How to hire your first employee

Decide what job you are really hiring for

Hire to remove the task that costs you the most billable or growth time. Write down every hour you spent last month and mark what someone else could do.

Owners often hire a general helper and end up with a person who has no clear target. Instead, list your tasks and rank them by two questions: what do I dislike, and what earns the least per hour of my time? Bookkeeping, scheduling, deliveries and customer calls are common first handoffs.

Write a one-page role that names three outcomes you expect in the first 90 days. This makes the job posting clearer and the performance talk easier.

Think about the hours too. If the work is 12 hours a week, a part-time hire may be better than a full-time one. Starting small lets you test the fit before you commit to a bigger payroll.

Check whether an employee is the right setup

A person you control the schedule and methods of is generally an employee. Someone who runs their own business and sets their own methods may be a contractor. Misclassifying workers can bring penalties, so confirm with a professional.

Part-time help, freelancers and interns are different arrangements with different rules. Read our guides to types of employment and hiring freelancers before you decide. If you are unsure, ask an accountant or an employment attorney, since the tests used by the IRS and state agencies differ.

Also check local rules on minimum wage, overtime and paid sick leave, which vary by state and city. A quick call to your state labor department before you post the job can save a costly fix later.

Handle the legal and tax setup

Before the first day you need an employer identification number, state registrations for payroll tax and unemployment insurance, workers' compensation coverage, and a payroll system.

1. Get an EIN if you do not have one. See our guide to the business tax ID number.
2. Register with your state for withholding and unemployment insurance. Requirements vary by state.
3. Buy workers' compensation coverage if your state requires it for your headcount.
4. Set up payroll, either through software or an accountant.
5. Collect Form W-4 and Form I-9 from the new hire. Our guide on filling out the I-9 explains the timing.
6. Report the new hire to your state, as most states require.

Check with your accountant or state labor department for current deadlines and forms.

Price the true cost of the hire

A rough rule is that total cost runs noticeably above the hourly wage once you add employer payroll taxes, insurance, equipment and training. Build your own number rather than guessing.

These are example figures only. Your tax rates and insurance costs depend on your state and industry. Our post on benefit costs per employee helps with the benefits part.

Find and interview candidates

Post a specific job, ask the same questions of every candidate, and test the actual work. A short paid trial task tells you more than a long conversation.

Use local job boards, your own network and community groups. In the posting, state the pay range, the schedule and the first-90-day outcomes. Interview with the same five or six questions so you can compare fairly, and check references. Read about common hiring mistakes to avoid before you extend an offer.

Put the offer in writing, including pay, start date, schedule and who they report to. Our guide on offer letters shows what to include.

Skills matter, but reliability and willingness to learn matter more for a small team. Ask each candidate to describe a time they fixed their own mistake. Their answer shows how they behave when you are not watching.

Plan the cash for the first ninety days

A new hire gets paid before they produce much, so budget three months of their cost up front. Make sure revenue gains or time savings will cover it within about a year.

Payroll is due every period whether customers pay on time or not. If your sales are lumpy, a short gap between paying staff and collecting from customers can hurt. A business line of credit or working capital can bridge that gap, but only borrow if the hire clearly pays back through added sales or saved time. ROI Funder shows true cost and monthly-equivalent payments before you sign, and applying is a soft pull.

On day one, give the new hire a short written plan: who they report to, what to learn in week one, and what good looks like at 30, 60 and 90 days. Check in weekly for the first month. A clear start reduces turnover, and turnover is the most expensive part of hiring.