coffeebeanworks / Pixabay

Hiring employees is a milestone for many business owners. Taking on new employees might represent business growth. And, hiring can alleviate your stress and free up your time. But before you take this next step and become an employer, you need to be prepared.

Questions to ask before taking on employees

Taking on employees shouldn’t be a spur of the moment decision. Ask yourself the following questions before beginning the hiring process.

1. How do I prepare my business for employees?

Before you even think about drafting a job description, you need to get your ducks in a row. Consider what you need to do when you hire an employee.

You need to register for quite a few things when you hire an employee. You will need to apply for an Employer Identification Number (EIN), register for state tax accounts, report new hires, and obtain workers’ compensation coverage.

An EIN is a nine-digit number that identifies your business on tax-related documents. You must record your EIN on documents like Forms W-2 and 941.

Your state requires that you register for state tax accounts, like an unemployment insurance account. Check with your state for more information.

Once you hire your first employee (and each employee after that), you will need to report them to the state. The time frame for reporting employees is set by the state.

Most states require that you obtain workers’ compensation coverage. Generally, you can shop for the insurance using private insurance companies. However, you must obtain workers’ compensation coverage through your state if you have employees in North Dakota, Ohio, Washington, or Wyoming.

Keep in mind that this isn’t an all-inclusive list. But, it’s good to keep in mind which general accounts you need to sign up for when you have employees.

2. Do I know employment laws?

When you become an employer, you are responsible for understanding and following employment laws established by the Fair Labor Standards Act (FLSA).

You must follow overtime and minimum wage laws when you have employees. Pay overtime wages of one and a half times the employee’s regular rate of pay when an employee works beyond 40 hours in a workweek, unless the employee has exempt status. And, you will need to pay at least the federal, state, or local minimum wage.

Plus, you need to keep records for a certain amount of time, according to the FLSA. Keep payroll records for at least three years. Make sure they are detailed and organized.

3. What kind of employee do I need?

Now comes the part that interests most business owners: figuring out who your ideal employee is. What will you need your employee to do? How often do you need them at your business? Where will you find them?

If you’re like most small business owners, you might need your first employee to take on a multitude of different roles. It’s important to narrow down the employee’s responsibilities. You can look at comparable businesses and job descriptions for inspiration. After you have the position nailed down, you can determine the skills, qualifications, experience, and education the employee must have.

You also need to figure out how often you need the employee at your business. Do you need full-time, part-time, or seasonal help?

After you determine what kind of employee you need, you can map out places the employee can apply from. You can use job boards, post the job description on your company’s website and social media pages, and obtain referrals from family and friends.

4. Is my payroll in order?

Before you take on employees, you should think about payroll. Decide pay rates, which benefits you will offer, and which payment method (e.g., direct deposit or paper checks) you will use. Not to mention, you need to determine how you will run payroll and familiarize yourself with payroll taxes.

You can manage payroll by hand, outsource payroll, or use payroll software. Managing payroll by hand is the most cost-effective but time-consuming method. Outsourcing payroll saves you the most time but is costly. Using payroll software can be a good middle ground for many business owners.

Make sure to factor in the cost of payroll when you are thinking about taking on employees. And, consider the time it will take you to remit and report payroll taxes if you manage payroll by hand.

5. Am I ready?

One of the most important questions you should ask yourself is whether your business is ready to take on an employee or not. Will adding the extra expense of payroll break the bank? Or, are you long overdue to get some help at your business?

Make sure your business can afford the expenses that come with hiring an employee. Do an analysis of your finances by looking at your small business income statement. Your income statement will show you your business’s revenues and expenses, which can help you determine if your business can afford an employee.