Frugal Small Business Start-up Tips: Step 9- Hiring Your First Employee

Deciding to hire your first permanent employee can be an exciting new step for your small business. But if you have already looked into the hiring process that excitement may quickly give way to overwhelm.

Want to Hire Employees for Your New Business? Great! The First Step, Slow Down...

With all the talk these days about the painfully high unemployment rate, I almost feel a little funny telling new small business owners to take it slowly when going through the hiring process for the first time. But the truth is that making the decision to bring in permanent staff is not a simple matter. Any established business owner who already has employees will tell you that successfully hiring and maintaining a workforce (even if that "force" consists of only one person) goes way beyond W-2 forms and payroll taxes. You really don't want to go through all the hoops of hiring workers only to have to let them go a short while later.

In this part of my startup series, in addition to some general small business tips for hiring employees and a thorough collection of online tools and resources, I also have included several considerations that new entrepreneurs may easily overlook.

The Frugal Entrepreneur's Step-by-Step Guide to Hiring Employees

Step 1: Decide if You Should Really be Hiring Right Now.

Though your initial impulse may be to just skip over this first step after reading the heading, you may want to think again. The more thought and effort you put into this very first stage, more headache and heartache you can spare yourself down the road. There are a lot of considerations to hiring especially if this is your first experience bringing on permanent staff. Here are a few main points:

-What do you want your new employee to do? Having a few goals in mind at the beginning will not only help you to create a job description (which is mentioned below) but it will help you to determine what equipment and resources will be needed to perform the job as well as the kind of person you are looking for.

-Do you have the available space and equipment to handle your new hires? This is particularly important if you are operating out of a home office. You don't want to be stepping on each other's toes. You also have to think about additional noise levels and the increased demand on equipment, facilities, fixtures, and utilities.

-Can you afford to hire someone? Hiring a new employee costs much more than their wages or salaries. Check out my previous post on the cost of a new hire for a detailed breakdown of the possible expenses.

-Do you need a full-time worker or part-time worker; permanent or contractual? Depending on the nature of your business and the position in question, it may be more beneficial to outsource the job to an independent contractor or freelance worker or take someone on a part-time or temporary basis.

  • For a description of the difference between independent contractors and employees, see this article by the Small Business Association (SBA).
  • Here is a previous post on how to maximize an outsourcing arrangement.
  • Here is a previous post on getting the most out of temporary or seasonal employees.

Step 2: Flesh Out a Job Description.

Once you've finished the above step, you then will need to write up a clear and thorough job description. This document is as much for you as it is for a prospective hire. When completed properly, you will have a set of guidelines describing the new position's duties and responsibilities, defining the work environment and the equipment that will be used (and needed), and laying down the skills and expertise required to perform job. All of this will in turn help you to attract the right job candidates and will be a foundation for outlining any job training and performance expectations.

In addition to consulting the resources below, I highly recommend that you have a knowledgeable person, such as a mentor, consultant, or business person involved in the industry go over your written job description before circulating it. In some cases, you may also need to show the document along with your employee handbook mentioned below to a qualified legal professional to make sure you are abiding by anti-discrimination and harassment laws, health and safety regulations, and other employment-related legal issues.

Step 3: Create an Employee Handbook.

Just the term "employee handbook" may immediately conjure up the image of thick, dusty booklets written in barely comprehensible legalese that are hastily signed by employees and even more quickly left on a shelf or shoved in a drawer never to be looked at again. But, your employee handbook can actually be a valuable document that details your business' policies, practices, and expectations and provides legal protection from charges of discrimination and unfair treatment.

If you plan on hiring only a few employees, then the time and effort required to put together a complete handbook probably will not be needed. Instead, you may want to have some kind of short, written document that communicates your general work policies to employees. You should consider writing up a full employee handbook if you plan on hiring ten or more permanent workers.

Since the topic of creating an employee handbook is quite complex and often involves numerous legal considerations, I have compiled a collection of informative resources that will give you most of the information you will need. I'll repeat again, though, that an employee handbook can be considered a legal document, and as such requires the assistance of a qualified legal professional.

Step 4: Conforming to Federal and State Regulations.

When you hire employees for your new small business, there is an extensive list of federal and state regulations that you need to be aware of and fulfill. Some of these legal requirements I covered in step 7 of this small business startup series, Setting Up a Legal Business Entity. They include: obtaining an employer identification number (EIN), paying payroll tax, reporting wages and taxes withheld for each employee, and fulfilling any obligations for workers' compensation insurance, unemployment insurance, and disability insurance (which vary by state).

For more detailed information on employer rules and regulations, see to the two resources below:

Step 5: Advertise the Position.

Once you are clear about what you are looking for in a new employee and you have taken care of all the legal steps, you can now begin to promote the job opening in order to attract applicants. While there are many effective, cheap ways to go about doing this, the one thing you need to keep in mind is that your hiring strategy, including any ads you put out, should be targeted. You don't want to be flooded with applicants who are inappropriate for the position. It will be a big waste of time and energy that would be better directed at your business.

Aside from the more "traditional" hiring strategies, such as putting an ad out in the local classifieds or job boards, hanging up fliers, or even heading for an employment agency (the most expensive option), the Internet, and social media networks in particular, provide a cheap (often free) platform for spreading the word about a job opening. Here are a few suggestions for leveraging the Internet:

  • Post your opening on an online jobs directory, such as SimplyHired,, and Careerbuilder
  • Alternatively, you could post the opening on any community-based, online niche sites. Many local organizations have websites that support job listings.
  • If you already have a targeted following on sites like LinkedIn, Twitter, or Facebook (even if they are just your personal contacts), then you may want to send out a status update letting people know that you are hiring. Just make sure that your profiles on these sites are complete with relevant keywords and contact information.
  • LinkedIn also has a professional Hiring Solutions arm that you may want to consider.
  • You could also try guest posting or writing keyword specific articles on relevant sites and include in the by-line that you are currently hiring.

Step 6: Conduct Background Checks.

Once you start receiving applications for your job opening, you owe it to your business to do your due diligence so you can weed out any candidate who may bring harm to your business or its customers. Common screening tactics include: reference checks, professional background checks, the presence of criminal records, and consulting credit reports. When conducting a background check, there are several points you should consider:

  • Make sure you contact at least two of three references provided by the job candidate; you may also want to contact former employers.
  • Many employers will do a simple Google search on a job applicant to see what comes up. You should, however, be familiar with the legal considerations. According to federal employment laws, employment discrimination is prohibited against qualified individuals with disabilities. They also ban discrimination based on race, color, religion, sex, national origin or age; even pregnancy comes under the definition of "protected information" and as a potential employer you are banned from asking about it in the course of an interview. Yet, much of this information may be available via social networks.
  • Depending on the nature of the job, you may want to enlist the services of a professional background screening company. Be aware that any business in which the employees interact with or provide a direct service to customers, such as daycare providers, cleaners, and repairmen, are held liable if an employee does harm to a customer and it turns out that the employee had a previous criminal history.

Step 7: Conduct the Interview.

After weeding out the job candidates, you will then need to focus on how you will go about interviewing them. There are several things to consider at this point: Will the interview be conducted in person? Over the phone? Online via webcam? Who will conduct and attend the interview? Will you conduct one interview or have follow up ones as well? Then, there is deciding which questions to ask.

Here are a few good resources to look at when developing your job interview strategy:

Additional Employment Resources and Online Tools

Hiring Employees Tax Guide- Tax information about employee hiring, from the Internal Revenue Service.

Employment Law Guide- Hiring policies, from the U.S. Department of Labor.

Resources on Providing Employee Benefits- A comprehensive resource from the SBA

Sample employment application 1- Generic application for employment at a small business.

Sample employment application 2- Sample job application form, from Microsoft Office Online

Glassdoor- Want to know what salary to offer for a new position, or how to conduct an interview for that new sales rep you're hiring? Get information on company salaries, reviews, and interview questions, as well as job listings left by anonymous users.

Wage Rate Calculator- A tool that figures the hourly wage of an employee, factoring in salary and benefit information, from HRWorld, a human-resources trade publication.'s Salary Wizard- A database of salaries for a range of employees, with a free trial for three jobs.

Intuit Guide to Hiring- A collection of free information, tools, and resources on hiring and managing employees.

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