Hiring Your First Employee

Making the leap and committing to hire your first full-time employee can be daunting. You might be asking yourself, "How will I make payroll? What records do I need to keep? What else do I need to do before they start showing up?"

The good news is that hiring your first employee is not strenuous from a legal perspective, except in a couple of areas. What is more important, more often, is the strategic implications of doubling your workforce.

  • Think Strategically

Map out a job description, and be specific. It is perfectly fine if the description is not perfect, you can always keep it updated. Do not let perfect be the enemy of good. A good working copy is better than waiting to make a perfect copy any day of the week.

Do not fall into the trap of thinking of an employee as an expense. Many new entrepreneurs know that payroll is going to be the biggest expense, so they wait to hire someone to help them out. This is a mistake.

Roughly speaking, two people can typically accomplish three times the work that one person can do alone. Why is this? Everyone has different skills and capabilities. For example, if you are the sales person in your team, it will typically take you twice as long to update your books as it would a trained bookkeeper. In fact, you may quickly realize that a trained employee can do work in which you do not specialize in a tiny fraction of the time. Having another employee with skills you do not have frees you both up to do work much more productively.

  • Get Certified

You do need a few things to make sure your business is properly identified with the necessary authorities.

  1. Federal Tax ID Number - The Federal Tax ID Number ("FIN" or "EIN") identifies your business with the IRS. This is a free, online service provided by the IRS, and you can fill out the necessary paperwork here. DO NOT PAY FOR SOMEONE TO DO THIS FOR YOU UNLESS THEY ARE A LICENSED ATTORNEY! There are numerous scams out there charge hundreds of dollars for this free service. Many are designed so that scam artists can access your Social Security Number under the guise of authority.
  2. Register with the state - All states have some process by which employees are identified to the state. This process is usually covered by the Department of Labor in each state. In Alabama, go here.
  3. W-4 - Form W-4 notifies the state and federal governments what your employee's tax basis is. You can get the form here.
  4. E-Verify - Many states, and especially Alabama, are cracking down on hiring illegal immigrants, so the immigration reporting requirements are growing. In Alabama, have your employees complete an I-9 (which can be downloaded here) and e-verify with the state (Alabama's is here) to make sure your employee is eligible to work.
  • Keep Records

Keep detailed information on when your people work or are supposed to work and what time they will or will not be paid for. Give employee evaluations at least once per year and keep records about what was talked about. Document, document, document.

  • Where to Cut Corners

DISCLAIMER: This is not legal advice, and your situation may be much different depending upon your industry and work requirements. Always check with a licensed attorney before trying to "cut corners".

There are a couple ways to "cut corners" when you are just starting out. Practically speaking, the reporting and record-keeping requirements for very small businesses are considerably lighter than for larger businesses. Some of these requirements are pretty low, or can be eliminated entirely, but check with someone who knows before your start deciding to wing it.

Payroll Companies - Payroll companies came into their own roughly 20 years ago. As the reporting requirements for businesses began to grow, so did the time necessary to keep in compliance. Payroll companies sprung up in order to streamline this process. Nowadays, I'm of the opinion that payroll companies are essential starting with your first employee. The costs are marginal compared to the expense of an employee, and the time savings more than make up for the added expense. However, be careful. There are plenty of payroll companies that do not take liability for back payroll taxes or incomplete filings. If the IRS decides to hit you up for a mistake the payroll company made, you are still on the hook for that unless you have an explicit agreement otherwise. Make sure the payroll company takes liability for back taxes. This is non-negotiable.

Closing Thoughts

By now, I hope that I have convinced you that hiring your first employee is not that much of a hassle. Yes, there are some reporting requirements, but partnering with a reputable payroll company can take away most of the headaches. More importantly, make sure that the employee is a good fit for the company, and that they are fulfilling a specific strategic purpose. Remember, the job of a business owner is not to provide jobs. A business  owner's job it to make sure that quality products and services are reaching the desired market at a reasonable price. If an employee is not fulfilling that purpose, fire them. Hire slow, fire fast.But that's a conversation for another day.