Small Business 101: How and When to Hire Your First Employee
According to MBO Partners, as reported by IntelligentHQ, “A staggering $1.1 trillion of revenue was calculated to have been generated by solopreneurs during 2014. In the USA one in 12 households were reliant on independent work for more than half of their income.”
Single-person businesses – sometimes termed “solopreneurs” – represent a huge portion of today’s economic activity. Further, that impact is expected to grow as more people enter the gig economy or take on freelance work as a full-time endeavor.
Working solo has its disadvantages, however. As many individual business owners experience, working alone means never having backup coverage for vacations, illnesses and other life emergencies. It can also limit a business’s ability to grow if demand for the company’s products or services outpaces what the single owner is able to provide.
The solution, many believe, is to bring on a worker to help ease the owner’s burden. But is this the right choice for your growing company? Are there other avenues you should explore before posting your first job listing? Let’s take a look…
The Pros and Cons of Hiring an Employee
The pros of bringing on workers are covered, to a large degree, above. But beyond having backup coverage and being able to take on additional work, having an employee allows you to:
- Delegate tasks that don’t require your explicit involvement, freeing up your time for higher-priority tasks.
- Shore up your weaknesses by bringing on an employee whose skill set complements your own.
- Take advantage of calculated opportunities to boost capacity in advance of anticipated surges in demand (for example, by hiring workers ahead of time to make a busy holiday season run more smoothly).
But while the benefits of hiring employees are many, there are downsides to consider as well. When you bring on workers:
- You’ll have to learn HR and management quickly, which may not be skills that come naturally to you.
- You’ll need to invest your time into training, managing and – potentially – disciplining your employees, which may negate some of the time savings you hoped to capture.
- You’ll be subject to additional legal requirements, such as needing to carry worker’s compensation insurance, having to report new hires to the state and being required to pay employee taxes.
It’s also worth considering that when you hire a worker, you become responsible for their continued employment. Unanticipated slowdowns can lead to difficult decisions about how you’ll make payroll or whether or not you’ll be able to keep the workers on that you’ve painstakingly sought out, hired and trained.
How to Hire Your First Employee
Only you can make the ultimate decision about whether or not it’s the right time for your business to hire its first employee. As the considerations above demonstrate, pulling the trigger on becoming an employer isn’t as simple as seeing a need and deciding to fill it. As a solo entrepreneur, you must weigh the responsibilities of managing an employee, and the costs, against the overall productivity gained by adding the additional resource.
But once you’ve made the decision to hire, there are a number of steps you’ll want to take to prepare for your new worker:
- Create a defined job description, based on your company’s greatest needs. Sitting down and writing out what exactly you need your first employee to do will make it easier to find the right person.
- Determine what you can afford to pay your new worker. Will you pay an annual salary or an hourly rate? Will you offer benefits? There is a vast number of compensation strategies you can employe, encompassing everything from full insurance coverage to stipends meant to offset the cost of self-purchased policies. You may elect not to offer any benefits as well. Doing so could make your opportunity less attractive to top talent, though it may not be an issue in some industries.
- Write an employee handbook. This document lays out the policies, procedures and expectations you’ll want to show to prospective new hires. You can find templates online to get you started, but you may find it useful to run your edited draft by an employment lawyer who can confirm its legality.
- Register for an employer identification number (EIN) with the IRS. This process is simple and can be done entirely online in 10-15 minutes.
- Choose a payroll processing program. Options like Gusto and Wagepoint exist that are designed specifically for the needs of small business and that automate many parts of the tax withholding, new hire reporting and compensation management processes.
- Start to gather any resources your employee will need. Do you need to add a workstation? Will your employee need a key for after-hours building access? Planning ahead can help prevent day one disasters.
- Familiarize yourself with any equal opportunity or non-discrimination statutes in place in your state. Being unfamiliar with these regulations will not protect you from legal action, should you fail to follow them.
With these steps completed, you’ll post your job listing, using the sources and job boards that are most likely to get your position announcement in front of the right candidates. As resumes and applications come in, you’ll weed out the wheat from the chaff and select candidates to bring in for an interview. Here’s how to prepare to meet your candidates:
- Prepare a list of questions in advance. Plenty of examples can be found online, but you’ll want to pick and choose based on your unique position. Be sure to include a mix of question types that explore candidates’ past experiences, strengths, weaknesses and on-the-job behaviors.
- Consider including a skills test. Depending on the position you’re hiring for, this could take the form of a short writing sample, document formatting, invoice creation or code sample.
- Ask for references. As you narrow the candidates you’ve interviewed down to your top 2-3, ask for references and actually follow up with them. A little due diligence here can save you significant heartache down the road.
Choosing the right employee from a select group of finalists can be nerve-wracking. Once you’ve made your decision, take the following steps:
- Compose a formal job offer. Include the employee’s start date, title, compensation package (including wage and any benefits you’ll offer) and anticipated responsibilities. Negotiate as needed – and as you’re able to – depending on your chosen candidate’s response.
- Practice proper onboarding. After you’ve set a start date, prepare any necessary training documentation or employment paperwork ahead of time. Not only will this decrease the amount of time it takes your new worker to become productive, they’ll be more confident in your capabilities as a manager.
- Set training goals and performance expectations. Many businesses treat the first 90-days of employment as a probationary period (whether formal or informal). Setting specific goals about what you want your new worker to be able to do after a week, a month and three months will ensure you’re on the right track.
This section summarizes what is, ultimately, a complex, multifaceted process. As such, it’s to your advantage to treat this as a general guide only. Always seek out legal guidance or more complete HR resources for clarification, as needed. Good places to start include:
- SBA.gov – Hire Your First Employee
- Nolo.com – Hiring Your First Employee: 13 Things You Must Do
- IRS.gov – Hiring Employees
- Entrepreneur.com – Hiring Your First Employee
Your state government’s website can also be a great source of information on any local- or state-level regulations you’ll be required to comply with
Alternatives to Hiring an Employee
Finally, while the guide above covers the general steps you’ll take to bring on an employee, keep in mind that hiring a full-time W2 worker isn’t your only option when your business needs additional support.
You could also:
- Work with a temp agency if you need help with short-term projects.
- Hire part-time or seasonal help directly, but do so on a limited-time basis (that’s acknowledged ahead of time).
- Bring on freelancers or other independent contractors for project-specific needs.
These alternative approaches have their own pros and cons to consider, but they can be a stop-gap option when you aren’t ready to hire a full-time worker.
Ultimately, your decision must come down to what your business needs (and what you can afford). Bringing on employees isn’t a panacea for the problems of burn-out or over-scheduling; in fact, hiring workers can add to your burdens as a business owner. Only after you consider the factors above and determine exactly what kind of impact hiring a new worker will have on your business will you be able to identify the best way to move forward.
Are you on the fence about bringing on your first employee? Share the factors you’re considering below with the entire iPage community: