Hiring your first employee is a significant milestone for any small business owner. It’s exciting, but it can also feel overwhelming if you’re unsure where to start. The good news? Countless successful businesses have followed proven hiring practices for decades, and you can too.
This comprehensive guide walks you through the entire hiring process—from the initial administrative setup to onboarding your new team member. By following these steps, you’ll find the right talent and ensure you’re complying with all legal requirements.
Why It’s Time to Hire
Before diving into the process, ask yourself if your business is ready to expand. Watch for these signs:
- High employee turnover or burnout among existing staff
- Unusual spikes in customer complaints due to stretched resources
- Rising overtime costs as current employees work longer hours
- Frequently falling short of goals and deadlines
- Inability to take on new projects or clients
- Need for specialized skills your current team doesn’t have
- You haven’t taken time off in months because you’re doing everything yourself
If you’re experiencing any of these, it’s definitely time to bring someone on board.
Step 1: Handle the Administrative Legwork
Before you even think about posting a job, you need to get your legal foundation in place.
Get Your Employer Identification Number (EIN)
If you’re in the United States, your first step is obtaining an EIN from the IRS. This unique nine-digit number is basically a Social Security number for your business and is required if you have any employees.
You can apply for an EIN online at no cost through the IRS website by filling out Form SS-4. The process is quick—most applications are approved within minutes.
Register with Your State
Beyond the federal EIN, you’ll also need to register with your state’s labor department. Each state has different requirements, so check your specific state’s website. For example, California’s Employment Development Department (EDD) issues employer payroll tax account numbers quickly through their online service.
Set Up Tax Withholding Records
Once registered, you’ll need to prepare for three types of withholding taxes:
- Federal Income Tax: Your employee will fill out Form W-4 (Employee’s Withholding Certificate), which determines how much federal tax to withhold from their paycheck.
- Federal Wage and Tax Statement: You’ll complete Form W-2 for every employee each year, documenting their earnings and tax withholdings. Send copies to employees by January 31 and to the Social Security Administration by the last day of February.
- State Taxes: Most states require a separate state withholding form. Check your state’s labor department website for specifics.
Pro tip: Keep all employment tax records for at least six years. Good record-keeping helps you stay organized, track your business’s health, prepare tax returns, and identify deductibles.
Step 2: Define the Role You’re Hiring For
You can’t find the right candidate if you’re unclear about what you’re looking for. Here’s how to get specific:
Make a Priority List
Start by listing the most important tasks you need help with. Are you looking for someone to handle inventory management, customer service, social media, or something else? This clarity is crucial.
Think About Growth
Consider not just current needs but what responsibilities this person might take on in the future. Are they filling an immediate gap or building a foundation for growth?
Determine Compensation
Your salary should reflect the work required, the role’s seniority level, and your budget. Research what similar positions pay in your industry and location to stay competitive.
Identify Required Skills
Think about the ideal candidate’s background, experience level, and skill set. What education or certifications would be valuable? How many years of experience do they really need?
Write a Clear Job Description
Once you’ve done this legwork, write a job description that clearly outlines the role. A good job description should include:
- A captivating start: Highlight what makes your company and role special
- What you’re looking for: Define the role and ideal candidate profile
- Desired qualifications: Split into “must have” and “nice to have” categories
- Duties and responsibilities: List these in order of importance
- Compensation and benefits: Be transparent about what you’re offering
Using a tool like Textio can help flag gender-biased language and improve your posting’s effectiveness.
Step 3: Post the Job and Find Candidates
Where to Post Your Job
Cast a wide net to attract diverse, qualified candidates. Post on:
- Job boards: Indeed, Craigslist, LinkedIn
- Your company website: Direct applications from interested candidates
- Social media: Particularly Instagram for certain industries
- Employee referrals: Ask your best employees for recommendations
Include an Equal Opportunity Statement
At the bottom of your posting, clearly state that your company is an Equal Opportunity Employer and that you encourage qualified candidates of all backgrounds and abilities to apply.
Consider Blind Recruitment
To overcome unconscious bias, consider hiding applicants’ names and potentially even their education or years of experience during the initial review. This helps promote workplace diversity.
Why Diversity Matters
Research shows that racially diverse teams outperform non-diverse ones by 35 percent. Additionally, 57 percent of employees feel their companies should be more diverse. Beyond the statistics, diverse perspectives strengthen your business.
Step 4: Review Applications and Create a Shortlist
When applications start rolling in, you’ll need to filter them strategically. Look for:
- Quantitative evidence of achievements: Numbers speak volumes about past performance
- Longevity at past roles: Employment gaps can indicate problems, though they’re not always red flags
- Clear career progression: Shows growth and ambition
- Attention to detail: Grammar and spelling mistakes matter
- Tailored experience: Skills that directly match your job description
Discard applications that clearly don’t fit your requirements, then reach out to your top candidates to learn more about their qualifications before scheduling interviews.
Step 5: Conduct Strategic Interviews
Start with Phone Screens
Begin with a quick 15-30 minute phone screen to determine if candidates meet the basic requirements and if there’s mutual interest.
Invite Top Candidates for In-Person Interviews
Invite at least three of your strongest candidates for more detailed interviews. Ideally, have a couple of your employees interview candidates from different perspectives. This gives you a more balanced assessment and makes employees feel part of the process.
For larger businesses, consider interview panels where each interviewer focuses on a specific area—one on teamwork, another on technical skills.
Ask Thoughtful Questions
Avoid asking about age, race, marital status, or other protected characteristics. Instead, focus on:
- Tell me about yourself
- Why are you interested in this position and company?
- What are your strengths and weaknesses?
- What professional achievement are you most proud of?
- Describe your ideal work environment
- How do you approach problem-solving?
- Can you share a specific example of how you solved a work problem?
- How do you perform under pressure?
- If a customer is dissatisfied or angry, how would you handle it?
Pro tip: Take notes immediately after each interview so you remember details clearly when making your final decision.
Step 6: Check References
Reference checks provide valuable insights you can’t get elsewhere. Request at least three references from your top candidates and give them a call. Good reference questions include:
- Can you confirm the candidate’s job title, responsibilities, and dates of employment?
- How long have you known/worked with this person?
- What’s it like to work with them?
- Why did they leave their position?
- What are their biggest strengths and weaknesses?
- Why should I hire this candidate?
Step 7: Run a Background Check
Once you’ve decided on your top candidate and made an offer, run a pre-employment background check. This is essential for keeping your business, employees, and customers safe—and for verifying candidates are who they claim to be.
Important Legal Considerations
Background check laws vary significantly by state. Some states restrict the types of criminal history you can inquire about, when you can ask about it, or whether you can check credit history. Some areas even ban asking about criminal history on job applications entirely.
Because of these complexities, most small businesses use a third-party agency to conduct background checks. Always consult with a legal professional for guidance specific to your location.
Step 8: Verify Employment Eligibility
It’s your legal responsibility to ensure all employees are authorized to work in the United States. Hiring someone without proper eligibility can result in significant fines and even criminal penalties.
The I-9 Form Process
Before or on the first day: Have your new employee fill out Section 1 of Form I-9, which includes contact information, Social Security number, and employment eligibility confirmation.
By the third day: They must provide valid documentation including:
- One document from List A (such as a U.S. passport or Permanent Resident Card), OR
- One ID from List B (like a driver’s license) plus one from List C (like a Social Security card)
E-Verify Program
In most cases, the I-9 form and supporting documents are sufficient. However, if you do business in certain states, you may be required to enroll in the E-Verify program.
Keep your records: Store I-9 forms for three years after hire or one year after employment ends, whichever is longer.
Step 9: Make an Offer and Close Other Candidates
How to Make the Offer
When you’ve chosen your candidate:
- Call them first: Set up a time to talk by phone
- Express enthusiasm: Let them know you’re excited to have them join your team
- Present the full package: Discuss salary, benefits, start date, and any other relevant terms
- Get confirmation: If they accept verbally, follow up with a written offer letter
The Offer Letter
Send a formal offer letter that covers everything discussed on the phone call. For legal protection, have a lawyer review it before sending.
Notify Other Candidates
Don’t leave rejected candidates hanging. Contact them promptly with a personalized rejection message. Be honest but supportive, offering constructive feedback to help them understand why they weren’t selected. This preserves relationships and protects your reputation.
Step 10: Handle Legal Obligations
After you’ve made your hire, several legal requirements need attention:
Report New Hires
You’re required to report newly hired and rehired employees to your state’s labor agency. Check the SBA’s New Hire Reporting Requirements for your specific state’s deadline.
Obtain Workers’ Compensation Insurance
Workers’ compensation insurance requirements vary by state, but most states require coverage for employees injured or made ill due to workplace exposure. Research your state’s requirements and find an appropriate policy.
Workplace Posters
The Department of Labor requires certain notices posted in your workplace to inform employees of their rights and your responsibilities. These are provided free of charge. Additionally, your state may have its own poster requirements. Check the SBA’s Workplace Posters resource for specifics.
Step 11: Set Up Payroll
After hiring, you need a system to pay your employee and manage payroll taxes. You have three options:
Option 1: Handle Payroll Yourself
This requires tracking hours, calculating tax withholdings, and managing tax filings yourself. It’s budget-friendly but time-consuming and error-prone.
Option 2: Use an Accountant
An accountant handles payroll calculations and tax filings but typically costs more than doing it yourself.
Option 3: Use a Payroll Service
Many small business owners choose a payroll service to save time and avoid tax complications. Many services offer integration with insurance providers and handle new-hire reporting automatically.
What Payroll Involves
Regardless of your chosen method, payroll has three core components:
- Paying employees: Track hours, calculate withholdings, issue payments
- Paying payroll taxes: Submit to the IRS and state tax agencies
- Filing tax forms: Complete required filings monthly and quarterly
Step 12: Onboard Your New Employee
A strong onboarding process sets your new hire up for success and builds loyalty.
First Day Setup
- Give them a tour of your facility
- Show them their workspace
- Provide building access, email login, and necessary equipment
- Set them up in internal systems
Build Connection
- Schedule a team lunch during their first week so colleagues can meet them
- Provide branded company items like pens, t-shirts, or mugs
- Assign a mentor to help them transition into the role
Complete Paperwork
- Provide all new-hire paperwork including tax forms and legal agreements
- Share your employee handbook
- Ensure they understand company policies and procedures
Provide Training
- Offer role-specific training tailored to their position
- Schedule regular check-ins during their first few weeks
- Create a clear pathway for their first 90 days
For Remote Employees
- Use virtual onboarding tools to provide equipment setup
- Schedule regular video calls for training and connection
- Create a digital welcome package
- Use virtual meetings to introduce them to the team
Measuring Your Success
After you’ve completed the hiring process, measure your results. Track:
- How long it took to fill the position
- Quality of applicants
- Time-to-productivity for your new hire
- Retention rate
These metrics help you improve your hiring process for the next employee you bring on.
Final Thoughts
Hiring your first employee doesn’t have to be intimidating. By following these twelve steps systematically, you’ll find the right person while ensuring you’re compliant with all legal requirements. Remember, this investment in human capital is one of the most important decisions you’ll make as a small business owner.
The right employee can transform your business—freeing up your time, bringing fresh perspectives, filling skill gaps, and helping you pursue new opportunities. Take your time with the process, ask thoughtful questions, and trust your instincts about cultural fit.
Ready to build your team? Start with the administrative work, create a compelling job description, and commit to finding candidates who share your vision. Your business’s next chapter starts with the right hire.
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