Updated: Dec 23, 2019
This article is from our friends at Captain401, written by Damian Davila.
For any business owner, the first hire is the hardest, because of the many unknowns around performance, management, and scaling up your business. Hopefully, a great first employee (or first few employees) will help you learn a lot of new things about your business and you’ll start to build a team that will grow together in a financially sound and enjoyable way.
Often, a lot of the difficulty before and after hiring your first employees can come from the more tedious, required tasks and paperwork around compliance, taxes, and financial planning. Let’s walk through a few broad but important questions you should ask yourself in advance, as well as the forms and tasks you’ll need to complete after hiring to stay in the IRS’s good graces.
Having a great month or quarter feels exciting but it may not necessarily mean that you need to find one more employee right away. For some small businesses, one week during the Christmas season is equivalent to six or seven weeks during the rest of the year. Projecting your revenue and staffing targets based on an atypical set of numbers could put you in a very tight financial position down the line. It’s important to take a look at the trend of your revenue over many months, if not years. The last thing you want to do is to hire a new employee only to lay him or her off after just a few months.
Hiring is not an easily reversible decision, and can be a costly mistake both in terms of time and money, for all involved. Be sure your business is in good, steady financial shape before starting the hiring process.
The costs of your headcount increase must be able to leave room for a profit, especially accounting for rising labor costs across the nation. Here’s an example: Let’s assume that you’re looking for a person to help you with packaging, delivering, and shipping 20 hours a week. In San Francisco, California, the minimum wage is $13.00 per hour as of July 1, 2016 and it will increase to $14.00 in July 1, 2017. Calculate how many hours this person will need to work, on a weekly, monthly, or yearly basis, and predict how much additional income you think they’ll generate for you, whether directly or indirectly (by freeing up your time). Are you comfortable with the difference between these two numbers? Will you be losing money on a new employee, or will they pay for themselves and more? By how much? And that’s just the beginning! We’ll dive deeper into the additional costs of an employee beyond their hourly wage below.
The key takeaway here is to keep an eye on the schedule of minimum wage rates for your city and do some research to see what comparable businesses are paying for similar jobs in your area and stack that up against the expected return on this “investment”.
If you don’t know who you’re looking for, you’ll probably won’t even know when you do find the right person. Worse, you may hire the wrong person. It’s one thing is to look for an extra set of hands to help you unload 20 pallets every day and it’s another thing altogether to have an experienced shift leader who may need to hire and manage their own team down the road.
Make sure to take the time to write out:
Reference these lists as you hire and provide them to your final candidates as well so that you can set clear expectations upfront.
Now that you have an idea of what your ideal candidate looks like, it’s time to decide what type of employee you need. These distinctions are what will determine a lot of the financial and tax considerations for your new employee.
Keep in mind that pay is just one of the many potential costs involved in hiring additional employees. Depending on your timeline for the help you need, managerial experience, availability for supervision and training, and budget, choose a type of employee that you can truly afford and manage so they have a fair shot at successfully contributing to your business.
Once you’ve decided whether you need a full-time, part-time, seasonal, or freelance employee, use the checklists below to complete the right forms and tasks for their legal employee designation.
Full-time and part-time employees:
One-man operations are often spread too thin and you will need additional help to handle your growth — this is a great problem to have, so congratulations! While the checklists above are not fully comprehensive for every type of job, industry, or employee, they will provide you with a rough idea of your available options and the absolutely necessary paperwork.
For the first hire, you will learn a lot as you go, and you will be able to handle most of the required tasks by yourself, at least initially. Once you have a few full-time or part-time employees, you’ll find that you may have to seek out an accountant or bookkeeper to make sure that you cross your t’s and dot your i’s.
In general, remember to ask for help! For specialty tasks related to human resources, legal issues, taxes, or compliance, you’ll find that there are plenty of experts out there who can help take tasks off your plate or provide guidance so that you can focus on the more exciting task of growing of your business. Good luck!