You have more invoices than products or hours. Your business can’t place orders or spend the revenue or investments you have coming in fast enough. You have grown your business to the point where you need some help. You put out a job posting, conduct a quick interview, and agree to bring on your first employee. Congratulations, you have created a job and wealth in the economy. Thank you for your service! You have hired the key to growing your business to the next level. The value that people bring to a business can be immeasurable. However, now you must pay taxes, ensure you are compliant with local, state, and federal labor laws, and ensure your employee fits your culture!
There are things you “must do”, “should do”, and “absolutely do not do” that we’ll go over in today’s post.
You must apply for an EIN, if you don’t already have one. If you are changing your business structure (from sole proprietor to corporation or LLC, or LLC to S Corp), you must apply for a new EIN.
You must apply for a NC state withholding account to file and pay withholding tax.
You must apply for and purchase workers’ compensation insurance. Reach out to your favorite business insurance provider to get quotes and purchase worker’s compensation insurance.
Apply for a withholding number from the NC Department of Revenue. You will receive your state withholding number in the mail within about 2 weeks.
You must register with the Department of Employment Services office to receive an unemployment insurance number and account. The DES will give you a rate for unemployment insurance. On this site you will also report new hires and fires.
You must collect employment and tax documents from your new team member. Those forms include at a minimum:
- Form I-9 Employment Eligibility Verification
- Form W-4 Employee’s Withholding Certificate
- NC Form 4 State Employee’s Withholding Form
These forms must be filled out completely and accurately by your team member. You will be required to collect the forms and keep them on file. These forms are also used to collect and withhold the correct amount of taxes from each paycheck.
You must also post Labor-law posters required by the state of NC and the US Department of Labor. These ensure your new team is aware of labor laws that apply to your business and the contact information to report incidents.
You will need to set up a payroll system to accurately calculate your employees pay, withheld taxes, and unemployment insurance.
You must file your 940 and 941 every quarter, summarizing your employee and employer payroll taxes. You must also file your withholding taxes regularly and pay your unemployment insurance premiums to the state. You must also report your new hire to the Department of Employment Services (and report if you fire them) within 30 days of the hire.
This is a summary of the things you Must Do when you decide to hire your first team member. Planning the above events and tasks is something you’ll want to do at least a few months before making your hiring decision to ensure your business is compliant with employment laws. GSD Financial Services, LLC can help you navigate the process.
Before hiring your first employee, you should consider how they will fit in your business model (if you can’t describe your model, you may want to think about it before hiring). Bringing in your first employer is a moment that could likely make or break your business. Ensuring you have created a space for your new employee to thrive is key to capitalizing off of this pivotal moment in your business’ growth.
Develop a job description and general and specific tasks expected. To do this, visit your business model and determine how your employee is going to help you optimize it. If you haven’t really gone through the exercise of developing and documenting a business model that you can communicate to potential employees, partners, investors, lenders, and vendors, that’s ok, you can do a more thorough review later. But, at the least you should be able to communicate with your employee three things:
- What value you bring to your clients with your service or product
- What information, services, and materials your business needs to deliver your service or product
- How you take the information, services, and materials and deliver it to your clients
Said simply, what does your business buy for a low cost, and how does it turn that into something that clients want to buy at a higher price. If you can explain this to your employee, you can explain how they help your business continue to do that.
Once you figured out how an employee can help you continue buying something at a low cost, and turn it into something your clients want to buy for a higher value, you should write it down thoroughly. This will be the basis of your job description. If you are not a great writer, consider hiring an editor, or hire GSD Financial Services, LLC, and we’ll assist you in developing the job description, and your business model.
Determine an appropriate wage rate and benefits. This is not as simple as keeping the employee within your business’ margin. Again, visit your business model and estimate how your business will grow after hiring your first employees. Use the projected amount of growing revenue to determine the value of those employees’ wages and benefits. How much you pay your people is the only way to show your appreciation for their service in your business. Other elements, such as culture matter a great deal, but an employee paid less than they are worth in a business will surely leave. If you need help coming up with a model on how much you should pay your employees, GSD Financial Services, LLC can help you develop a model to determine the value of hiring your first employees.
Develop an employee manual and a job SOP. The employee manual describes the business, the business’ values, mission and vision, gives a code of conduct, information on accessing pay information, benefits, and more. It communicates to employees how administration works within the business. An SOP (standard operating procedure) is a document that gives the step-by-step processes that are standard to completing processes within a business. These assist employees with tasks that are routine and required to run the business. Every task or process might not have an SOP, because all processes can’t be standardized (especially in positions that require creativity), but any task that can be standardized should be. If there are certain software or systems that are required in the business, consider keeping manuals on how to access and use these systems and software.
Must Not and Should Not Do
This section will be short as it will list the opposite of everything we suggest in the Must Do and Should Do sections with some additional details on why or what might happen.
Do not confuse a contractor with an employee. This is thematic in the “gig economy”, where businesses are “hiring contractors”. You should consult the IRS definition on what a contractor vs. what an employee is. Basically, you cannot control how a contractor accomplishes what you contracted them to do and you cannot tell them where they can do it. There are some exceptions to this, but these are good general guidelines. Failing to properly classify an employee will result in fines and back pay of benefits to that employee.
Do not hire employees without keeping records of their employment. Failing to keep accurate records of employment documents such as timesheets, withholding forms, employment eligibility forms, payroll information, direct deposit forms, etc. Will result in hefty fines from the federal and state government. Use an HR management solution to maintain these records. GSD Consulting services can help you organize and maintain these files.
Do not underpay your employees. There is the federal wage limit, the state wage limit, then there is the livable wage limit and what we’ll call the value wage limit. If the position you are hiring for is a full-time job, consider using the value wage limit, meaning calculate how much that employee is worth to the business and pay them that amount. If your position is part-time, consider using a livable wage amount in your community. If your business can’t afford to pay the livable wage limit, consider alternatives to ensure you can afford to at least pay the livable wage. GSD can help you determine ways to pay livable wages while maintaining profitability in your business.