What do you need to know to hire your first employee? We’re happy you asked! Complete Payroll offers payroll services, HR software, time and attendance management and tax services for small and midsize employers. For nearly three decades, we have helped thousands of employers hire millions of employees around the country. We’re happy to share some of our expertise in the form of this checklist.
When you are ready to make the exciting step of hiring your first employee, these are the steps you need to follow.
Step 1: Get your EIN.
An Employer Identification Number is your federal ID number that allows you to withhold taxes and pay your employee. You can apply for this via the IRS website. Keep in mind that you may also need to apply for a state EIN, depending on where you live.
Step 2: Make the following important decisions
Employee or Independent Contractor
Sometimes, the work you have in mind is best performed by an independent contractor instead of an employee. An independent contractor is paid based on the completion of a specific task or set of tasks and is not covered by most employment laws. You are not required to withhold taxes on their behalf or pay employment or payroll taxes related to hiring them, even though you would provide them with a W-9 that accompanies their contract. Employees, on the other hand, are protected by federal and state employment laws. They are also paid on a regular basis, whether that is weekly, biweekly, or monthly. Employers are responsible for withholding federal and state taxes from their pay, as well as paying the employer’s share of several taxes. Be sure to consider whether you need an independent contractor or an employee.
Hourly or Salaried
Hourly workers are paid an hourly rate and are limited to 40 hours of time per week at that rate. If an employee works more than 40 hours per week, they will need to be paid 1.5 times their regular pay rate as overtime pay. One of the drawbacks to being a salaried is that salaried workers are not eligible for overtime pay, and they may be expected to work more than 40 hours a week. However, they are protected by more employment laws, and they also have more flexibility in their scheduling.
Exempt or Non-Exempt
A non-exempt worker is entitled to overtime pay if they work more than 40 hours in a week. The overtime rate must be 1.5 times their normal pay. Non-exempt workers can be hourly or salaried and can work in any professional industry. Their non-exempt status is unaffected by how much they are paid. An exempt worker is not entitled to overtime, and only salaried employees can be designated as exempt. They also must be paid $455 per week, and the tasks they perform must fit into the exempted categories. (Read more about the differences between exempt and non-exempt workers here.)
Anticipated Salary Range
You can use a tool like the one offered by Payscale to conduct market research and determine a fair wage for your new employee.
Benefits
Companies that have over 50 employees are required to offer health insurance coverage to their employees or face a penalty. As you are hiring your first employee, you are not obligated to offer health insurance. However, there may be tax benefits for you to do so anyway, and you should look into how you may benefit from offering health insurance when you’re not required to. (This can also be a strong negotiating factor for bringing in top talent.)Other benefits you may choose to provide include:
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Dental
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Vision
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HSAs, FSAs, and HRAs
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Retirement accounts
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Childcare reimbursement
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Tuition reimbursement
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Wellness programs and incentives
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Short and long term disability
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Life insurance
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Paid parental leave (may be required by law depending on where you are hiring workers)
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Long term care insurance
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Telecommuting/work from home options
Step 2: Get state unemployment insurance.
Federal law requires you to carry state unemployment insurance in case you need to terminate the employment of one of your workers.
Step 3: Write a job description and create an ad to post. (Alternatively, hire a recruiter.)
This may be one of the most exciting and the most intimidating parts of the process. We recommend that your ad be thorough but concise. Avoid industry and company jargon that clouds your ability to communicate with potential applicants. Decide if you are going to offer a salary range in the ad.
Step 4: Post your ad.
Most hiring websites provide a 30 or 60 day ad for a reasonable amount of money. You may choose to post the ad in a number of different places, but be sure to find out where others in your industry are posting job information.
There may be industry-specific websites where you can post your information to get more interest and more applications. If you choose to a hire a recruiter, they will take care of this for you.
Step 5: Write a detailed employee handbook.
Your handbook should include:
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Anything that your state law says you must include
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Company history
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Family Medical Leave policies
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Paid time off policies
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Equal employment and non-discrimination policies
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Worker’s compensation policies
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Employee behavior expectations and policies, as well as disciplinary procedures
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Information on pay and promotions
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Benefits information
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A statement that says that handbook policies are subject to change
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Employee acknowledgement page
Step 6: Prepare all the required tax forms you’ll need for onboarding your new hire.
Two of the most important forms are the W-4 and the I-9. The W-4 covers the withholdings the employee choose to be paid out of their regular paycheck, whereas the I-9 confirms worker eligibility in the United States. If you are hiring an international employee who is living in the United States, you may also need to get involved in visa sponsorship.
Step 7: Purchase Worker’s Compensation insurance.
Having a robust worker’s compensation policy can protect you from many work-related lawsuits, including those related to injuries and illnesses sustained as a result of an individual’s employment.
The law requires you to carry this kind of coverage to protect both you and your employees. The trade-off is simple: employees are covered no matter who is at fault for the illness or injury, and employers are protected from most lawsuits. Worker’s compensation cost varies from state to state. In 2017, the Bureau of Labor Statistics reported that in 2015, the average cost of worker’s compensation per $100 in employee salary was $1.36.
Step 8: Respond to and interview candidates.
This part is exciting! Prepare for your interview by anticipating what information you want to get from the applicant and what questions will help you get that information. Be prepared to share information about your company and what you hope to achieve as you begin to grow.
We advise that you avoid cliche questions like “what are your strengths and weaknesses,” and instead focus on questions that will help you understand who this person is and what they have to offer to your company, as well as what you are able to offer to them.
Step 9: Make a job offer and hire your first employee!
There is a lot of information in this checklist, but we have gone into even more detail in our informational guide, Hiring Your First Employee. We would also love to help you through this process.
Our friendly, professional team is ready to guide you through the hiring experience in a way that alleviates pressure, ensures accuracy, and prevents costly errors that you might not even realize you’re making. Contact us if you’d like to talk more about how we can help you begin this exciting next stage of growth in your company!
