Ready to hire your first employee? Prepare 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 US Census Bureau.

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


First, look for signs that your business cannot move forward without help.

If you’re “personally at full capacity” and getting more orders than you can handle, maybe it’s time to hire someone, says Phelan Spence, Financial Services and Analysis Associate at JumpStart, a Cleveland-based nonprofit that works with entrepreneurs.

Hiring can also be on the horizon for business owners who miss deadlines, respond to customer complaints, or plan to embark on a big project.


Before hiring full-time or part-time employees, your cash flow should be stable 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 such as Medicare add additional costs.

At the same time, bringing in a new employee can help you generate more income by increasing 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 isn’t) necessarily tied to a date – it’s really tied to that number of clients or that number of projects, products or services,” says Spence.


External experts can help you navigate the hiring process. This team may include a lawyer, an accountant, an accountant and a human resources consultant.

“Make sure you get professional advice to walk you through the process,” 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 start so you don’t have to go back and fix things. “

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


When a business owner hires a new employee, there are certain documents that must be gathered for tax and legal reasons. And when they pay that employee, they have to withhold money to pay taxes and insurance.

“When you’re at this point, it’s really important to start thinking about your systems and investing some time and energy in your systems,” says Spence.

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


Your first employee is the first person to entrust your vision to, says April D. Halliburton, founder and president of virtual human resources company All-4-HR. Halliburton is also a volunteer mentor for SCORE, a non-profit organization that provides free resources for business owners, including webinars and how-to guides on hiring employees.

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

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

“I think it’s the first few months that you have the most impact,” says Halliburton. “The last thing you want to do is not put in the effort and energy when you hire your employees and develop your people and your culture.”


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

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

But hiring a team allowed him to take a step back from day-to-day tasks and focus on running and growing his business.

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


This article was provided to The Associated Press by the NerdWallet personal finance website. Rosalie Murphy is a writer at NerdWallet. Email: [email protected]


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