How to hire employees: A step-by-step guide for small business owners

If you’re reading this, you might be on a quest to learn how to hire employees for your small business. Regardless if you’re a sole proprietor seeking to bring on your first set of extra hands or an established business adding to your current headcount, hiring new employees is a huge milestone that should receive careful attention! After all, the individuals you bring onto your team as a small business owner play a critical role in shaping your company’s future.

Ready to learn the hiring process? Whether you’re seeking knowledge about how to hire your first employee or fifth (or even contract help), read on as we outline the steps to make this process a breeze.

Before hiring employees, consider these points

Before hiring employees, make sure you get your ducks in a row. Start by following these hiring tips:

A small business owner who knows how to hire employees sits across from a potential hire during an interview.

Get a handle on your finances: Review past P&L Statements and income statements to ensure you’re financially ready to start the employee hiring process. If your business can’t commit to a full-time employee salary, consider hiring independent contractors, part-time employees, seasonal workers, or interns.

(Read up on tips for hiring an independent contractor vs. employee.)

Apply for an Employer Identification Number and register in your state: First, ensure your business has an Employer Identification Number (EIN). This number goes hand in hand with filing your small business taxes. You can apply through the Internal Revenue Service (IRS) website.

Then, make sure your business is state-registered. States may require you to register separately for an identification number. (In some states, it’s called an Employer Account Number or EAN.) Head to your state’s Department of Revenue website for specific state information.

Determine business gaps: Determine where talent gaps exist and what kind of support you need from a potential candidate. Make a list of the most needed tasks. For instance, is your trouble area marketing and promotions or manual labor? Write down a complete list to visualize and plan for what’s next.

Write a job description: Create a detailed job requisition. The job description should articulate your company overview and culture, job responsibilities, required years of experience, desired skills, and employment screening requirements. It should also contain an Equal Employment Opportunity (EEO) statement and share job location or terms, education and other certification requirements, employee benefits, and salary range. Be articulate and thorough to ensure you attract the right employee to fill the talent gaps in your company.

Determining employee pay: Including your future employee’s title, organizational level, and pay upfront will help both sides come to the interview table prepared. If you’re an S Corp, you may already have experience determining reasonable compensation for yourself. But if this is your first external employee hire, it’s normal to feel a little nervous about setting pay ranges. As you consider the value of this new employee, make sure their salary or hourly rate aligns with the work you need to be done, the role’s seniority, and your available budget. Remember, at the end of the day, a good employee should increase your business’s ability to create revenue and bring in customers.

Research worker’s compensation insurance: Workers’ compensation insurance protects your business in case an employee gets injured on the job. Workers compensation insurance has different requirements based on the state your business is in. For example, in Wisconsin, you need worker’s compensation insurance if you employ three or more part- or full-time employees. The same holds if you pay a combined $500 or more in gross wages within any calendar quarter as a Wisconsin business. You can purchase worker’s compensation insurance from several private insurers. Check with your local state agency, board, or commission to confirm the guidelines in your area.

Research state and federal Department of Labor laws: In addition to federal labor laws you must adhere to as an employer, each state has nuanced laws to abide by. As a business owner, you must stay current on existing and future guidelines employers must follow. It’s a good idea to educate yourself on what departments and groups are responsible for enacting and enforcing these rules.

Payroll services made simple

Cross paychecks off your small business to-do list

How to find employees – and more steps in the interview process

After you do the preliminary work, now it’s time to find employees, interview them, and select the perfect candidate.

Where to find employees

Post the job opening: If you’re wondering where to find employees for small business, follow along. Start by looking within your network. Find candidates through connections and employee referrals. Ask your friends, fellow business owners, and family if they know anyone who would fit the job requisition when hiring employees. You can also post the job in the following places:

  • Career/ college career fairs
  • Newspaper ads (in mainstream and niche publications)
  • Classified ads
  • Online advertising
  • Social media
  • Professional associations
  • Trade journals
  • Job boards

How to hire workers

Review applications and select candidates to interview: If all goes your way, you’ll receive applications from many candidates. Take time to review candidates’ backgrounds to ensure they meet the job expectations when hiring employees. You can also narrow the pool of applicants with pre-screening or pre-employment tests. This can help measure the knowledge an applicant needs for the tasks.

Set up interviews: Conduct interviews. Before the interview, ensure you’ve built a strong list of questions to ask each interviewee. During the interview, review their qualifications and experience. Don’t forget to ask behavioral questions to identify how they’d handle future situations.

Run a background check: Background checks can vet a future employee’s criminal and driving record. Before you pull the check when you are ready to hire an employee, refer to local and state labor laws.

Extend and offer: After considering each candidate’s character, core values, experience, and education, extend a job offer to the right candidate. Many employers choose to make their employee hire official over the phone, followed by an email that includes these details ( provided in alphabetical order):

  • Benefits
  • Company name
  • Contingencies (ex. dependent on a clean background check)
  • Date of offer
  • Exempt or non-exempt classification and other position terms (part- or full-time, for example)
  • Expected start date
  • Expected travel (if applicable)
  • Job title
  • Pay
  • Reporting structure

It is standard practice to notify interviewees who didn’t get the position that the position has been filled. It is also a good idea to pull or close the job position if you have listings on your website or other job resource boards. Maintaining respectful and professional lines of communication as an employer can help you in the long run. You never know when a previous candidate might be the perfect fit for a future role.

Next steps after hiring employees

After the new hire offer is accepted, there are a few more essential steps to consider as a part of employee onboarding.

Complete Form I-9: Once the offer is accepted, have the new employee complete and return an I-9 form to confirm U.S. work eligibility.

Complete Form W-4: When the employee starts, request they complete Form W-4, Employee’s Withholding Certificate, so that you can withhold the correct amount of taxes from the employee’s pay.

Show the new employee the ropes: Ready for the employee’s first day? It takes prep work not only on the employee’s end but also on the business end! Make sure the new employee receives suitable materials to feel comfortable in their new role:

  • Company’s background, history, and mission
  • Layout
  • Safety protocols
  • Introductions to key leaders, teammates, and vendors
  • Employee handbook (if applicable)
  • Goal setting
  • First-day paperwork

Post workplace posters: The Department of Labor updates labor law posters – post them to comply with federal requirements. Post any applicable state posters as well.

Report new hires to the state division of employment: The process varies from state to state, but generally, you’ll need to report new hires to the state for payroll and unemployment tax purposes. Report the business’s EIN/EAN, name, and contact information. Additionally, report the employee’s name, Social Security number, address, and start date.

Set up your employee’s new taxes: As part of your payroll and tax duties, you must deposit federal income taxes you withhold from your employees’ pay, as well as the employer and employee portions of Social Security and Medicare taxes. You should make these federal tax deposits electronically.

Have your employees fill out a Form W-4 to indicate their withholding preferences. They should also fill out a state income tax form to indicate withholdings.

Quarterly returns: You’ll also need to file Form 941, Employer’s Quarterly Federal Tax Return, with the IRS for every quarter you pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits), or Social Security and Medicare taxes. That’s unless you get a notification from the IRS saying you can file a Form 944, Employer’s Annual Federal Tax Return.

Pay Federal Unemployment Tax (FUTA): Only the employer pays FUTA; it isn’t withheld from employees’ wages.

Pay local and state taxes: In addition to all the federal requirements, you must follow regulations from each state and locality whose residents you employ, including withholding for local and state taxes where applicable. Local and state tax requirements are usually similar to federal requirements. However, states and municipalities can modify their requirements, so it’s critical to learn the local and state requirements that may apply to you after hiring employees.

Set up payroll: Payroll automation can reduce processing costs and human errors. Need hands-on support? At Block Advisors, our payroll professionals make it easy to hand off your payroll tasks and ensure tax filings are a breeze. Learn more about our payroll services.

How to hire employees as a sole proprietor

If you’re a sole proprietor, the prospect of getting extra help on your business is exciting! As you shift from sole proprietor to employer, it’s common to feel overwhelmed, too. However, don’t worry. If you want to know how to hire employees as a sole proprietor, reference the above process. You’ll usually need to follow the same instructions to hire employees listed above.

Get help making employee hiring and other decisions for your small business.

Whether you’re hiring your first employee or fifth, hiring decisions are among the most critical you’ll make for your business.

If hiring employees is on your to-do list, make sure your next step is to get help from Block Advisors for small business tax, bookkeeping services, and employer payroll responsibilities. Our experts are equipped with expertise and technology to give you peace of mind so you can get back to working on the parts of your business you love most.

See how we can help with your payroll needs and answer your payroll questions.

Schedule a free payroll consultation today.


Block Advisors Built by H&R Block

This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice. 


 

Find tax help in your area.