This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.
Ready for some additional help but not sure how to hire employees? Congrats, bringing on staff is a huge milestone.
When thinking about how to hire your first employee, your fiftieth, or some seasonal help, there are a few important things to consider. You need to find the right candidates and make sure you’ve set everything up correctly (and legally).
Not to fret — we’re here to help with the basic steps of hiring an employee. (This post contains general guidance. For advice specific to your business, be sure to consult with a professional.) Here’s a checklist for how to hire employees, including what you need to do before and after hiring.
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Before you hire employees
1. Make sure you have an EIN (Employer Identification Number).
Before hiring employees, you need to register your business with federal and state authorities. The IRS requires every business with employees to have something called an Employer Identification Number (EIN), a unique nine-digit number used for tax ID purposes.
An EIN is basically like a Social Security number for a business. If you operate your business as a corporation or partnership, you may already have one. If not, you can get an EIN by applying online.
Additionally, each state has a different registration process for getting a state employer identification number. Visit your state’s labor department website for more information. In California, for example, the EDD (Employment Development Department) has an online service that issues an employer payroll tax account number within a few minutes of registration in most cases.
Learn more about what an Employer Identification Number is and how to get one.
2. Set up records for withholding taxes.
When you think about how to hire your first employee, you need to take taxes into account. Before you start searching for the right employee, you need to fill out paperwork to pay three different types of withholding taxes.
- Federal income tax withholding.Your new employee needs to complete Form W-4 (Employee’s Withholding Certificate), which asks them how much federal income tax to withhold from their pay. You then submit the form to the IRS.
- Federal Wage and Tax Statement. You’re responsible for filling out Form W-2 for every employee, detailing their earnings and taxes withheld for the year. You need to send a copy to your employees by January 31, covering the previous year. Then send Copy A of the W-2 forms to the Social Security Administration by the last day of February. You can learn more about W-2 and how it’s different from 1099-MISC (for independent contractors) here.
- State taxes. Many states also have a state withholding form — find your state here to access the required form.
Businesses should hang on to their employment tax records for six years (or longer in some cases) to support their employment tax filings. Having a good system set up helps you stay organized so you can track your business’s health over time, prepare your tax returns and other financial statements, keep track of deductibles, etc.
3. Define the role you’re hiring for.
If you don’t know what you’re looking for, how do you know when you find it? Before you start the process of how to hire employees, figure out what kind of support you need. Make a list of the most important tasks you need help with. Is it someone to help with inventory management, email marketing, or bread baking?
Next, think about what responsibilities you’d like the person in this position to take on in the future. Deciding how much to pay your new employee depends on the kind of work you need done, the role’s seniority, and your budget.
Finally, think about what kind of background and skillset would best serve this role and how much experience is needed.
Once you’ve done this legwork, you’re ready to write a job description. A clear, thoughtful job description helps you hire the right person. Run your draft through Textio, a machine-learning platform that flags gender-biased words and jargon, to help you write a more effective job posting and find the best hires.
4. Find your candidates.
Ask your best employees if they know anyone who might be a good fit for the role. Referrals save you time because they’re already vouched for and can keep you from having to sort through a mountain of resumes.
However, because people tend to associate with others like them, relying on staff referrals can make for a less diverse workplace. This isn’t just about being politically correct. Having a more diverse workforce is better for your business. In fact, studies show racially diverse teams outperform non-diverse ones by 35 percent. Additionally, 57 percent of employees feel their companies should be more diverse.
To find highly qualified, diverse candidates, cast a wider net. Post your job description to job sites like Indeed, Craigslist, or LinkedIn. Include a statement at the bottom of the post that identifies your business as an Equal Opportunity Employer, saying that qualified candidates of all genders, ethnicities, races, sexual orientations, etc. and those with disabilities are strongly encouraged to apply. Instagram is also a great place for job postings.
Consider blind recruitment, hiding applicants’ names — and potentially even education — and years of experience to overcome unconscious bias and promote greater workplace diversity.
5. Conduct interviews.
You should try to have at least a couple of employees interview the candidates, if possible. Each person who works at your business will approach the interview with different goals, giving you a more balanced assessment.
If you run a larger business, you might think about running interview panels where each interviewer is asked to focus on a specific area during the interview. In that situation, one person might focus on teamwork, while another looks for technical skills. The benefit of this approach is twofold — you get an assessment of a candidate’s very specific skills and your employees feel like they are a part of the process.
Once you know who is interviewing your candidates, you need to think about what everyone is going to ask. You’ll want to go through their work history to make sure they’re qualified, but you’ll also want to ask questions that give you an idea of how they’d interact with the rest of your staff and your customers.
How do they approach problem solving? What’s a specific example of how they’ve solved a work problem in the past? How good are they under pressure? If a client is dissatisfied or angry, how would they handle that situation? (Read our full primer on interview questions).
6. Run a background check.
Once you’ve chosen a candidate for the role and made an offer, you might want to run a background check. Also known as a pre-employment screening, it’s a background check is an important step to help keep your business, employees, and customers safe. (This is how to hire employees who are who they say they are.) Applicants must always authorize your business to run a background check.
Be aware that there are complex legal requirements and restrictions on background checks, many of which vary by state. Some states restrict the types of criminal history inquiries you can pull and when in the application process you can inquire about a criminal history, while others require that a role meet specific requirements if you are going to pull a credit history. (Some states and cities ban employers from asking about criminal history on job applications altogether). To comply with all of these requirements, businesses usually use a third-party agency to conduct background checks.
There are also regulations on how you can use the information from a background check. For specific guidance or advice on background checks, consult with a legal professional.
7. Make sure they’re eligible to work in the U.S.
It’s your responsibility to make sure all your employees are legally allowed to work in the U.S. If you hire someone who doesn’t have the right employment eligibility, you could face fines, and even criminal penalties.
To help guard against this, here’s how to hire employees who are eligible to work in the U.S.:
- Before or on their first day on the job, your new employee needs to fill out section one of Form I-9, which includes their contact information, Social Security number, and employment eligibility.
- By their third day on the job, they need to show you valid documentation with their ID and employment authorization. This can be one document from List A (such as a U.S. passport or Permanent Resident Card), or one ID from List B (like a U.S. driver’s license) combined with another from List C (such as a Social Security card).
- In most cases, filling out the Form I-9 and reviewing the supporting documents is enough. But if you do business in certain states, you may be required to enroll in the E-Verify program. Find out more here.
- Employers don’t need to send Form I-9 to the federal government, but you do need to keep it on file for three years after the hire date, or for a year after the employee stops working for you, whichever comes later. You can learn more about Form I-9 from U.S. Citizenship and Immigration Services.
After you hire employees
8. Report your new hires to your state employment agency.
You need to report newly hired and rehired employees to your state’s labor agency. For more information on your state’s requirements, check out the SBA’s New Hire Reporting Requirements.
9. Obtain workers’ compensation insurance.
Workers’ compensation insurance requirements for employers vary from state to state. Most states require employers to obtain an insurance policy for workers who are injured or become ill due to a workplace exposure. Be sure to review your state’s requirements and find a policy that suits your business. The National Federation of Independent Businesses (NFIB) has a helpful guide.
10. Go through the full onboarding process.
Find a full checklist for onboarding remote and in-person employees here, including:
- Add your employee to internal systems
- Complete new hire paperwork
- Share your employee handbook
- Provide necessary tools
- Start a shadow program
- Send a reference guide
11. Choose a payroll method.
After you hire your first employee, you need to set up a system to pay them and take care of payroll taxes. You can do payroll yourself, through an accountant, or through a payroll service.
Many people choose a payroll service to save time and avoid dealing with all the complications surrounding payroll (like taxes). Some payroll services also offer integration with your insurance provider and take care of new-hire reporting, which helps remove those headaches.
But even if you choose to use a payroll service (or outsource payroll to an accountant), it’s good to be familiar with the basics of how it works. There are three parts to payroll: paying employees, paying payroll taxes (to the IRS and your state’s tax agency), and filing tax forms.
Paying employees includes everything from tracking hours worked to calculating tax withholdings and sending checks. Payroll taxes and filings are tasks that usually must be completed every month and quarter, depending on the size of your business.
If you’re hiring remote employees, here’s a quick guide on how to get started managing payroll and taxes across multiple states.
12. Display workplace posters.
The Department of Labor requires that employers post certain notices in their workplace to inform employees of their rights and your responsibilities as an employer. These posters are provided free of charge. Some states have workplace poster requirements that you must follow in addition to the federal requirements. Visit the SBA’s Workplace Posters for specific federal and state posters you need for your business.
Bringing on new workers should be a cinch now that read this checklist on how to hire employees. For more information on maintaining a fair and safe workplace, minimum wage requirements, providing employee benefits, and keeping employees informed about workplace policies, check out these resources.
As with all our articles, this content contains general information and guidance only, and is not a substitute for legal or tax advice. For advice specific to your area or business, be sure to consult with a qualified professional.