How To Hire Your First Employee in 2023

Learning how to hire your first employee as a solo business owner is a key step toward growing your business. There are a few legal requirements for hiring employees that you’ll need to familiarize yourself with, not to mention some significant financial considerations that will impact your business.

This guide will break down everything you need to know about how to hire your first employee, including how to know when it’s time to hire your first employee and the legal steps you’ll need to take.

How To Hire Your First Employee

Learning how to hire your first employee can be daunting since you’ll need to understand state, federal, and local level legal requirements for hiring an employee, set up a job description, market your open role, hire the best candidate for the job, and set up payroll tax withholding.

Fortunately, the following list offers a step-by-step walkthrough of how to hire your first employee.

Step 1: Determine When To Hire Your First Employee

Hiring your first employee can significantly improve your business by adding a much-needed skill set to your roster and increasing productivity through a more evenly distributed workload. However, there are also the downsides of cost and time to consider.

Before you make a final decision on whether right now is the best time to hire your first employee, consider the following:

Step 2: Get Your Employer Identification Number

If your business was previously operated as a sole proprietorship or LLC with no employees, you may have used your social security in place of an EIN.

However, to legally pay employees, you’ll need to get an EIN for your business. An EIN serves as a sort of business tracking ID that provides proof to the IRS and other entities that your business entity is eligible to report tax withholding amounts of the employees you hire.

To get an EIN for your business, you’ll need to apply for an EIN online via the IRS, by fax, by mail, or in the case of international applicants, by phone.

Depending on your state’s laws, you may also be required to register for a separate state tax ID number which will be used to handle your business’s state tax liabilities.

Step 3: Register With Your State’s Labor Department

As a business owner, it’s your responsibility to withhold federal as well as state unemployment taxes. You need to register with your state’s labor department to allow them to process your payments and contribute them to their state unemployment compensation fund.

Contact one of the offices on your state’s labor offices to make sure they can process your state unemployment withholdings.

Step 4: Obtain Workers’ Compensation Insurance & Disability Insurance

Certain company benefits are legally required to be provided to employees and are an essential part of hiring, paying, and retaining new hires.

Workers’ compensation insurance is a legal requirement that businesses in 49 states need to provide through either a commercial provider, self-insured policy, or program offered by your state. Without coverage for workers’ comp, your business is financially liable for covering any on-the-job accidents that may occur.

Businesses in California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island are all required by law to provide employees with disability insurance coverage. Coverage for disability insurance is crucial for your employees if they fall ill or are injured outside of the workplace.

Step 5: Create a Benefits Package

Benefit programs such as health insurance and 401(k) matching are critical components of employee payroll and set your company apart from other businesses eager to hire the kind of talent you’re interested in.

Small businesses can more easily find and hire employees with the talent level they’re looking for by offering benefits such as health insurance and maternity/paternity leave.

Other top employee benefits, such as employer-sponsored retirement savings options (pension plans and 401(k) matching), can also make it easier to retain employees once you hire them.

Step 6: Decide On A Hiring Budget

Your business’s hiring budget should be informed by your proposed benefits package, the salary expectations for the role and industry in which you operate, and the pay schedule that best suits your business’s financial picture.

Additionally, you’ll need to double-check which benefits and payroll taxes your state requires that you pay when you hire your first employee. In general, you’ll need to consider the following costs in your hiring budget:

• The employee’s salary (including any bonuses offered)
• Payroll tax liabilities
• Workers’ compensation insurance
• Employee benefits
• Hardware or software for the employee
• Employment testing
• Background check software or services
• Fingerprinting

Keep in mind that your hiring budget should serve as the foundation for your business’s payroll budget, which encompasses all the recurring and variable expenses associated with the hiring, payment, and benefits for your new employee.

As such, you should consider taking things a step further and creating a payroll budget immediately following your hiring budget.

Step 7: Draft Your New Hire Materials

Small businesses can get organized ahead of time by creating employee handbooks that set clear expectations and describe their vacation and sick leave policies. Employee handbooks are great resources and can answer questions new hires frequently ask about your onboarding process and pay periods.

You aren’t legally required to have an employee handbook, but they go a long way in making onboarding easier for both you as well as your new employee. If you’re not interested in writing out an employee handbook and other HR materials from scratch, you can find plenty of templates online.

Otherwise, some of the best HR software options provide access to valuable hiring resources, including job posting templates, employee handbooks, and even harassment prevention training courses.

Step 8: Write & Publish Your Job Description

A quality job description helps you find employees who are good matches for your open position by clearly stating expectations like starting salary, job responsibilities, and schedule of hours worked.

You know better than anyone what kind of candidate best suits your open job requirements, so write a job description the same way you would explain what you need from a candidate during an interview or conversation.

One of the best ways to find employees is through online job boards, which make it easier for job-seekers to find and apply to open positions on both desktop PCs and mobile devices.

Make sure that you monitor your recruiting channels to identify the one that sources your most attractive candidates on paper, then go from there to stick with a recruiting channel that finds you the right candidate for your open role.

Step 9: Choose The Right Hire

Once you’ve selected job candidates, you can begin the interview process in which you’ll evaluate each candidate’s qualifications for the role contact references, and get a feel for the employee’s character.

In most cases, you’ll likely have to interview several candidates, so you’ll need to ensure that you have set aside the time to schedule and conduct several interviews.

When it comes to choosing the right hire, it’s important that you choose someone who meshes well with your company culture and has the expertise to make short orders of their role’s responsibilities quickly and independently. But new businesses need candidates who can also adapt to evolving priorities and deadlines and be able to meet standard expectations and responsibilities required of their role.

Once you’ve found the best candidate for the job, you can extend a job offer via phone call, email, or send a formal offer letter. The job offer letter should include information regarding pay, start date, role responsibilities, schedule, and other relevant details. You may send out rejection letters to applicants that didn’t make the cut.

Assuming your chosen candidate accepts your offer, you’ll have officially hired your first employee!

Step 10: Onboard Your New Employee

Once you’ve selected the best candidate for your open position, you’ll need to begin the onboarding process. Your onboarding process will vary based on your business type and the new role, but there are several legal onboarding requirements that you’ll need to complete to be able to pay your new employee, including:

• New Hire Reporting: New hires must be reported within the first 20 days of their start date, but some states may require earlier notification. Send new hire reports to your state’s new hire reporting agency.
• Completing Form W-4: Employees are required to fill out Form W-4, which is used to determine their federal tax withholding amounts.
• Completing Form I-9: Form I-9 is used to assess an employee’s employment eligibility. Employees must fill out a portion of Form I-9, while employers fill out the later portion of the form. Employees must also provide employers with identification documents that provide evidence of their eligibility.
• State Tax Withholding Forms: Employees may also be required to fill out a state withholding form, which is used to determine the employee’s state tax withholding amounts.

These forms should be kept on file as a part of your business’s payroll records.

Outside of government-required tax forms and reporting, your business’s onboarding process may include providing your new hire with a copy of your employee handbook, having them sign an employee conduct agreement, employment contracts, NDA contract signatures, and other potential onboarding tasks.

Once you’ve completed the onboarding process, your employee can get to work!

How Much Does It Cost To Hire Your First Employee?

According to the SBA, the typical cost of hiring an employee is 1.25-1.4 times your employee’s salary. However, the cost of hiring an employee is highly variable, so it’s not possible to use a one-size-fits-all equation to calculate employer costs when hiring an employee.

To figure out how much it’ll cost to hire your first employee, take the time to add up all potential costs, such as your proposed salary for the position, applicable payroll taxes, testing costs, hardware and software purchases, and more. With these numbers, you can generate a conservative estimate for the cost of hiring your first employee.

The Bottom Line On Hiring Your First Employee

Hopefully, we’ve covered every question you have about how to hire employees.

Once you’ve hired your first employee, you’ll need to begin the payroll process. Fortunately, you should have already taken all the preliminary steps required to run payroll while you went through the process of hiring your first employee. You’ll have completed your new hire reporting, business registration, and determining withholding.

Now, it’s just about adding your new employee to your payroll software or learning how to do payroll manually. Regardless of what you choose, it’s essential to remember to stay on top of withholding your taxes on paychecks and filing your payroll taxes to avoid being dinged by fines and make sure that you’re always paying your employees and tracking their hours accurately and on time.

Fortunately, the best payroll software solutions on the market can make managing your business’s payroll taxes, tracking employee time, running payroll on time, and paying employees as easy as a few clicks. If cost is a concern, there are plenty of great free payroll software solutions that are a great match for small businesses with only one employee.

FAQs About Hiring Your First Employee