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Hiring Your First Employee

By: Startup 101
Last Updated: November 15, 2024

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There’s more to hiring an employee than finding the right person for the job, interviewing, and training.  In addition to finding the right person, an employer is also responsible for paying payroll, withholding taxes, reporting, state and federal agencies, and more. We have a few tips to help you with hiring your first employee. 

Every state has different requirements when hiring an employee.  Click on your state below for more information.

What skills are you looking for?

While it would be great to find one person with the skills in various areas, it’s hard to find someone who can do varied tasks well.   

Instead of looking for that one perfect person, start out by making a list of all of the tasks you do on a daily basis or need help with in the workplace.  Group similar tasks together and identify the must have’s and like to have’s this new employee do.  This gives you a beginning for a job description, and you can more effectively search for talented people in the things you need done.  For example, an ad for a marketing person may bring lots of results as marketing can include graphic design, search engine optimization, print ads, radio ads, television ads, website advertising, and so on.  Each of these subcategories of marketing requires different skills, and ultimately, you want someone with specific experience to grow your business.

You may not be able to hire for all those positions immediately, but you now have an overview of what people you need to take the day-to-day responsibilities off of your shoulders so you can focus on the big-picture items or tasks you are uniquely qualified to do. 

You may find that, in some cases, you may not require a full-time person for certain positions and may be better off outsourcing them to a company or bringing on a freelancer.

Do employees know what they need to do?

A common complaint from small business owners is that they can’t find employees that “want to work” or “know what they are doing”.  Some of this frustration lies in attracting the wrong candidates, as mentioned in the point above, but the second problem is that many business owners have difficulty adequately explaining what they want done.  

This is generally tied to two primary issues.  One is the business owner did all of these tasks from the beginning of the business and has difficulty letting go.  In turn, the owner doesn’t allow the employee to do the job they were hired for and micromanages the process, eliminating any time savings.  The second is that the business owner has all of the details on how to do the job in their head.  They tell the employee how to do it once or maybe twice and expect the employee to do it flawlessly from then on.  The problem is that expecting someone to remember those details is unrealistic. The business owner is frustrated because the job isn’t done right, or the employee must keep asking the owner how to do things. 

In order to have an employee do the job the way you want them to is to document the processes and create an employee handbook.  Write the steps and in some cases make a video from start to finish.  This way the process is available anytime an employee is unsure of the steps.  Instead of them asking the business owner each time they have a question or guessing how it’s done, they have access to the right information. 

Many times, it wasn’t a bad employee; it was the lack of a defined process or clear instructions for what the owner wanted to do. 

Documenting processes is a lot of work. Mistakes will happen, but let them. The “price” of these minor mistakes will more than pay for themselves by taking some of the workload off your shoulders so you can focus on the important business tasks. Other benefits include the employee coming up with better ways of doing things, and should the employee leave, the training time for the next person is much shorter.

What is the real cost of an employee?

It’s easy enough to do the math to figure out the wages for a new employee.  If you hire someone at $15 an hour (be sure to look up minimum wage in your state) and they work 40 hours a week for 50 hours a year, that employee will cost you $30,000.  As an employer, you need to know that an employee costs more than their hourly wage or salary.   Additional employee costs include:

  • Payroll taxes include federal income tax, state income tax withholding, and Social Security and Medicare taxes. The business withholds federal and state income tax withholding from the employee’s paycheck, and the employer has to pay into Social Security and Medicare, also known as FICA or the Federal Insurance Contributions Act. FICA is a mandatory tax paid by both the employer and the employee.  The employer and employee pay 6.2% to Social Security and 1.45% to Medicare.  For the $30,000 a year employee, this additional 7.65% means the employer pays an additional $2,295 annually on top of the employee’s wages.
  • Workers’ Compensation Insurance (sometimes referred to as workman’s comp) is an insurance that provides medical expenses, lost wages, and rehabilitation expenses for employees who are injured on the job. Required in all states for most occupations, this is an added cost for an employer.  The cost of Worker’s Comp insurance varies depending on the amount of payroll paid by an employer, the risk factor of the work being performed, and the business’s industry. It’s a good idea to get a quote for Worker’s Comp insurance before hiring to get the true cost of the new hire. 
  • Employee Benefits like health insurance, retirement, and other voluntary payroll deductions.
  • Miscellaneous Costs like employee benefits, uniforms, training, supplies, etc. will add up. These costs should also be factored into the budget.  

All of these costs add up, and it’s better to figure them out now and seeing if the real cost of hiring someone is worth the investment over the long-term.  

What are your responsibilities as an employer?

When a business brings on employees, there are several new responsibilities the owner didn’t have before. When bringing on employees, the hiring process includes tax registrations, applying for an Employer Identification Number (EIN) with the IRS, filing reports such as the annual w-4s, filing Form I-9 (employment eligibility verification form) with the U.S. Citizenship and Immigration Services, hanging the right workplace posters and understanding regulations with usually no less than 5 state and federal agencies.   Not only is the owner now responsible for withholding income taxes, paying payroll taxes, and reporting to several state and federal agencies, but there are state and federal laws to comply with. 

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