Though many business owners choose to begin with a sole proprietorship in which they are the sole employee, eventually, you may want to expand. Being responsible for everything that your business does can often feel overwhelming, inefficient, and an avoidable barrier to earning more income.
Deciding to expand your business and utilize multiple different employees can be very exciting. Your role as the business owner will begin to change and you will also be able to perform more complex operations. However, hiring your first employee can sometimes be difficult if you are unsure how to approach the process. There are several important things to keep in mind when hiring your first employee.
What kind of employee are you hiring?
The term “employee” is naturally rather expansive and can be used to describe a very wide variety of different relationships. For the benefit of your business, your employee, and various institutions (the government, unions, etc.) your relationship with any new employee is something that should be clearly defined from the very beginning.
The Department of Labor will require that all of your employees are of legal working age and are also being compensated at a rate that is the minimum wage or higher. Depending on your industry, there may be certain exceptions, additional requirements, or details that you may want to investigate. Additionally, the Department of Labor will also want you to categorize the type of work that a given employee will be performing.
- Independent Contractors are individuals who legally work for themselves or another company. Typically, independent contractors are employees who work on a per-job basis and will likely be paid using invoices. Common types of independent contractors include freelancers, consultants, or other individuals who work as needed.
- Common-Law Employees are the most common type of employees and are also the most likely to be working a specific position full-time. If the employer controls the work that is being done (equipment, location, methods, etc.), then that employee is probably a common law employee. Unlike independent contractors, payments to common law employees are tax deductible.
- Statutory Employees are allowed to report their income and expenses on their own. Examples of statutory employees include certain types of salespeople, some individuals working full-time from home, or various types of agents.
- Statutory Non-Employees are treated similarly to independent contractors for tax purposes but are a member of a larger organization. For example, a real estate agent who works with a specific corporation could be considered a statutory non-employee.
The type of employee that is best for your business will depend on what your business is hoping to accomplish. Regardless, it is very important to create a contract that clearly and honestly states your relationship before you receive any work or make any sorts of payments.
What kind of benefits package will you be hiring?
Depending on the kind of business you are running, you may end up offering a compensation package that includes things other than money. Typically, larger companies will have significantly more complex compensation packages than small companies. They also may be required by law to offer certain benefits that others do not.
There are many different things you can possibly consider offering.
- Money (issued via check, cash, direct deposit, PayPal, etc.)
- Health Insurance, Dental Insurance, Life Insurance
- Compensation for additional training or education
- Sick Days, Holidays, and Vacation Days
- Tangible benefits such as a car, remote office, merchandise, etc.
- Partial ownership of your company
- Matching retirement savings (via a 401 (k) or other savings vehicle)
Because your employees will likely depend on these things in their everyday life, it is also important to pay attention to whether at-will or contractually binding employment is most appropriate. If you are an “at-will” employer, you reserve the right to fire your employee and they reserve to quit whenever either party desires (though giving two weeks of notice is usually an industry standard). Certain employment benefits, such as health insurance, may be extended for a predetermined amount of time following the end of their employment.
What are you looking for in your new employee?
In order to make sure that your new employee is a good fit, it is very important to come up with a job description that is as specific as you can feasibly make it. Discussing things such as preferred employment backgrounds, education requirements, and relevant licenses will all make the search process significantly easier. The specific type of employee you should be looking for should correspond with what the employment market has to offer as well as the types of tasks they will be performing.
There are many different platforms that are incredibly useful for finding the specific kind of employee you are looking for. Using websites such as LinkedIn, Upwork (for independent contractors), Monster, Indeed, and numerous others is an excellent way to begin. In order to avoid people “spam applying” without much thought, it is a good idea to have specific questions to be answered during the application process. You may also want to consider using a recruiting service if you are uncomfortable handling the hiring process on your own.
How will evolving from an individual to a multi-person operation impact your business?
Another thing you will want to keep in mind when hiring your first employee is how the addition of a new person will change the dynamics of your business. Many business owners make the mistake of hiring someone just because they feel as if “it’s time.” Then once their new employee is hired and ready to work, the owner finds it difficult to earn a justifiable return on their investment.
Hiring a new employee will complicate your business’ structure, tax requirements, reporting obligations, and daily operations. However, it will also present the potential to increase the amount that your business is able to do earn on a regular basis. Expanding your business can be both challenging and rewarding.—sustainable hiring decisions should be made using a cost-benefit framework. If you are able to be incredibly specific regarding what you are looking for, design a clear and detailed path forward, and find someone who can earn your business more income than it costs to pay them, you will be moving in a positive direction.
Andrew is an experienced writer with degrees in Finance and Political Science from the University of Colorado. He also has experience in the real estate and life insurance industries. His other primary interests include economics, entrepreneurship, political philosophy, and nature.