Ready to hire your first employee? Prep with these 6 steps

Despite the pandemic, the IRS received more than 7 million requests for new employer identification numbers between January 2020 and June 2021, according to data from the U.S. Census Bureau.

As those businesses grow, many will reach an important milestone: hiring their first employees. Here are six things business owners should do first.

1. MAKE SURE YOU NEED HELP

First, look for signs that your business can’t move forward without assistance.

If you’re “personally at capacity” and receiving more orders than you can handle, it may be time to hire someone, says Phelan Spence , a services and financial analysis associate at JumpStart, a Cleveland-based nonprofit that works with entrepreneurs.

Hiring may also be on the horizon for business owners who are missing deadlines, fielding customer complaints or thinking about taking on a big project.

2. KNOW YOUR NUMBERS

Before hiring full- or part-time employees, your cash flow should be steady enough to support regular paychecks .

Business owners need to plan for expenses beyond wages, including Social Security, Medicare and payroll taxes, and, in many states, workers’ compensation. Benefits like health insurance add additional costs.

At the same time, bringing in a new employee can help you generate more revenue by expanding your capacity.

Spence says metrics like average monthly sales and average revenue per sale can help you understand how hiring someone will affect your finances and when it’s time to take that step.

“(Hiring is) not necessarily tied to a date — it’s really tied to hitting that number of customers or number of projects or products or services,” Spence says.

3. FIND PROFESSIONAL SUPPORT

Outside experts can help you navigate the hiring process. That team might include an attorney, bookkeeper, accountant and HR consultant.

“Make sure that you get the advice of a professional to kind of lead you along the way,” says Angel Washington, owner of Cleveland-based medical billing and coding business Consult 2 Code . “You just want to make sure you do everything right from the beginning so you don’t have to go back and fix things.”

Expert advice can help you stay compliant with employment law, like understanding when you can hire independent contractors and when you need employees, and making sure new hires fill out the necessary tax forms.

4. SET UP PAYROLL AND ACCOUNTING SYSTEMS

When a business owner hires a new employee, they need to gather certain documents for tax and legal reasons. And when they pay that employee, they need to withhold money for tax and insurance payments.

“When you’re at this stage, it is really important to start thinking about your systems and invest a little bit of time and energy in your systems,” Spence says.

Those systems could include payroll software, most of which can automatically withhold funds from paychecks, or accounting software, which you can use to keep your finances organized as your business grows.

5. POSITION NEW EMPLOYEES FOR SUCCESS

Your first employee is the first person that you are entrusting your vision to, says April D. Halliburton, founder and president of virtual HR company All-4-HR . Halliburton is also a volunteer mentor with SCORE, a nonprofit organization that offers business owners free resources, including webinars and how-to guides about hiring employees.

Start by writing a clear job description, Hallburton says, and don’t rely totally on a template because “10 different companies are going to have receptionists doing things 10 different ways.”

Halliburton encourages business owners to work with an HR professional to create an employee handbook so employees know how to navigate the workplace. Also, consider creating manuals that walk new employees through key tasks.

“I think you make the biggest impact within the first few months,” Halliburton says. “The last thing you want to do is not give the effort and energy that is needed when you’re hiring your employees and growing your staff and culture.”

6. GET READY TO LET GO

Washington started Consult 2 Code as a solopreneur. She now has a team of seven, including full- and part-time employees as well as independent contractors.

Washington thinks most entrepreneurs “want to do things ourselves because our name is the brand and the brand is our name.”

But hiring a team has allowed her to step back from day-to-day tasks and focus on running and growing her business.

“Being able to let go was really hard,” Washington says. “But once you do let go, you can finally be able to breathe.”

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This article was provided to The Associated Press by the personal finance website NerdWallet. Rosalie Murphy is a writer at NerdWallet. Email: rmurphy@nerdwallet.com.

RELATED LINK:

NerdWallet: 5 Bookkeeping Best Practices for Startups and Small Businesses https://bit.ly/nerdwallet-smb-5-tips

Small business help from SCORE: https://www.score.org

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