How to Hire an Employee

A Small Business Owner's Guide to the Legal Hiring Process

As your business gains momentum, you might find yourself unable to keep up with the demands of running it. If you and a business partner are still handling all aspects of your company, it may be time to hire an employee to relieve you of some of these duties.
Adding a team member is a crucial step to scaling your business. It allows you to stay focused on running your company, while delegating day-to-day responsibilities to a worker.
From assessing your employment needs to signing an Employment Contract, here are the steps involved with employing an individual.

Step One: Create a Hiring Strategy

Developing a recruitment strategy for your business will help you to determine whether adding resources is a cost-effective move and if you even need to hire at all.
Start by asking yourself some basic questions:
Next, review your state’s employment laws. Familiarizing yourself with these regulations will help to outline the terms of employment, such as work hours and pay.
  • Do you need someone part-time or full-time? Long-term or short-term?
  • What salary or hourly wage can you pay them?
  • Can you offer benefits, vacation days, or sick time?

Understanding Employment Laws

When hiring new staff for your small business, it’s important that your hiring process complies with employment standards, laws, and regulations.

In the United States, the federal government puts forth minimum employment standards in the Fair Labor Standards Act (FLSA) regarding minimum wage, child labor, recordkeeping, and overtime.

Many states have enacted employment legislation, which can override federal minimums if it is higher than the FLSA. There are even some municipal and industry-specific (e.g. construction) minimum employment standards. Employers are expected to abide by the highest of all minimum standards. For instance, if your state has a higher minimum wage than the federal minimum wage, you must at the very least pay your employee the state minimum.

Step Two: Recruit Candidates

When you are ready to begin the hiring process, you’ll want to:
1. Finalize the job description.
2. Advertise the position in a local newspaper or by posting it online (job boards, social media, your website). Alternatively, you can enlist a recruiter to help you find a candidate.
3. Review resumes as they are submitted and screen applicants based on their qualifications.
4. Create a list of people you would like to interview.

Anti-Discrimination During the Recruitment Process

Employers cannot discriminate against potential hires at any point during the hiring process. Anti-discrimination laws protect applicants from being harassed or screened based on their race, religion, gender, sexual orientation, marital or family status, disability, or age.

To ensure you conduct a fair hiring process:

  • Advertise the position in a variety of places to reach a diverse selection of people.
  • Avoid discriminatory language or criteria in your job description.
  • Refrain from asking personal questions during the interview or reference check.
  • Adopt a standard, transparent hiring process and treat each candidate the same.

Step Three: Conduct Interviews

After shortlisting candidates by work-related skills and experience, your next steps would be to:
1. Schedule interviews with a few select candidates.
2. Develop a plan for the interview. Create a set of standard questions, plus write down anything from their resume you want them to clarify or elaborate on.
3. Conduct the interview in person or a virtual format, such as video chat. Take notes and assess each candidate’s responses.
4. Conduct a skill test only if it is necessary for the position.
At this point, you may or may not have found a suitable candidate. If you haven’t, you will need to continue looking. If there is a clear choice, ask them for references to verify their information before making an offer. Contacting references can be an effective way to limit negligent hiring and also provide insight into an applicant’s skills through a third-party source.

Applicants with Disabilities

If you are interviewing someone with a disability, it is your responsibility to provide reasonable accommodation, such as arranging wheelchair access or providing proper tools for the hearing impaired. In this case, questions about mental, physical, and emotional capabilities may be asked in order to conduct an interview, administer a test, or provide proper working conditions.

Applicant Background Checks and Drug Testing

If relevant to the job (for example, health care, child care, education workers, etc.), employers can perform background checks on an individual’s driving records, credit history, and criminal record. To conduct a background check you should have the applicant’s approval, usually written consent, and also supply them with a copy of the results.

Be mindful of your state’s laws as some regions allow for criminal history checks, while others prohibit hiring based on criminal history.

Like background checks, employers must also have the applicant’s consent for drug testing and should conduct these tests with respect to an individual’s privacy. To be sure you are following proper procedures, review the rules for drug and alcohol testing in your state.

Step Four: Make an Offer

Once you have selected the most qualified candidate, your next step may be to contact them, confirm their interest, and present them with an Employment Offer Letter.
The purpose of an offer letter is to lay out the terms of employment before the employee starts work. It usually includes a start date, pay rate, employment capacity (full-time, part-time, or contractual), work hours, benefits, and more.
If the conditions are agreeable, the chosen candidate accepts the position by signing the letter. They may also try to negotiate terms of the offer before submitting it back to you. If the candidate declines, you may consider contacting your second choice hire, or conducting further interviews until you find a suitable choice.
Ready to make an offer?

Step Five: Prepare for Your Employee's First Day

An employee’s first day will look very different depending on the position, but here are some ways you can prepare for their first day on the job:
  • Order the tools and supplies needed for a new hire.
  • Set up a workspace, such as a desk with a computer.
  • Develop a plan to onboard the new employee, however simple it may be, such as setting them up with software or a company email address, explaining their duties, or reviewing policies.
You will also need to complete a series of administrative tasks before their first day:
  • Apply for an employer identification number (EIN) if you do not already have one.
  • Submit your new hire to the state hiring reporting program.
  • Register your business with your state to set up income tax withholding (only in select states).
  • Purchase workers’ compensation insurance.
  • Set up a payroll system to withold taxes, either by doing it yourself using a payroll accounting software or through an accountant or bookkeeper.
  • Post notices around the workplace with information about workers’ rights, resources, and labor laws. Some states also require that you give pamphlets to a new employee (e.g. Time of Hire pamphlet in California).
  • Determine state unemployment taxes to report and pay to the IRS.
  • Create a file for your employee. You are required to keep accurate employee records for tax purposes. Store this person’s contact information and resume, their offer letter, employment agreement, tax information, and additional forms in their folder.

Step Six: Sign an Employment Contract

After the employee accepts the offer and begins work, make your new hire official with an Employment Contract. A contract of employment covers all of the conditions of their employment at your company, including information about the position itself, compensation, confidentiality, competition, vacation, probation, dispute resolution, termination, and more. It should be consistent with the terms you laid out in the offer letter.
Drafting an agreement is important because it reduces hiring costs, as well as:
  • Outlines the new employee’s working responsibilities and performance standards.
  • Describes the benefits an employee will receive.
  • Mitigates risk for both parties by defining employer and employee expectations.
  • Provides recourse for misconduct or other issues.
  • Prevents conflict by having terms agreed to in writing.
  • Allows employers to control the duration of a job or outline grounds for termination.
  • Protect confidential information or trade secrets from being shared by a new employee.
Ready to define the terms of employment?

Step Seven: New Employee Forms

In addition to an Employment Agreement, the new hire will need to fill out other forms within a few days of starting employment, including:
  • I-9 Form to verify worker eligibility.
  • W-4 Form for federal income tax withholding.
  • State income tax withholding form, if you’re in a state that collects income tax.
  • Non-Disclosure Agreement if you have business information you want to protect.
  • Automatic payroll deposit forms if necessary.
  • Emergency contact information.

From Business Owner to Manager

Hiring your first employee can be an exciting milestone for your business, but it can also be a learning curve if you’re not prepared. You may be hiring someone to help alleviate your workload, but they’re not the only one taking on a new role. You will also have to take on the additional responsibility of being a manager, which means supervising someone and adhering to labor laws.
Make sure to educate yourself on employment laws and follow the steps outlined above, to ensure you are always following the proper protocol in your state. Employment law is an ever-changing system of rules, and it’s a good idea to brush up on your state’s legislation regularly.
Employees can be invaluable to a business’s success, and as you continue to grow your team, they may be your greatest asset on your journey forward.
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