January 7, 2019
How to Hire Your First Employee
Posted by Jenn McCabe
I’m not gonna lie: Hiring your first employee takes a lot of paperwork. But that paperwork, as much as it pains you, is worth doing. You risk big fines if you misclassify an employee as a freelancer/contractor, for example, or pay someone under the table.
So what does hiring require? There are two main things to consider, together and separately. First, think about the culture you intend to build. The way you treat your first employee is going to set the future tone you communicate. Second, evaluate what you can afford to do for both payroll and benefits in the long term.
This means deciding what holidays you’ll observe, and how many vacation or sick days are reasonable for your company and product. Think about the seasonality of your business and determine how you’ll encourage staff to buckle down in busy times. What will you do to make employees comfortable? For instance, will you provide coffee supplies and filtered water?
You also need to think about what will be most important to your new employees. For example, a startup hiring mostly young, healthy and single staff may elect to compensate their first key employees with some equity, some cash, and very minimal health benefits in order to reflect what their staff value most.
Whatever you do, you must have a policy that applies to everyone (including yourself, in most cases). You have to give every person the same access to the same benefit, whether it’s paid time off or medical coverage. So don’t go crazy with your first employee if it means you’ll have to take something back when you hire more staff and realize you can’t afford that level of benefits for everyone.
Where to begin
To get started, you need a labor attorney or an accredited HR professional to write offer letters and set a standard, labor-compliant and recurring process for onboarding new staff. If you’re using equity as a compensation mechanism, you must hire a lawyer. There’s really no such thing as “sweat equity,” and everything costs someone (you or the employee) in taxes. If you’re buying benefit coverage, get an HR specialist to help you craft a package that will suit your size, your team’s values, and your culture.
Then follow this checklist:
- Register your business in all the ways you should be registered.
- Make sure you have a business license. It’s required in many cities.
- You’ll need both federal and state employer ID numbers. You may already have an FEIN that’ll work, but you’ll need to register with your state.
- When you’re ready with your offer letter, get your onboarding paperwork in order. That includes an I-9 employment eligibility form, a, a W-4 tax withholding form and a payroll information form, among others. (Download our Hiring and Firing Checklists for a more complete list.)
- Get workers compensation insurance. This is required for your business and has nothing to do with any health insurance you may offer.
- Think about job duties, keeping in mind that jobs change so quickly today that you don’t want to over-define a role. You need to allow for changes and growth of both the business and the individual, while still setting expectations. It’s a balancing act…
- Make sure you have clear reporting structures and a communication strategy for setting performance guidelines and expectations.
- Don’t try to do payroll accounting on your own, even if it seems like your accounting package does an ok job of it. Pick a payroll platform and hire a payroll professional. It’s inexpensive compared to the cost and hassle of making a mistake.
- When you’re ready to hire a second employee, create an employee handbook. This will help ensure that you are consistent in the way you treat all your staff.
You’ll need to learn (and follow) the rules on overtime, pay rates, insurance, licensing and payroll tax reporting, etc. in your city. Mistakes are expensive, so don’t fake it ― get help as needed to make sure you’re doing everything by the book.
Things like payroll, overtime rules and on-boarding not your cuppa joe? Give our HR experts a call to find out how we can help.
Jenn has more than 25 years of outsourced accounting and finance experience, with a particular expertise in startups and the advertising and creative production industries. She is passionate about seeing companies utilize the latest accounting technology to maximize their efficiency, productivity, and ultimately, success.
Before joining Armanino, Jenn founded and led Team Jenn Corp., a firm dedicated to the strategic financial management of startups and small businesses, offering a comprehensive back office solution with accounting, finance and HR solutions. Previous roles include stints at advertising giant Ogilvy and Mather, and in the cash management industry.
Jenn has a bachelor’s degree in economics from Pepperdine University and is a member of several professional associations including the National Society of Accountants, ProVisors and the Women’s Business Enterprise Network.