Hiring your first employee: What you need to know as a small business

Pop the bubbly (or your beverage of choice) because it’s official—it’s time to hire your first employee. As a small business owner, hiring your first employee is a major milestone. It means you’re growing and now you’ve got the team to prove it.

But if you’ve never brought on a new hire before, the process can feel a bit daunting. Between the legal paperwork and onboarding, hiring a new employee is a pretty big undertaking.

Luckily we’re breaking down everything (and we mean everything) you need to know to successfully hire your first employee. We’ve even put together a hiring checklist to make the hiring process seamless—and dare we say—fun?

Are you ready to hire your first employee?

Hiring is a big commitment. So before you officially put up that job posting, you need to be confident that hiring is the right move for you. 

Whether you’ve been thinking about it for a while or you’re still in the early stages of making that decision, there’s a lot to consider.

So how do you know if you’re really ready to hire your first employee?

Like with most things, the answer’s not that simple. There’s no one-size-fits-all formula here. But there are some pretty universal signs that you can look for to decide if it’s time to hire some help.

1.  You have more work than you can handle

Customers lining up to work with or buy from you is usually a good thing. It means you’ve created a reputation for delivering an excellent service or product.

But if you’ve created a pipeline of customers that’s bigger than you can handle, that means you end up having to turn customers away. And most small business owners love serving their customers, which means it can be a difficult thing to come to terms with.

But by hiring an employee, you may not have to! With some extra help and hours, you can handle more customers and even expand your business.

2.  Decrease in customer service

Whether you’re a plumber or a photographer, as a service-based business, you are your product. This means delivering a top-notch customer experience should be a priority.

As you get busier, you might notice that your response times are delayed. Or maybe you’ve even missed appointments entirely. 

When it comes to growing businesses, this growing pain isn’t unheard of. If you’re running at full capacity all the time and burning yourself out, it’s almost impossible to give every customer 100%. 

Even the little things can make or break the customer experience. So if customer service is taking a hit, it might be a sign that hiring an employee could be the right move. Whether it’s helping with your service or supporting from an admin perspective, extra employees can help reduce your workload—so you can focus on delivering a stellar customer experience.

3. You’ve hit a plateau 

If you feel like your business is stuck and you’re no longer growing, there’s a chance you’ve hit a plateau. Businesses plateau for many reasons. Hiring an employee might be the trick to kickstarting your business’s next stage of growth.

Expanding your team means you can take on more customers or finally tackle that task that’s been sitting on your to-do list for months. All things that will help you start growing again.

3. You can’t take time off

Small business owners are ambitious. And because they love their jobs, they have a tendency to bite off a bit more than they can chew. But no one should be working 24/7.

If work is piling up to the point where you’re never able to step away, it might be time to think about putting up that  “Help Wanted” sign.

Breaks are critical for maintaining a healthy work-life balance. When you’re overworked, it reflects in your work quality and can impact how successful your business is. 

Hiring a new employee can give you some extra leeway to take time off—whether it’s a weekend away or a week-long vacation

What to know before hiring your first employee

So, you’ve decided hiring an employee is the right move. What’s next?

The first step is familiarizing yourself with your newfound duties. It’s kind of like onboarding for a new job, except your new role is being an employer.

Here’s a rundown of a few things you should consider before hopping on the hiring train.

1. Review your local labor laws

Being an employer isn’t a free-for-all. There are some pretty strict rules you have to follow. 

When it comes to labor laws, it’s best to take a proactive approach and gather information in advance. You don’t want to find yourself in hot water because you missed something along the way.

And trust us, nothing ruins the excitement of hiring a new employee like an unexpected call from the Department of Labor.

Let’s take a look at some of the legal stuff that you need to be aware of before you can officially call yourself an employer.

• Employer registration: In the US, if you intend to become an employer, you need to register for an Employee Identification Number (EIN) with the IRS.
• New hire reporting: Once you officially hire your new employee, US federal law requires that you report all new hires within 20 days to your state.
• Payroll tax registration: You may need to register with your state to contribute to unemployment taxes (SUTA) and other payroll taxes.

2. Determine your labor costs

Many new employers are surprised to learn that hiring an employee costs more than just their hourly rate. Before you go through the hiring process, make sure you understand all the associated labor costs. Otherwise, you might find yourself with an employee that you can’t afford.

Some labor costs you’ll want to consider include (but aren’t limited to):

• Employee hourly wages and salary
• Payroll taxes and insurance
• Employee benefits
• Hiring, onboarding, and training

This is also a good time to evaluate how much you can afford to pay your new employee.

3. Set up a payroll process

When you hire an employee, you’re committing to paying them accurately and on time. And if you’ve spoken to other business owners, you know that running payroll can be a bit of a pain. 

The best way to avoid the payday scaries? Set up a standard payroll process before you hire your first employee. 

This way, you can hire with confidence, knowing you’ll never miss a payday.

How to start hiring your first employee

As the kids like to say these days, here’s where things start to get real. You’re officially ready to start the hiring process and find your perfect candidate.

But hiring is more than just putting up a “Help Wanted” sign and hiring the first person who walks in the door. According to Glassdoor, the average cost of hiring an employee is over $4,000. So it’s certainly worth doing right the first time.

Let’s break down the hiring process step by step.

1. Define the role and responsibilities 

This is where you plan out exactly who it is that you’re looking for and what they’ll be doing day-to-day. 

As you think through the role, some questions you’ll want to answer include:

• What will the employee be responsible for?
• Are there any secondary responsibilities?
• What skills do they need to perform the role?
• What qualities or soft skills should the ideal candidate possess?
• What’s the best job title for the role?

Your needs should be specific to your industry. For example, if you’re a hairdresser looking for a receptionist, you might want someone who has experience working with scheduling and customer service. But if you’re a financial services provider looking for an associate, you might want someone who’s experienced in the financial industry and has a degree in finance.

2. Write a job description

Next, you’ll want to take what you’ve outlined in the first step and turn it into a job description. This is the document that will outline the job requirements, responsibilities, and qualities required. So candidates can tell if they’re the right fit for the job.

On the flip side, a job description should also tell potential candidates why they should work for you. Think of it like an ad. Except, you’re the product and your target audience is the perfect candidate that checks most or all of your boxes. 

72% of employees want to know about a company’s culture before they apply to a job. So when writing a job description, highlight your company values and what a typical day might look like working for you. These details can play a huge role in helping you find the best talent.

But if you’ve never written a job description before, don’t sweat it. Homebase has a library of pre-written, customized job descriptions that will help you stand out from the crowd.

3. Fill your pipeline with ideal candidates

Post your job on free job posting sites to start collecting applications. Typically you’ll want to collect a resume and cover letter, but you may also want to include an employment application form.

Word of mouth can go a long way, so be sure to share the job description with your network as well. Depending on the role, you may also want to collect walk-in and referral applicants as well.

If you need help sooner rather than later, giving your job posting a paid boost can help you reach more candidates faster.

4. Screen your candidates

Start reviewing applications as they come in. If any candidates pique your interest, make sure to invite them for an interview.

When it comes to unsuccessful candidates, sending a simple thank you note can make a big impact on your employer brand. You never know when you’ll need to hire more employees. Just because a candidate might not be a yes today, doesn’t mean they won’t be a great fit for another role down the line.

5. Set up interviews

Interviews are when you get to meet your candidate in person or virtually. It allows you to learn more about their experience and see if they’re the right fit for the job.

You might start with a phone screen to get an initial feel for who they are. But as you move through the interview stage, you’ll want to ask interview questions that provide insight into their skills, background, and other behavioral traits.

Some popular interview questions include:

• Why are you interested in this role?
• Can you tell me about your experience in this type of role?
• What are your short and long-term career goals?
• How did you hear about the role?

While curiosity can get the best of you, remember that there are questions that you can and cannot ask during an interview. In fact, some questions are against the law. 

As a general rule of thumb, questions that could be grounds for discrimination should be off the table. For example, you can’t ask for a candidate’s specific age but you can ask if they meet the age requirements for the role.

6. Check background and references

Found a candidate that you love? Fantastic! But before you extend an offer, do your due diligence by conducting a background or reference check. This simple step helps ensure the person you want to hire is the right fit.

Background checks are typically a deep dive into an applicant’s identity, criminal history, and credit history. It helps to make sure the person is who they say they are. 

Under the Fair Credit Reporting Act (FCRA), if you plan to run a background check on an applicant, you must inform them in advance and get consent. Laws around background checks vary state by state, so make sure to check what the requirements are in your area.

On the other hand, a reference check is more tailored to an employee’s previous professional experience. Running a reference check helps verify a candidate’s previous employment and gives you a sense of performance. If your gig is entry-level, you might consider personal references in lieu of professional ones.

7. Make an offer

If you’ve made it this far—kudos! Because hiring is not an easy feat.

But now you’re rewarded with one of the most exciting steps in the process. You get to make someone’s day with a job offer!

You can offer the job verbally over the phone or in person. But make sure to provide a formal offer of employment as well. This is a document that clearly outlines the terms of your offer so the candidate knows what they’re getting themselves into. Offers of employment usually include:

• Job title
• Role and responsibilities
• Start date
• Working hours
• Hourly wage or salary
• Benefit details
• Other terms of employment 

Once you make an offer, make sure to let the candidate know when you need to hear back. We know you’re anxious to get an answer ASAP, but it’s best to give them a few days to think it through. It’s a big decision after all!

8. Send over any necessary contracts and paperwork

Now that you have an accepted job offer, take a moment to celebrate! But not too long, because you have some legal stuff to take care of.

The most important piece is the employment contract. This is a formal, legal document that both you and the employee sign. It outlines all the terms of their employment, including things around compensation, benefits, probation, termination, and much more. Keep in mind that your employment contract doesn’t supersede employee rights, so make sure your contract is compliant with labor laws.

How to effectively onboard your first employee

It might feel like a lifetime ago when you first started the hiring process. Don’t worry, that’s perfectly normal.

The average time to fill a job in the US is 26 days. And if you’re looking for someone with a more specific skill set, it could take even longer.

But now that you and your new hire have both signed on the dotted line, that’s all in the past, because it’s officially time for their first day. And that means onboarding!

Employee onboarding is the process of getting your new hire familiar with your business, their role, and their responsibilities. A solid onboarding process should include more than instructions for how to use the finicky coffee maker. (Although you should definitely show them how to do that too!)

Effective onboarding plays a huge role in long-term employee success and retention. Yet, only 43 percent of employees report an onboarding experience that was more than a single day of orientation and basic benefits information. 

So here’s your sign to make onboarding a priority, even if it’s your first employee.

1. Start with a warm welcome

The first day at any new job can be overwhelming. But even more so if you know that you’re the first employee at a company.

Before you get into all the nitty gritty onboarding details, start by making your employee feel welcome. It’s important to create a great employee experience starting from day one. After all, you’re going to be spending a lot of time with them.

A welcome letter and new hire packet are a great place to start. You might even want to take your new hire out for lunch or coffee, so you can get to know each other better. Even a gift card or welcome basket can go a long way in humanizing the onboarding process.

2. Tackle the paperwork

Paperwork can be a pain but it’s an important part of onboarding your new employee. Set aside some time on their first day to fill out and tackle any new hire paperwork. Typically, onboarding paperwork looks like:

• Tax forms so you can deduct the right payroll taxes, including a Form W-4 and Form I-9
• Direct deposit or payment information
• Health insurance and benefit details

Make sure all this information is stored securely so their personal details are protected. You’ll also want to keep them organized and on hand in case you’re ever audited.

3. Set job expectations

Based on the hiring process, your employee probably has some idea of what to expect. But you can’t assume that they’ll know everything.

From HR policies to performance metrics, take the time to set expectations around their duties and working experience. You don’t want to throw too much at them right away, but it’s important they have everything they need to do their job well.

It’s usually worth drafting your employee handbook and policies before your new hire’s first day. It’s a big project, but we guarantee your new employee will thank you for it. Clear guidelines and policies can reduce confusion and keep everyone on the same page from the get-go. 

4. Put a training and development plan in place

It’s also helpful to set expectations around their onboarding and training. Your new hire is about to absorb a lot of information over the next few days and weeks. So it can be helpful to know when and what they’ll be learning along the way. 

A training and onboarding schedule can provide some structure to help new hires navigate their new workplace. Even scheduling out time for the basics, like lunch breaks and documentation review, can give them the confidence they need during those first few weeks.

Worried you might miss something? An onboarding checklist is another tool that you can use to check off all the boxes during the onboarding process.

5. Collect feedback

Hiring and onboarding your first employee is a huge milestone. The truth is that it’s unlikely you’ll nail perfectly on your first try. And that’s okay.

The good news? Your business is going to scale, so you’ll likely get to do it again.

Once your first employee starts to feel settled, consider asking for candid feedback on their hiring and onboarding experience. More likely than not, they’ll be happy to provide feedback to help you finesse your hiring and onboarding processes in the future.

6. Set up time for a review and feedback

The feedback loop goes both ways. During the first few weeks and months on the job, take the time to offer constructive feedback to your new hire. 

Most employees want to know how they can improve and make a meaningful impact at work.

• What are they doing well?
• What are the areas of improvement?
• What can they expect going forward?

You don’t have to wait until a formal performance review to provide employee feedback—good or bad. In fact, it’s something you should be doing year-round to show your employee appreciation and set them up for success.

With that in mind, the onboarding period is still a perfect time to make sure your employee is on the right track. It’s worth setting time aside for more detailed feedback conversations in the first few weeks. A 90-day review is pretty standard, since many roles come with a 90-day probationary period. 

Your complete checklist for hiring your first employee

The process for hiring your first employee can be… a lot. But we promise that once you get the hang of it, it’s easier than you might think. 

To help, we’ve rounded up an easy-to-reference hiring checklist. It’s got all the essential steps and tasks that you’ll need to effectively hire and onboard your first employee.

Pre-hiring

• Register for your Employee Identification Number with the IRS
• Register for state unemployment (SUTA) taxes
• Determine the hourly rate or salary
• Decide what employee benefits you’ll offer
• Set up a payroll process

Hiring

• Create a job description
• Post your job on relevant job boards
• Set up interviews
• Run references and a background check
• Send an offer of employment

Onboarding

• Sign and collect an employment contract
• Prepare a welcome gift or activity
• Collect employee information, including:
  • Preferred name and contact information
  • Emergency contact information
  • Direct deposit or payroll payment information
• Collect tax forms, including:
  • Form W-4 (or W9 for contractors)
  • Form I-9S
  • State tax withholding forms where applicable
• Report your new hire to the state
• Register new hire for any health insurance or benefit programs
• Create a training and onboarding plan 
• Set up a time for performance reviews and feedback
• Gather feedback on the onboarding process

This handy checklist is perfect for most small service-driven businesses. But of course, every business is unique, so you may need to customize it to meet your needs.

Get hassle-free hiring and onboarding.

Join Homebase and get all the tools you need to hire your first employee fast—free job post templates, interview scheduling, new hire welcome packets, and more. Try Homebase Hiring

Hiring your first employee FAQs 

As a small business, how do you know if you’re ready to hire your first employee?

Here are a few signs that you’re ready to hire your first employee as a small business:

• You need more support in order to unlock the next stage of growth
• You’re unable to meet customer expectations and deliver a great customer experience
• You’re struggling to take time off work
• Your customer demand is more than you can handle

Every business is unique, so the right time to hire your first employee will depend on your specific needs.

What qualities should you look for when hiring an employee? 

The qualities you should look for when hiring an employee should be tailored to your specific job. However, some common traits you might want to keep an eye out for include:

• Enthusiasm
• Potential
• Willingness to learn
• Culture fit
• Communication skills
• Professionalism

How much does it cost to hire your first employee?

The average cost of hiring an employee is over $4,000. 

However, the total cost to hire your first employee can go up or down, depending on factors like required skills, compensation package, and industry. In general, entry-level roles cost less to fill than those that are more senior and specialized.

What are the steps to hiring your first employee?

The steps for hiring your first employee include:

1. Writing a job description
2. Posting and promoting your job 
3. Reviewing and screening applications
4. Interviewing potential candidates
5. Conducting background and reference checks
6. Making an offer and signing employment contracts
7. Onboarding your new hire

Is there a checklist for hiring your first employee?

You bet! We’ve got the ultimate checklist for hiring your first employee that includes everything you need to know throughout the process. It covers everything from pre-hire prep work, hiring tips, and an onboarding to-do list.