employees are often paid on an hourly basis but some may receive a salary instead. These employees must receive at least the existing federal minimum wage rate for the first 40 hours they work each workweek, and be paid overtime (at least 1.5 times their regular rate of pay) for all hours they work over 40. State or local wage and hour laws may also apply and may provide for additional required compensation.
Step 2: Get Your EIN
Before you bring a new employee on board, you’ll need an Employer Identification Number (EIN) from the IRS. This can be obtained online. The EIN is needed for federal, state, and local jurisdictional (if applicable) reporting of employee information, in addition to many other business needs, including, but not limited to:
• Opening a bank account
• Applying for business licenses
• Filing tax returns
Step 3: Obtain Workers' Compensation Insurance
Employers are generally required by law to provide employees with workers' compensation insurance coverage. Insurance can be purchased through a commercial insurance provider, a self-insured basis, or a state workers' compensation insurance program.
Step 4: Understand Your State’s Unemployment Insurance (SUI) Laws
In most cases, employers pay state unemployment compensation taxes, which go into the state's unemployment compensation fund. In some states, employees must also pay this tax. Contact your accountant or payroll provider to be sure you’re paying this tax correctly.
Step 5: Have Your Onboarding Paperwork Ready
- Form I-9: Employers are required to confirm new employees’ identity and work eligibility. Employees will need to complete Section 1 of Form I-9, which is available on the U.S. Citizenship & Immigration Services website, on or before their first day of work for pay. Employers must complete the form within the first three days of employment.
- Form W-4: Employers must ensure that all employees provide a completed Form W-4 for their federal income tax withholding either before starting their new job, or on their first day.
- New Hire Reporting: State and federal laws require employers to report information on new and rehired employees to the appropriate agency within 20 days of beginning employment; some states require reporting this data sooner. This information can be used to:
- Locate parents who owe child support
- Detect fraudulent recipients of unemployment insurance
- Identify individuals receiving unlawful welfare assistance
- Prevent false workers’ compensation claims
Step 6: Consider Hiring an Accountant and Payroll Provider
Many businesses hire an accountant and a payroll services company to assist them with maintaining IRS obligations and correctly processing payroll. These can help you file your Form W-2, the federal wage and tax statement, which itemizes all wages paid (salary, other forms of compensation, etc.) and taxes withheld for your employee(s), and must be filed each year. Employers may also be required to withhold state or local taxes.
Step 7: Develop an Employee Handbook
With the number of employment laws and regulations continuing to grow, as well as the potential penalties for noncompliance, having an up-to-date employment handbook is just plain smart. Before hiring, consider developing an employee handbook, which can help you mitigate the risk of potential lawsuits.
Step 8: Create Your Job Posting
Once you’re prepared to hire, onboard, and pay an employee, you’re ready to create a job posting. Certain basic information is often included in a job posting, such as:
- Job title
- Job objective
- Description of the position's scope, responsibilities, and essential functions
- List of tasks to be performed
- Skills and qualifications required (education, experience, licenses, etc.)
Applicants will naturally be curious about the position’s salary range and benefits, so consider addressing those details as well.
Once you’ve taken these steps, you’ll be ready to begin the hiring process. Be prepared with the materials you’ve gathered when they arrive, and take a moment to explain the paperwork to them before they begin their training.