When you launch your own business, you might feel invincible. Wearing a million hats? It keeps things interesting. Working late into the night? That’s what coffee is for! But after a while, the magnitude of doing everything solo might start to wear on you. You may struggle to keep up with your workload. What you might crave more than anything is a nap … and someone to help you keep your business running smoothly. Sound familiar? If so, you’re ready to hire your first employee.
How to hire your first employee
Hiring your first employee goes beyond posting the job description and interviewing candidates. There are several forms, taxes, and laws you need to know about. The amount of work you need to do can be overwhelming…
…But it doesn’t have to be. Here, we’ll break down how to hire your first employee into bite-sized pieces.
Registering for accounts, like an EIN
All employers need an Employer Identification Number (EIN). This unique number identifies your business on documents, such as Form W-2. The EIN format is XX-XXXXXXX.
In addition to applying for an EIN, there are state and local accounts you likely need to apply for, including:
- State unemployment tax (SUTA) account
- New hire reporting system account
- Local tax accounts
Making payroll decisions
There are several payroll-related decisions you need to make before hiring an employee. This includes everything from how you’ll run payroll to how much you’ll pay the employee.
Ask yourself the following questions to help you make key payroll decisions:
- How much will I pay the employee?
- What kind of benefits do I want to offer?
- Is the employee exempt or nonexempt according to the Fair Labor Standards Act?
- What’s the workweek look like?
- How often will I pay employees (e.g., weekly, biweekly, semimonthly, or monthly)?
- Will I use payroll services to run payroll and handle tax filings and deposits?
Before you make payroll decisions, consider factors like your budget, time, and federal and state laws. For example, there are pay frequency laws by state that determine how often you need to pay employees.
Put it in writing! Consider creating an employee handbook to detail key information like benefits, pay frequency, and more.
Hiring the employee
Now onto the part you’ve been waiting for: finding the right person to fill the role at your business.
Hiring the employee consists of the following:
- Writing a job description: This is your advertisement to get candidates to apply. It should include the job title, summary, and responsibilities; hours; qualifications; and any special demands (e.g., heavy lifting).
- Interviewing candidates: Generally, it takes a few rounds of interviews to narrow down your candidate pool (e.g., phone screening, in-person interviews, etc.).
- Making an offer: Now, you’re ready to formally offer the candidate the job! Explain the compensation, expected start date, and any other important information about the job.
Onboarding the employee
Once an employee accepts your offer, there are several onboarding tasks both you and the employee must do.
Before the employee starts, you need to collect required forms, like Form W-4 and Form I-9. You also need to report the employee to your state using its state reporting system.
Hang up federal and state labor law posters. These posters inform employees about their labor rights (e.g., minimum wage).
When you become an employer, you’re the sole person responsible for making sure your new employee gets paid (unless you outsource payroll).
Before you hire your first employee, understand your payroll responsibilities. These include paying the employee for hours worked and withholding deductions, depositing and filing taxes, and maintaining records.
Paying the employee
Include all compensation, including the salary or hourly wages, tips, commissions, and bonuses. Account for any overtime worked. Then, make sure you withhold all deductions—like health insurance premiums—and taxes.
Depositing and filing taxes
After withholding taxes, you need to regularly deposit and file them. These include:
- Federal, state, and local income taxes
- Social Security tax
- Medicare tax
- Federal and state unemployment taxes
- Miscellaneous state-specific taxes (e.g., Oregon transit tax)
You can learn more about federal taxes in IRS Publication 15. Contact your state and local governments for information about state and local taxes.
In addition to employment taxes, you also have to pay certain insurances. These include workers’ compensation insurance and disability insurance. Keep in mind that only five states—California, Hawaii, New Jersey, and Rhode Island—require employers to pay disability insurance.
As an employer, you must keep certain records:
- Employment tax records: Keep records related to employment taxes, such as your EIN, amounts of wages subject to withholding, and taxes withheld from wages, for at least four years.
- Payroll records: Keep payroll records, such as the employee’s name, regular rate of pay, and dates of pay periods and payments, for at least three years.
- Wage calculation records: Keep wage calculation records, like time cards and wage rate tables, for at least two years.
Rachel Blakely-Gray is Content Manager at Patriot Software, LLC, a provider of affordable online accounting software and payroll for businesses and accountants. Patriot has helped tens of thousands of American business owners and their accountants streamline accounting and payroll to achieve greater efficiency and profitability.