Hiring employees for your small business: Tips before your first payroll
For many solo entrepreneurs, hiring employees for your small business eventually becomes a matter of necessity. “I became a little overwhelmed with the client load,” says Bill Douglass, principal of Gotham Communications in Fairfield, Conn. Douglass says that he hired his first employee because he needed someone to handle administrative matters and research.
After that straightforward decision comes the grunt work — the unfamiliar and occasionally scary financial and legal obligations of the employer, including the requirements for a legal hiring process.
But take heart; you can handle it if you plan, take it one step at a time, and get good advice. Here are some key factors to keep in mind when hiring employees for your small business for the first time.
Prepare for employment payroll taxes
If you’ve decided to hire employees for your small business, Uncle Sam gives you no grace period for one of your new roles: proxy tax collector. The minute you hire an employee, you must begin to collect payroll taxes and confirm their employment eligibility.
Collecting payroll taxes: To make that happen, you’ve got to have the new employee fill out a W-4, and while you’re at it, an I-9 to prove legal status to work. At that point, you’re required to do the following
- Pay for unemployment and worker’s compensation insurance
- Make deposits
- Send filings to Federal and possibly state and local tax authorities
Confirming employment eligibility: For every new employee you must have them complete an I-9 form to ensure employment eligibility. Complete instructions about filing out the form and how long you need to keep them are on the I-9 form itself.
A payroll service can make your life easier
Before you panic, take a deep breath and heed this tip — use a payroll service. It’s more cost-effective to have them handle tax deposits and filing requirements. Here are other areas where a payroll service can help you.
Compliance with wage and hour laws: A payroll service will also help you comply with wage-and-hour laws and the like. You may think that you don’t need to pay time and a half. But it can happen, sometimes without you realizing that too many hours were worked in a day or week.
Paying payroll taxes: Ask your payroll service or your accountant to project how much paycheck number one and attendant taxes will cost you. New employers can be surprised about how much they’re paying in the first payroll.
Filing tax returns: Having just one employee can require your business to file annual or quarterly tax returns with half a dozen authorities and penalties for violations can be steep.
Comply with employment laws
Do you think that you don’t have to worry about compliance with laws designed to protect employees until you have 15 or 20 employees? Not so fast. “Laws like the Fair Labor Standards Act and OSHA regulations are in effect even with just one employee,” says Melanie Berkowitz former employment lawyer and principal at The GhostWriters, a legal and business writing company.
State employment laws: And as with taxes, it’s not just the Feds who you must heed. “State and municipal laws can go off in many different directions,” says Berkowitz. To take two examples out of hundreds: San Francisco requires employers to provide paid sick leave; Philadelphia levies its own wage tax.
Trade secrets and non-disclosure agreements: Does your business have trade secrets or other intellectual property to protect? Speak with an attorney about drafting an employment contract. Also consider obtaining professional advice about whether to incorporate or form a legal partnership if your business hasn’t done so already.
Agencies that can impact hiring
Set aside time to research the legal and financial issues of hiring employees for your small business. Below are a few key federal government websites. Don’t forget to check state, city and county sites as well as Federal agencies.
- Internal Revenue Service
- US Department of Labor
- US Citizenship and Immigration Services
- US Equal Employment Opportunity Commission (Note: While much of what the EEOC does is applicable only to employers with more than 15 employees, it is good to be familiar with their laws)
- Federal Trade Commission (Note: If an outside agency is used to conduct a background check on a potential employee, the FCRA requires certain steps for employers with only a single employee)
- National Labor Relations Board
- Occupational Safety and Health Administration
- Small Business Development Center
- State Departments of Revenue
- Labor agencies of the 50 US states (Note: Some state human rights laws mimic Federal laws and are applicable for employers with less than 15 employees)
If you’re planning on meeting with an attorney to address any legal or compliance questions, it would help to brief yourself with the above resources beforehand. This will not only help you get the most out of your meeting, it will also help you to save time and avoid ringing up high billable hours.
Human resources for your small business
Your next hat will be that of human resources director. If you want to have a better hiring process than your competitors, start by writing a job description and formulating interview questions to ask. Run them by an HR expert to ensure that you have a firm grasp of legal hiring practices. In addition, you’ll want to address the following:
Employee manual: Adopt an employee manual, adapt it to your business and ask your top candidates to read it and ask questions before discussing a job offer. You can start with a boilerplate manual and change as little or as much as you’d like.
Employment insurance: It’s never too early to consider some protection against liability for negligent hiring. Basic background checks can be inexpensive these days; most businesses should check candidates as a final step before extending a job offer.
As a new employer, you’ll have much more to think about. But this is a good start. Expect to be surprised by what’s involved in becoming an employer. The good news is that once you get employment policies and processes in place, you’ll only need to review them occasionally.
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