How to hire your first employee: A step-by-step hiring checklist

Your business is booming, and you’ve been occupied every minute. You’re booking a month in advance, and your inbox is overflowing with new customers wanting your services. It’s a good problem to have.

But maybe a little too good. You might be struggling to keep up. Plus, you noticed your customer service is starting to drop a little. It might be time to hire your first employee.

It’s one of the most important decisions you’ll make as a business owner. This checklist can walk you through how to hire your first employee and get everything set up correctly from the start.

The 10-step checklist for hiring your first employee:

• Decide if it’s the right time to hire
• Get an EIN
• Register with your state’s labor department
• Set up your insurance
• Write a job description and post the opening
• Set up interviews
• Onboard your new employee
• Choose a payroll system
• Report new hires to your state’s reporting agency
• Post required notices

1. Decide if it’s the right time to hire

If you’re a small business owner, you know how important it is to delegate some of your responsibilities.

But before hiring your first employee, make sure that you’re ready. Here are a few things to keep in mind:

• You have steady work to keep them busy.
• You can afford it financially, and paying an employee won’t hurt cash flow.
• You have the space for another person, such as a desk or workspace, tools and equipment.
• You’re ready to navigate the state and federal employment laws for hiring, interviewing, wages, benefits, employee records and workplace safety.
• You can communicate clearly and effectively and have time for proper training.

Hiring staff may seem like a natural progression, but you don’t have to hire immediately. If you’re just starting out or aren’t financially stable enough to handle regular payroll costs, it’s okay to wait.

2. Get an EIN

If you don’t already have an employer identification number (EIN), now’s the time to get one.

An EIN is similar to a Social Security number for a business. The Internal Revenue Service (IRS) requires every business with employees to have a unique EIN for tax purposes.

Luckily, it’s simple to do. You can apply for an EIN online at IRS.gov. You should gather this necessary information before you start::

• Legal structure (sole proprietor, partnership, LLC, etc.)
• Legal name and trade name
• Mailing and street address
• Reason for applying
• Starting date

In most cases, you’ll get your EIN immediately after applying. Then, you can download, save and print your EIN confirmation letter.

3. Register with your state’s labor department

When you register with your state’s labor department, you’re signing up to pay state unemployment taxes. The money you pay goes into a state’s unemployment compensation fund, which offers short-term financial assistance to those who lose their jobs.

Small business owners should take the time to understand their responsibilities for filing or responding to claims. It varies by state, but you can view the list of state unemployment insurance tax agencies to find your local labor department.

You’ll also need to file IRS Form 940 each year to report your annual Federal Unemployment Tax Act (FUTA) tax.

4. Set up your insurance

Accidents happen, and often when they’re least expected. That’s why workers’ compensation insurance is crucial — it offers protection to save you and your company from financial losses if an employee gets hurt on the job.

But is it mandatory? The answer is usually yes. Almost every state has workers’ comp laws that require businesses to purchase coverage.

Laws vary between states. Check NEXT’s workers’ comp page to find information about laws where your business is.

5. Write a job description and post the opening

To find the best candidates, you need a winning job description. Your job description should:

• Clearly define the role and job title
• Set the payscale
• List responsibilities
• Specify necessary education or skill set

But don’t make it too long. A LinkedIn study found that job descriptions no longer than 300 words attracted 8.4% more candidates than longer job descriptions.

Then comes the exciting part: Finding the right candidates. Many job search sites (aka job boards) exist, such as Indeed and ZipRecruiter. Between the two, ZipRecruiter is best if you plan to do regular hiring. Otherwise, Indeed is the better option for small business owners — it’s less expensive and includes an online skills assessment and employer dashboard.

Many sites cater to specific types of industries. For example, Dice is a great place to post your job listing if you’re filling a technology role. Or you might use CoolWorks or FlexJobs if you’re hiring a seasonal worker or short-term employee.

If you’d rather look for a new hire offline, you still have plenty of options:

• Hang a “hiring” sign in your window.
• Post help wanted signs in community places like cafes, libraries or colleges.
• Ask for referrals through your network.
• Go to a job fair or alumni association to recruit.

Sometimes, the best referrals are word of mouth. Make sure to tap into your network of friends and colleagues for recommendations.

DIY manufacturer, woodworker and owner of Wilker Do’s April Wilkerson explains being open to giving people who show a passion for the job a chance. “Anybody who shows a willingness to want to be on my team or be in my world — I say, sure let’s give it a try,”

6. Set up interviews

Now, the hard part: the interview process to find your new employee.

The number of people you interview could depend on the number of applicants. Ideally, you’ll be able to narrow down your list of qualified candidates by first filtering through online applicants or doing a phone interview. Then, ask the top candidates to set up an in-person interview.

Review their work history to make sure they’re qualified for the job, and ask questions such as:

• How does your previous work experience relate to this position?
• Tell me about a time you encountered a conflict at work. How did you handle it?
• How would you describe our business to a potential customer?

Some questions are off-limits. You should avoid questions about religion, ethnicity, age, disability, and pregnancy or plans to start a family.

If the applicant didn’t provide references on their resume or job application, ask for them during the interview. You can call the references to verify the potential hire was honest in their job application and interview responses. Depending on your line of work, you may also want to run a background check.

7. Onboard your new employee

Congratulations! You’ve hired your first employee. But your work isn’t done yet — you’ll still need to complete the onboarding process for your first hire.

On their first day, have the new employee fill out IRS Form I-9 to verify employment eligibility and Form W-4 for federal income tax withholding. Additional onboarding steps might include:

• Adding access to internal systems
• Providing necessary equipment and tools
• Training for the specific role
• Discuss a schedule for performance evaluations

While you’re onboarding, make notes about the steps you take. You can use that information to create a new hire onboarding checklist for the next time you’re ready to hire an employee.

8. Choose a payroll system

A good payroll system can save you time, money and headaches.

You have three options: Do it yourself, hire an accountant or use a payroll service. But you should be familiar with the basics of how to do payroll for a small business, even if you outsource it.

Generally, a payroll system has three pillars:

• Paying employees
• Paying payroll taxes
• Filing tax forms

It includes everything from tracking the number of hours your employee worked to calculating federal and state tax withholdings and making sure your employee gets paid.

9. Report new hires to your state’s reporting agency

Every employer must report new hires to the state reporting agency.

Federal law requires it to help locate parents who owe child support. The deadlines vary by state, but generally, you should report information on new and rehired employees within 20 days.

Visit the Administration for Children & Families website to find your state’s new hire reporting agency.

10. Post required notices

The U.S. Department of Labor requires employers to display posters in their workplace. Posters show the policies in place and educate employees on their rights and responsibilities.

You can find out what posters you need to display at your workplace using the department’s “Poster Advisor” tool. Also, contact your state department of labor to comply with your state’s poster requirements.

How ERGO NEXT protects business owners and their employees

ERGO NEXT is dedicated to helping small businesses thrive at every step of their journey.

When you are ready to hire your first employee, we can help you easily find workers’ compensation coverage and other business insurance to protect your business.

It only takes about 10 minutes to customize your coverage, purchase a policy and print your certificate of insurance.

Start an instant quote online today.