You’ve been thinking that it’s time for your small business to get a little bigger.  You’ve been contemplating hiring your first employee but aren’t quite sure if the time is right.  How do you know when you need to hire an employee?  How do you actually do it?  Are there any legal hurdles you have to overcome?  Does hiring a new employee right now even make sense?

These are all good questions you need to ask yourself before placing that ad in the online classifieds or sticking the “help wanted” sign in your window.  Hiring your first employee is a big step that comes with many responsibilities (some of which you may not even be aware of).  But we’re here to help.  Below you’ll find tips on how to know when it’s time, and how to actually go through the process of hiring an applicant.

The Need

There will come a time, as your business grows, when you’ll no longer be able or willing to handle everything on your own.  Hiring your first employee is a big step. It’s important to remember that employees are legally defined individuals with rights that must be codified and respected.  If you don’t manage them properly (record accurate tax information, adhere to federal and local labor laws, offer adequate compensation) you can find yourself in a lot of hot water.  For many small businesses, hiring a first employee is an essential step to business growth.  But how do you know when it’s time?

Charlene Jimenez, a business entrepreneur who writes for AGBeat, says there are two big red flags that pop up when it’s time for you to hire your first employee.

  1. You’re losing business because you can’t keep up with demand
  2. You need/want to focus on certain aspects of your business rather than struggling to juggle everything

Those critical red flags may not be easy to spot because as a small business owner you’re used to having a heavy workload and carrying everything on your shoulders.  That’s why it’s essential that you step back and examine your business from a neutral perspective.

The Cost (Versus Reward)

The cost of an employee goes far beyond their salary.  The National Federation of Independent Business (NFIB) recommends a detailed cost versus reward analysis before you hire your first employee.  Write out a detailed job description and speculate the cost of various aspects of that job (new equipment, facility upgrades, supply usage, etc.).  The organization also reminds small business owners to calculate the intangibles such as the cost of insurance, the extra expense/time of payroll and taxes, and any benefits you may offer.

Once you have an estimated cost, now it’s time to calculate the reward.  Your new employee can increase efficiency (more work in the same amount of time), increase capacity (more customer orders, etc.), and increase a customer’s perceived value of your services.  And you can’t really underestimate the value of lightening your own load.  Chances are you didn’t go into business for yourself just to work your fingers to the bone.

The Hiring Process

It’s not as simple as posting an ad in the newspaper and interviewing the walk-ins.  Hiring a new employee is a bit of a complicated process (made more so by multiple levels of government oversight).  The Small Business Association (SBA) has created wonderful checklist of the step-by-step process you’ll need to walk through when hiring your first employee.  The process includes:

  • Obtaining an Employer Identification Number
  • Setting up tax withholdings
  • Verifying employee eligibility
  • Registering with state directories
  • Posting required notices
  • And much more.

For the full list, visit the SBA’s website.

The Working Environment

Hiring your first employee will dramatically alter your workday.  On one hand, you’ll be able to delegate day-to-day tasks like you never have before.  This means you’ll actually free up some time and be able to get more done in one day.  However, it also means you’ll start having to be a boss.  Some of the time you save will actually have to be spent on such things as creating a schedule for your new employee, training the individual, evaluating their performance, handling any blunders they may make during their “probationary” period, and generally ensuring that your business operates as you want it to.

One important part of this is balancing your employer-employee relations.  While it’s inevitable that some sort of personal connection will develop, you must keep in mind that your first employee is your subordinate, and you are the boss.  Certain boundaries (including legally defined ones) must be respected. 

The Legal Issues

There are several legal issues you’ll run across when hiring your first employee.  These include (but aren’t limited to):

  • Getting consent for and conducting a background check
  • Setting up your tax status
  • Accurately verifying (classifying) and recording employment status
  • Knowing which questions are legally off-limits (such as age, sexual orientation, race, etc.)
  • Knowing whether or not you need disability insurance
  • Knowing the ins and outs (and legal requirements) of offering benefits

All of these legal issues come under two broad areas of coverage:

  1. Understanding your employee’s civil rights
  2. Understanding how your local and federal government defines and protects worker’s rights.

If you have any questions about these essential legal issues, you have to contact a legal professional in order to get the answers you need.  Failing to do so could result in liability lawsuits, discrimination lawsuits, federal penalties, and even criminal charges.

Don’t Get Caught Unprepared

While only you can adequately structure your business in order to take on your first employee, you might need some help navigating all of the legal obstacles of doing so.  The legal professionals at Upcounsel can offer you and your business the legal assistance you need virtually and at a significant cost savings over hiring a local lawyer.  With any project you take on, it’s better to be prepared up front than face the consequences after the fact—hiring your first employee isn’t any different.

About the author

Matt Faustman

Matt Faustman

Matt is the co-founder and CEO at UpCounsel. Matt believes in the power of online platforms to change antiquated ways of life and founded UpCounsel to make legal services efficiently accessible. He is responsible for our overall vision and growth of the UpCounsel platform. Before founding UpCounsel, Matt practiced as a startup and business attorney.

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