Hiring your first employee? Don’t forget to do these 4 things

You’ve been growing your business successfully, and are ready to hire your first employee. Congratulations! Bringing on additional help is an exciting step for any business owner. Before you start brainstorming employee titles and tasks, though, you need to take care of a few logistics first.

Here are four administrative tasks to check off your list before hiring.

1. Apply for an EIN.

Before you can hire, you need to file for an Employer Identification Number (EIN) (also known as a Federal Employee Identification Number, or FEIN), said Deborah Sweeney, CEO of MyCorporation.com. “Your small business may already have one,” she added, “since this is a federal tax ID issued by the IRS and is required to open business bank accounts.”

To qualify for an EIN, your principal business must be located in the U.S. or its territories, and you must have a valid Social Security number or other taxpayer ID number. The application process is simple and fast: if you apply through the IRS website, you’ll receive your EIN immediately after getting approved.

2. Register with your state’s labor department.

Next, register with your state’s labor department and figure out what state-specific steps you’ll need to take, like paying unemployment tax or filing for workers’ compensation insurance. “Every state is different,” said Ryan O’Neil, founder of Curate.co, “but we had multiple state agencies that we had to register with.”

If you feel overwhelmed trying to navigate the multitude of state websites, said O’Neil, call the state to talk to a representative. Or, consider hiring a professional to guide you through the process. “If you have a little bit of capital,” he said, “it might be better to have a CPA set you up, as they’ve done it before.”

3. Review your finances.

It’s crucial to assess whether you’re in a good financial position before you begin the hiring process. Not only do you have to pay someone’s salary, but you’ll also “be required to create certain compensation plans for your employees,” said Sweeney, like health care, vacation time, leave benefits, workers’ compensation insurance, or disability insurance. The IRS also requires employers to withhold employee income, Social Security, and Medicare taxes, said Sweeney.

Of course, you don’t need to create a compensation plan or start withholding taxes at this stage, but it’s still smart to review your cash flow, expenses, and profit sheets to make sure you’re prepared for the costs of hiring.

4. Familiarize yourself with labor laws.

When you hire employees, you’re responsible for abiding by certain labor laws. Failing to do so can result in steep fines at best and potential convictions at worst, so it’s helpful to educate yourself on policies around hiring and treating workers before you look for candidates. Brush up on Equal Employment Opportunity laws, employee classification, and work hours.

These four tasks may seem minor, but they’re crucial to setting yourself up for hiring success. Once you’ve checked them off the list, start dreaming up the perfect role to help grow your business.

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