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Ask a Professor: How to Hire Your First Employee

May 11, 2015
Small Business
Ask a Professor: How to Hire Your First Employee
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One of the most important milestones for any budding entrepreneur is hiring your company’s first employee. It can be a scary step, but virtually every growing company has to do it.

We asked four experts what steps small-business owners should take in making their first hire. Here’s their advice.

1. Be sure you can afford to do it.

Before you hire someone, make sure you understand the actual cost of doing so. Let’s say your employee will make $35,000 a year. Your annual costs would exceed that amount, because you’d have to pay the FICA tax, worker’s compensation and employment taxes. The new hire’s equipment, such as computers and office supplies, will also cost you.
—Bruce Barringer, professor, Spears School of Business at Oklahoma State University

2. Write a job description.

Professor_Jason Frasca

Jason Frasca, instructor, Montclair State University School of Business

You have to determine what you want the employee to do. If the position is undefined, it’ll be hard to screen applicants for required skills. It’s also difficult to know what training or development may be needed for the new hire.
—Karen Boroff, professor, Stillman School of Business at Seton Hall University

For at least two to three months beforehand, pay close attention to the specific tasks and responsibilities you’ll want the new person to carry out. Document what you’re doing now, so you can transfer your knowledge of those tasks. Know what you want to delegate and how you’ll grow your business by hiring this employee. Define the role. This will streamline the onboarding process, smooth the transition for both you and your new employee and maximize your ROI (return on investment).
—Jason Frasca, instructor, Montclair State University School of Business

3. Look for someone who’ll enjoy working in a small business.

As a fledgling enterprise, you probably won’t be able to offer a competitive salary, so you’ll have to market yourself and find someone who can buy into the vision of your company. Make sure you hire someone who is incredibly jazzed about working for a start-up. You want someone who is passionate, innovative and flexible. You, as an entrepreneur, are going to have to do a very good job of articulating your vision for the company. You also should make sure that person is a team player and enjoys working with others.
—Susan Scherreik, instructor, Stillman School of Business at Seton Hall University

4. Get advice on benefits.

Get in touch with your local Small Business Administration agency and your state secretary of state’s office to learn about compensation, health insurance and retirement requirements. Your secretary of state is usually responsible for incorporating businesses and providing licenses, and they’ll likely have information on what you should do to comply with local and federal laws. Of course, if you want to build a special culture within your organization, you may want to go above and beyond by offering competitive perks to attract outstanding talent.
—Frasca, Montclair State University School of Business

5. Check references.

Too many employers don’t check references. Take the time to call the past employers and check academic credentials. Make sure your future employee has the education they say they have.
—Scherreik, Stillman School of Business at Seton Hall University

Barringer, Bruce

Bruce Barringer, professor, Spears School of Business at Oklahoma State University

6. Consider payroll taxes.

Make sure you keep up with payroll and employment taxes. Those are some of the most common ways small businesses get into trouble with their taxes. If you have tight cash flow, you may be tempted to not pay taxes, but there are stiff penalties when you get caught. In addition, ask an accountant who works with small businesses to help you address specific tax issues for your situation.
—Barringer, Spears School of Business at Oklahoma State University

7. Outsource your payroll system.

Unless your business is payroll, you don’t need to bog yourself down with all the technical details of payroll and payroll taxes. Many services, large and small, offer web-based software that automates 90% of the process.
—Frasca, Montclair State University School of Business

8. Expand your network.

Entrepreneurs can find resources through meetups, government small-business agencies, online groups, LinkedIn and networking. One mistake a small-business owner can make is to just stay in the home or office. Get out, shake hands and network inside and outside your area of expertise. A broader network can connect you to people who can help you grow your business.
—Frasca, Montclair State University School of Business

 For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Margarette Burnette is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @margarette and on Google+.

Top image via iStock; photo of Bruce Barringer via the Spears School of Business; and photo of Jason Frasca via Mike Peters, Montclair State University.