How to hire employees for small businesses
There comes a time in every small business journey when you look around and realize you can't go it alone anymore.
Hiring employees is an essential step to take your business to the next level, but it can often be a tricky path to navigate. The stakes are high, and making the right choice is crucial. But with the right tools and guidance, growing your team doesn't have to be daunting.
We’ll walk you through 11 things to add to your checklist for hiring employees so you can expand your business without breaking a sweat.
1. Make sure you need to hire an employee
The prospect of adding an employee to your small business is undoubtedly exciting. It’s a sign your business is growing and evolving — what’s not to love about that? However, before you jump into the hiring pool, it’s good to double-check that you’re in a stable financial position to do so. Here’s a checklist to help you assess your financial readiness:
Get a pulse on your current financial health: Is your business consistently profitable? Review your profit and loss statements to confirm.
Analyze your cash flow: Do you have a healthy cash flow to support additional salary and benefits expenses?
Project future revenue: Are your revenue projections strong enough to sustain new hiring costs?
Check on your emergency funds: Do you have sufficient reserves to handle unexpected expenses without affecting payroll?
Run a cost analysis: Have you calculated the total cost of hiring an employee, including salary, benefits, training, and taxes?
Once you’ve gone through this checklist and are confident about your financial health, the next step is deciding whether you need an independent contractor or an employee.
2. Decide if you’re going to hire an independent contractor vs. an employee
If you're not fully ready for the financial commitment of an employee, there is the option to hire an independent contractor. Let's clarify the difference between the two roles.
Independent contractors are individuals who run their own businesses but are hired by your company for specific tasks or projects. They have the freedom to work according to their schedule and methods and typically do not require extensive training or oversight from your end. You pay them for the work done, and they handle their own taxes and benefits.
Employees are a more integral part of your business. They work according to the hours and methods you set and are often provided with the necessary training and resources to perform their job. As an employer, you have more control over your work and are responsible for regular salaries, benefits, and tax withholding.
Determining whether to hire a contractor or an employee depends on your business needs. Here are some questions to help you decide:
Duration of need: Is the work you require ongoing or temporary? Do you need someone 40 hours per week or just a couple of hours per day?
Level of control: Do you need control over how, when, and where the work is done?
Financial commitment: Are you ready to take on the recurring costs of an employee (salary, benefits, taxes)?
Nature of work: Is the work central to your business, or is it a specialized task outside your usual scope?
Training and equipment: Will you need to provide extensive training or equipment to help this hire do their job?
Answering these questions can give you a clearer picture of your hiring needs, helping you make the right choice for your business’s growth and stability.
3. Get your Employer Identification Number
If you decide that you are, in fact, ready to add an employee to your small business, the first legal step is getting an Employer Identification Number (EIN) from the IRS. Think of the EIN as your business's Social Security number, which is essential for all employee-related paperwork.
Applying for an EIN is pretty easy. Here are some ways you can do it:
Apply online: Head to the IRS website and fill out a simple form. You'll need your business structure details and a Taxpayer Identification Number, which could be your Social Security number, Individual Taxpayer Identification Number, or other relevant IDs.
Apply by mail or fax: If you prefer the traditional route, download the IRS Form SS-4 and send it via mail or fax.
Apply over the phone: Ideal for international applicants, you can call the IRS Business and Specialty Tax Line and receive your EIN instantly.
Remember, securing your EIN is more than a legal formality. It’s your entry ticket to streamlined financial management, like using your EIN to get a business credit card so you can handle business expenses efficiently right from the start.
4. Read up on your business tax requirements
Okay, so you’ve secured your EIN — what’s the next step in the small business hiring process?
While it can feel like a chore, it’s crucial to familiarize yourself with the various tax requirements of hiring employees. Tax laws and regulations can vary significantly from state to state, so it's wise to chat with an accountant specific to your area to understand what you’re responsible for.
Managing these tax requirements, coupled with keeping track of business expenses, can quickly become a headache. Our advice? Invest in spend management software upfront to help you manage business expenses and maintain compliance and accuracy. With tools like this in your back pocket, you can focus more on growing your business and less on the nuances of tax compliance.
5. Familiarize yourself with your legal requirements
Hiring employees for your small business means you're also stepping into a world filled with legal responsibilities. Let’s break down what you’ll need to do to stay compliant and up-to-speed with all the legality stuff.
Collect essential tax forms: Gather a W-4 form for income tax withholding and an I-9 form for employment eligibility verification from new hires.
Report new hires to the state: Provide details such as the employee's name, Social Security number, and employment information shortly after their first day.
Display required labor law posters: Based on your location, display specific labor law posters in your workplace, which are available via the Department of Labor’s Poster Advisor tool.
Stay informed on local laws: Be knowledgeable about local laws regarding minimum wage, termination policies, and more. Consider consulting a lawyer and utilizing resources like the Department of Labor’s Employer Guide.
6. Set up payroll
Once you’re ready to add new employees to your team, determine how you’ll pay them.
Setting up payroll is more than just issuing checks; it's about ensuring timely and lawful compensation for your employees while also providing them with a positive payroll experience. To manage this efficiently, consider using a payroll provider like ADP. They can help you:
Set up payroll easily, even from a mobile device.
Automate processes to minimize paperwork and maximize efficiency.
Ensure compliance with various HR laws, employment taxes, sick day tracking, and more, often at a low cost.
Integrate with your expense management system to streamline all your financials.
7. Get workers' compensation insurance
You’ve probably heard about workers’ compensation insurance, but what exactly is it — and why do you need it?
Workers' compensation insurance offers a safety net for your employees, covering costs like medical treatment and wage replacement if they're injured or become ill at work. Getting workers' compensation insurance isn't just recommended — it's often legally required. You can get this insurance through a few different means:
Commercial carrier: Purchase it from an insurance provider.
Self-insured basis: Manage your own workers' compensation responsibilities.
State program: Utilize your state's workers' compensation insurance program.
Remember, understanding and choosing the right option for your business is important for legal compliance, and it allows your employees to feel valued and cared for in case of any emergency.
8. Write a stellar job posting
Crafting a job posting is an art form in itself. It's your first handshake with potential candidates, so you want it to be memorable but for the right reasons. Avoid vague descriptions or over-the-top language — instead, create a clear, honest portrayal of what the job entails and what your company stands for.
Here's a quick guide to creating an engaging job description:
Choose a clear job title: Stick to standard, recognizable titles for better searchability. This helps candidates find your listing when they search for specific roles.
Describe the role accurately: Be specific about day-to-day responsibilities. For example, "You'll lead monthly team meetings and develop quarterly marketing strategies." This clarity helps attract candidates who are truly capable and interested in the role.
Reflect your brand's personality: Infuse your company's values and culture into the description. This helps attract candidates who resonate with your business ethos.
Highlight benefits and opportunities: Don’t just list the responsibilities. Mention the perks of working with a small team, like flexibility or unique growth opportunities.
Comply with laws: Ensure your job description adheres to anti-discrimination laws and is inclusive to all potential applicants.
If you need more direction, run a Google search to find some job description templates. Then, once your job listing is ready, post it where it'll be seen. Popular job boards, your company website, and social media channels are great places to start.
9. Conduct job interviews
When hiring employees for your small business, conducting job interviews is a critical opportunity to gauge if a candidate is the right fit for your team. Focus on three core aspects:
Skills: Understand their professional competencies and experiences.
Personality: Assess their character and how they handle workplace scenarios.
Culture fit: Determine if their values align with your company culture.
In your interviews, mix in practical tasks or trial periods for a true assessment of a candidate's abilities. Focus on questions that draw out specific, real-world experiences to evaluate their skills and problem-solving prowess. Remember, while technical skills are important, soft skills like body language, attitude, and punctuality are equally telling.
Expect a two-way dialogue — candidates will likely ask about your company culture and growth opportunities. Effective communication, including polite follow-ups with all candidates, is the key to establishing a great relationship from the jump.
If your company reimburses candidates for expenses incurred as part of the interview process (for example, you require the candidate to travel for an in-person interview, or you reimburse them for their time or work as part of the interview process), it is helpful to have a receipt scanning app ready for them so they can submit any receipts to you immediately after the interview is over.
10. Run a background check (and make sure your hire is eligible to work for you)
In the final lap of your hiring race, it’s essential to confirm that your potential new hire is as genuine as they appear. This is where background checks come into play.
Why are background checks so important? Here’s the breakdown:
Verify candidate information: Background checks help confirm the accuracy of the information the candidate provides, including their education, employment history, and any professional licenses.
Safety and security: They are crucial for maintaining a safe workplace, as they can reveal past criminal behavior or other security concerns.
Legal compliance: Certain industries require background checks for legal compliance, ensuring that employees meet industry-specific regulations.
So, how can you add this crucial step to your small business hiring process? Here’s a breakdown:
Get consent: Always obtain written consent from candidates before conducting a background check. This is legally required and respects the candidate’s privacy.
Choose a reputable background check service: There are numerous services available that offer various levels of background checking, from basic identity verifications to in-depth criminal record checks.
Review the results carefully: Once you receive the background check report, review it thoroughly to make sure there are no red flags that could impact the candidate’s suitability for the job.
Comply with fair hiring practices: If something concerning does come up in a background check, ensure you follow fair hiring practices. This includes giving the candidate a chance to explain any issues that arise.
Running a background check might seem like an extra step, but it's a crucial one for protecting your business and ensuring you're bringing on the right team member. With due diligence and fair practices, this step can be seamlessly integrated into your hiring process.
11. Close the deal
Congratulations! You're at the finish line and ready to make your first job offer. This is big!
However, nailing an offer can be tricky. Let’s walk through a few steps on how you can masterfully craft your offer:
Be enthusiastic: Start with a positive tone. Let your candidate know how impressed you were with their skills and how eager you are to have them on board.
Give clear details on salary and benefits: Lay out the salary clearly and highlight the benefits they will receive. Whether it's health insurance, retirement plans, or unique perks like flexible work hours, make sure they know what’s in store.
Be open to negotiation: Be prepared for some back-and-forth. Good candidates often negotiate, so be ready with your limits and be open to finding a middle ground that works for both parties.
Keep it professional: Throughout the negotiation process, maintain a professional demeanor. This sets the tone for your future working relationship.
Provide a written offer letter: Once verbal agreement is reached, follow up with a written offer letter. This should detail everything discussed and serve as a formal agreement between you and your new employee.
Making the job offer with enthusiasm and clarity shows your commitment and builds excitement for the candidate. It’s the start of a new chapter for both your business and your new team member!
So you’ve hired an employee…now what?
Hiring your first employee is a major milestone, but it's just the beginning of a much longer journey. The real task is to ensure that your new team member feels valued, engaged, and set up for success from day one. Let’s talk about how you can do this at your small business.
Create a standout employee onboarding experience
The onboarding process is your opportunity to make a great first impression and set the tone for your employee's experience with your company. Here's how you can create an effective onboarding experience:
Welcome them warmly: Start with a personal welcome that makes them feel part of the team.
Provide comprehensive training: Ensure they understand their role and responsibilities and provide them with opportunities to ask questions and dive into your business.
Share company values and culture: Help them understand what makes your company unique and how they can contribute to strengthening that culture.
Provide necessary tools and resources: Equip them with everything they need to start working effectively.
Schedule regular check-ins: Schedule frequent check-ins to address any questions or concerns.
Make sure your employees are fairly and transparently compensated
If you want your employees to be in it for the long haul, you have to pay them — and pay them fairly. Here's how you can achieve this:
Ensure your pay rates are competitive within your industry. This involves understanding market trends and may require researching pricing strategies for small businesses to ensure your business's financial health supports your payroll.
Have a transparent structure that explains how salaries are determined. This helps employees understand their compensation and see a clear path for growth.
Regularly review performance and adjust compensation accordingly. Align salary increases with performance and market standards.
Offer a range of benefits that cater to your employees' needs. This could range from health insurance to flexible working conditions.
Maintain an open dialogue about compensation and any potential changes. Communication is key to ensuring employees feel valued and informed.
Remember, it’s cheaper to retain employees than to hire new ones. Don’t lose a great hire because you weren’t willing to negotiate salary.
Avoid silos at all costs
Silos within a company can be a major hindrance to growth and innovation. When teams or individuals operate in isolation, it not only limits collaboration and knowledge sharing but can also lead to a lack of alignment on company goals and values — which can make things really messy really quickly.
To avoid this, we recommend taking a page from our book. At Expensify, we’ve fostered an environment where everyone is encouraged to collaborate and share ideas, regardless of their role or function. Here’s how you can emulate this in your small business:
Encourage cross-team interaction: Regularly bring together people from different departments for joint projects or brainstorming sessions.
Keep communication channels open and accessible: Make company-wide information accessible to all, promoting transparency and a sense of inclusion.
Provide regular team updates: Conduct meetings where teams can share their work and insights, helping everyone understand different aspects of the business.
Foster a feedback culture: Create a safe space for employees to voice their ideas and concerns, ensuring that every opinion is valued.
Diversify project teams: Assemble project teams with members from various departments to encourage different perspectives and skill sets.
We’ve seen a ton of success with these strategies, and we’re sure you will, too.
Hiring is easier with the right tools in your arsenal
Wrapping your head around how to add employees to your business can feel overwhelming, but with the right tools, it doesn’t have to be. From simplifying expense reports to tracking budget allocations, Expensify untangles the financial complexities of growing your team. Sign up below to experience how Expensify can transform your business operations and make your first hire a breeze.
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