Small business beginners guide to hiring employees

by Staff Writer

For small businesses, hiring your first employee isn’t a simple process. There’s a number of preparations that need to be completed before the recruitment process can even begin. And even then, it’s a complicated (and usually new) process that requires a great deal of thought and care.

This guide serves as a step-by-step how-to resource for required preparations, forms, and other regulations as well as advice for making the hiring process both smart and efficient so employers can focus on hiring the best possible candidate.

Before you even start the hiring process

Forms, Taxes, Regulations, and Insurance

Employer Identification Number (EIN) – Before your business can hire a single employee it will need an Employer Identification Number (EIN). This number acts like a “social security number” of sorts for the business for tax purposes. For more information on Employer Identification Numbers or to apply for one, go to the IRS:

Employee regulations – Before you hire an employee, be sure you know and understand the expectations and regulations associated with being an employer. A list of Federal Regulations can be found here (, but don’t stop there:

Depending on your industry, state, and local laws, there may be a number of additional regulations regarding employee’s and/or the workplace. Safety protocols/regulations, employee posters, and other workplace regulations. You don’t necessarily need to be an attorney to understand them, but for some industries, you may need to hire a consultant to ensure full compliance.

Insurance – There are a number of insurance requirements for employers that can vary widely depending on the industry or state of employment. There are 3 major types of insurance that are typically required of employers. Be sure to research and comply with each before you hire your first employee.

  • Workers Compensation requirements (by state) – Depending on the state, employers are usually required to carry workers compensation insurance either through a commercial carrier, self insurance, or state program.
  • Unemployment Insurance – Under certain conditions, businesses with employees must register with state agencies and pay unemployment insurance. The link provides resources by state for both requirements and compliance.
  • Disability Insurance– Six states require employers to have coverage for disabilities (injuries, illnesses) that are not related to the workplace as income security. Here are the states along with a link for more information:

Employee/Employer taxes and forms – There are a number of forms and taxes involved in hiring employees both on the federal level and for your specific state. For the most part, however there are 3 major requirements for employers:

  1. W-4 (Federal income tax withholding) – Every employee must fill out a W-4 form (see link) and the employer must then submit the form to the IRS and for their state as well (or complete comparable state form)
  2. W-2 (Federal wage and statement) – Once a year, every employer must file a W-2 reporting all employee wages to the IRS.
  3. I-9 (Employee eligibility form) – Every employee must prove they are eligible to work in the U.S. Employers do not need to submit the forms unless required by the U.S. Immigration and Customs Enforcement (ICE) agency. However the forms must kept on file for up to 3 years after the official hire date or 1 year after termination, whichever is longer.

Human Resources

Payroll & accounting – Before hiring, employers should develop a protocol and ready their accounting practices for having employees on the payroll. There are a number of 3rd party options for payroll which can aide in the process, theses specialized companies are perfect for small businesses just getting started in the hiring process.

Employee handbook/company policy – Another area that employers must put some thought into is developing a company policy regarding employees and the workplace and use that to develop an employee handbook. The handbook should outline the employee’s rights and responsibilities, must be read by all new hires, and (ideally) signed that it was read and fully understood. Visit this guide by the for developing a proper employee handbook.


The hiring process


One of the more difficult parts of hiring an employee is finding the right candidate(s). With the advent of online recruitment sites, it may seem simpler than ever, but there can be a number of drawbacks with these sites. It’s wise to include offline, local recruitment resources in addition to online services.

Online resources

Offline resources

  • local job boards
  • local colleges
  • job fairs
  • local publications


  • Outsourcing recruitment – hiring a recruiting company can be expensive, but also simple way to find the right candidates without sacrificing time away from your day-to-day business.
  • Temps – Temp agencies are becoming a popular way to recruit new employees. Temp-to-hire relationships can be a good way to recruit, train, and assess potential permanent employees and reduce turnaround costs.

The selection process

Going through resumesOne of the more time consuming part of hiring employees is sifting through the pile of resumes, cover letters, and applications. The following link provides 10 tips for effectively and efficiently screening resumes to find your ideal candidates to bring in for an interview.

Interviews – There are a number of fantastic resources, publications, blogs as well as a vast variety of trains of thought on how to conduct interviews. Which approach you intend to take should really depend on what qualities you are looking for in an employee. However, there are certain questions you are not allowed to ask (by law), and asking them can put you and your business in danger of discrimination lawsuits. These prohibited questions include asking anything about:

  • Religion
  • Race or ethnicity
  • national origin or citizenship
  • age
  • marital or family status (e.g., whether they have children)
  • disability
  • sexual orientation or gender
  • weight


Things you must do AFTER you hire an employee

Report hire to proper agencies

According to the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 all employers must report new employees to the proper state agency within 20 days of the hire date. A list of the reporting agencies can be found here.

File taxes

Filing W-4 for each employee, W-2 yearly to report all wages, as well as distribute appropriate tax records to employees for the calendar year (for declaration of personal taxes).

Organization, record keeping, and continued compliance

Not only should employees keep comprehensive records for all employees, including all financial records (even after an employee is terminated) but employers have a responsibility to keep up to date with the latest laws and regulations that can affect compliance on a federal, state, or industry level.

More Resources:


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