How Do I Hire Employees In My Business?Aug 11, 2021
This is the fifth post in our "Starting a Business Series". This series stemmed from a conversation I had a bit ago with a brand new business owner. They were completely lost and no idea where to start.
That got me thinking that we should do a series on this specific topic so I ran it past everyone in our Free Facebook Group and with overwhelming support, everyone wanted it. So here we are!
When it comes to starting a new business often times new business owners go solo for quite some time, but that is not always the case. If you are at a stage you need to bring on some help, this article will help let you know things you need to consider.
Another thing to consider is that if you go the S Corp route even if you are solo you are required to run payroll to yourself as the owner of the company.
Do I Bring On Workers As Independent Contractors or Employees?
This is the first question you really need to ask yourself and it is often times the most confusing for new business owners. You have to get this part right because the IRS and state agencies take misclassification very seriously.
We are going to do an entire episode on this topic in the future so we just want to touch on this briefly in the meantime. Basically it comes down to control, who has control in the relationship? Here are some basic questions to guide this:
- Do you determine the hours worked?
- Do you determine the pay of the worker?
- Do you provide the worker with the equipment/tools to use?
- Do you tell them what they need to be doing and how they need to do it?
If you answered the above questions with a yes, more than likely you have an employee. I usually say for 85% of the cases it's pretty obvious whether they should be an employee or not based on the relationship you have with them. Do the sniff test on it, does it seem like an employee on the surface, then it probably is.
If you bring them on as an independent contractor just be sure you are grabbing a W9 from them BEFORE they start working and then you just pay like normal, no payroll tax withholdings are needed.
How Do I Hire Employees?
We had to get that initial part out first but if you have now decided that you have employees, lets dig into that.
First things first, do not try do payroll on your own. There is payroll software out there that makes this so easy. Back in the day payroll was a huge pain because you mainly had to do it by hand but with the payroll software out there now, a good portion of it is automated.
With an employee you need to:
- Calculate and withhold payroll taxes (Federal Withholding, State Withholding, Social Security, Medicare, etc.)
- Pay employer portion of payroll taxes (Social Security, Medicare, Federal Withholding, State Withholding, etc.)
- File reports and pay those taxes on a regular basis with both the IRS and state agencies
- File W2s at year-end
- Get a workers' comp policy
To make this process simple and easy for you, we recommend a software called Gusto. It is the software we use internally as well as for any clients we manage payroll for. Gusto will take care of all of your form filing and ensuring you get your taxes paid. All you need to do is assist with the initial setup, onboarding employees, and then running the actual payroll for your employees.
What Should I Consider When Hiring Employees?
We could create a list that goes on for days but I want touch on some high level items here to give you a good idea of what you need to consider when hiring.
- Hiring Employees Can Be Expensive
- You have costs to recruit and find the right talent.
- Your total cost is not just the salary or hourly rate, you have employer taxes over and above that. We typically say the payroll costs over and above the gross amount your employee earns could be 8-12%. For example if you bring on an employee for $50,000 per year your actual cost would be $55,000+ after factoring in other items.
- You may want to add additional benefits that would increase that cost (health insurance, retirement, etc.)
- With that being said, employees are going to be necessary in a growing business at some point so this is not meant to deter you from hiring, just making sure you know what you are getting into ahead of time!
- The Most Difficult Part is the Initial Setup
- Once you have everything setup in a payroll software, it is relatively easy.
- Initial Setup Includes: ensuring you have an EIN, registering for an income tax withholding number with the state, registering for an unemployment account number with the state, etc. Gusto has a list of instructions for every state that you can find here.
- You will also need to gather information from all employees. This includes: Form W-4, I-9 Form, reporting a new hire, personal information, pay rate, bank account information, etc. Gusto has an on-boarding feature in their software for new employees that will guide them through that to gather that necessary information.
- Look Up Your Local Laws
- Every state has its own laws for hiring so you want to make sure you are familiar with your specific state. This includes things like: minimum wages, termination, garnishment, benefits, poster hanging requirements, etc.
- Be sure you are aware of these locally.
- Put In the Leg Work
- Learn to attract the right candidates - A bad hire can cost you tons of money and countless hours.
- Know what you want and need to create the perfect job title, description, candidate search, etc.
- Create "Standard Operating Procedures" ahead of time so it is easy to transition your work to someone new.
- Trust your employees to take care of what you're hiring them for so you are able to step away from that task.
- Hiring Out of State Is Fine, It Just Adds Complexities
- Good talent is not always right next door so sometimes you do have to go outside of your state to find the right talent and that is okay as long as you know some of the complexities up front.
- If you find talent out of state, you will just need to register for all the state numbers in that new state as well.
- You may need to file as a foreign entity in that additional state too.
Hopefully this was helpful and is just another thing you can get handled on this journey of being a business owner. I also want to direct you to a guide that Gusto put together called "Everything You Need To Know About Hiring Employees For Your Small Business" where they go into these things in much more detail for you!
Finally, I highly recommend you sign-up for our Tax Minimization Program (w/ Stress-Free Bookkeeping Training) as not only will you get a bunch of in depth training, templates, group coaching but you also have unlimited access to our team for general tax and accounting questions. How sweet would it be to have an accounting professional by your side for those questions that pop up in this crazy journey of being a business owner?
The Time Is NOW To Start Paying Less In Taxes. Join Our Tax Minimization Program (w/ Stress Free Bookkeeping Training)!
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- Library of Tax Strategies, Implementation Guides, Videos, Downloads, etc.
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