How to Hire Your First Employee: A Practical Guide for Small Businesses

In this article

1. When should you hire your first employee?
2. Get an Employer Identification Number (EIN)
3. Set up payroll and tax paperwork
4. Verify eligibility to work
5. Get the right insurance
6. Classify the role correctly and set fair pay
7. Screen candidates carefully
8. Test for real skills
9. Consider background checks and drug testing carefully
10. Avoid questions you shouldn't ask
11. Check references
12. Hire for potential, not just experience
13. Know what your ideal candidate looks like
14. Final thoughts

Hiring your first employee is exciting, and a little daunting. The right person brings new skills, extra capacity and talent that can help your business grow. The wrong hire can cost you time, money and morale.

Before you post a job ad, it pays to understand what's involved. Beyond salary, employing someone brings legal obligations, paperwork and costs such as recruitment, training and payroll taxes. This guide covers when to hire, the key steps for US employers, and how to choose the right person. Employment rules vary by state and change over time, so check official sources, or talk to an accountant or employment lawyer, before you hire.

When should you hire your first employee?

Start by defining the role and the work it will cover. A common rule of thumb is that once you have around 20 hours a week of ongoing tasks, or upcoming projects that need consistent help, it may be time to hire. If the work is occasional or highly specialised, a freelancer or independent contractor may be a better fit for now.

Also make sure you can afford the full cost of an employee, not just their wages. Factor in payroll taxes, insurance, equipment, training and any benefits you offer.

Get an Employer Identification Number (EIN)

Before you hire, you'll need an Employer Identification Number from the IRS. It identifies your business for tax purposes and is used on payroll tax filings and other employment documents. You can apply for free on the IRS website, irs.gov.

Set up payroll and tax paperwork

As an employer, you'll take on several tax responsibilities. Key forms and obligations include:

• Form W-4. Each new employee completes a W-4 so you know how much federal income tax to withhold from their pay.
• Payroll taxes. You'll withhold income tax and the employee's share of Social Security and Medicare taxes (FICA), pay the employer's share of FICA, and deposit and report these taxes on schedule.
• Federal and state unemployment taxes. Most employers pay federal unemployment tax (FUTA) and state unemployment insurance once they meet certain wage or employment thresholds.
• Form W-2. After the end of each year, you provide each employee with a W-2 showing their wages and taxes withheld, and file copies with the Social Security Administration.
• State requirements. Many states have their own income tax withholding, and all states require employers to report new hires to a state directory.

Many small businesses use payroll software or an accountant to handle these calculations and deadlines. Contact your state's workforce or labour agency for local requirements.

Verify eligibility to work

Every new employee in the US must complete Form I-9, Employment Eligibility Verification, and show documents proving their identity and authorisation to work. You, as the employer, review the documents and keep the completed form on file. You don't submit it to the government, but you must be able to produce it if asked. Some employers also use the government's E-Verify system, which is required in some states and situations.

If you plan to sponsor a foreign worker for a visa, that's a separate and more complex process handled through US Citizenship and Immigration Services (USCIS), and legal advice is strongly recommended.

Get the right insurance

Most states require employers to carry workers' compensation insurance, which covers employees who are injured or become ill because of their work. Some states also require disability insurance. Check your state's rules before your new hire starts.

Classify the role correctly and set fair pay

Decide whether you're hiring an employee or engaging an independent contractor. The distinction depends on how much control you have over how, when and where the work is done, not just on what you call the role. Misclassifying an employee as a contractor can lead to back taxes, penalties and legal problems, so get it right from the start.

When setting pay:

• Follow minimum wage laws. The federal minimum wage is $7.25 an hour, but many states and cities set higher minimums, and you must pay whichever is highest.
• Understand overtime rules. Under the Fair Labor Standards Act (FLSA), most hourly employees must be paid overtime for hours over 40 in a workweek.
• Know the age rules. The FLSA generally sets 14 as the minimum age for non-agricultural work, with restrictions on hours and types of work for under-18s.
• Research market rates. Look at salary data for similar roles in your area so you can attract good candidates.

Decide too whether the role will be full-time or part-time. There's no single legal definition of either, so be clear about expected hours and which benefits, if any, the role includes.

Screen candidates carefully

Once applications arrive, screen them to find people who fit both the role and your company culture. Common steps include:

1. Reviewing resumes and cover letters.
2. Holding short phone or video screening calls.
3. Communicating through professional channels, such as email, to see how candidates respond.
4. Running structured interviews where each candidate is asked the same core questions.

You can also use skills or aptitude assessments, but make sure any test is relevant to the job and applied consistently to every candidate, so it doesn't discriminate. Note that the federal Employee Polygraph Protection Act prohibits most private employers from using lie detector tests on job applicants.

Test for real skills

Resumes and interviews only tell you so much. Some candidates are excellent talkers but less strong at the actual work, and resumes sometimes exaggerate. One of the best ways to assess skills is to ask candidates to complete a short, realistic task.

If you're hiring a salesperson, for example, give them details about your target customer and ask them to pitch your product. You'll learn how they think, how they make decisions and how they handle pressure. For a writer or designer, a small paid test project works well.

Consider background checks and drug testing carefully

Depending on the role, you may want to run background checks or drug tests. Some jobs, such as roles in transportation or working with children, may legally require them. Rules vary by state, and background checks that use consumer reporting agencies come with notice and consent requirements under the Fair Credit Reporting Act. Apply any checks consistently, and get legal advice if you're unsure.

Avoid questions you shouldn't ask

Federal laws, including Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA) and the Age Discrimination in Employment Act (ADEA), prohibit discrimination in hiring. Avoid asking candidates about:

• marital status, family plans or pregnancy;
• religion;
• sexual orientation or gender identity;
• age or date of birth;
• national origin or ethnicity;
• disabilities or medical conditions, including prescription medication.

You can ask whether a candidate can perform the essential functions of the job, with or without reasonable accommodation. Many states and cities add further protections. The Equal Employment Opportunity Commission (EEOC) and the US Department of Labor have detailed guidance on their websites.

Check references

Ask for at least three references, ideally two professional and one personal. Ask referees objective questions about the candidate's skills, reliability and job performance, and use the conversation to confirm details from their resume. A personal reference can also give you a sense of the candidate's character and how they might fit your culture.

The same anti-discrimination rules apply to reference checks, so avoid questions about religion, age, disability or nationality.

Hire for potential, not just experience

Some of the best first hires don't have the longest CVs. Candidates with less experience but strong skills, curiosity and genuine enthusiasm for your business can grow with you. Focusing only on past job titles can mean missing talented people. Use practical tasks to see what they can really do.

Know what your ideal candidate looks like

Before you start interviewing, write down the skills and qualities your ideal first employee would have. For a small business, these often include:

• the core skills the role requires;
• strong soft skills, such as communication and teamwork;
• flexibility and willingness to wear many hats;
• good judgement and decision-making;
• passion for the work and a sense of responsibility.

Compare every candidate against that list, not against each other.

Final thoughts

Hiring the right person for the right job matters enormously for a small business. A poor hire can lead to high turnover, lost productivity and damage to your reputation, while a great first employee can transform what your business is able to achieve. Take your time, handle the legal and tax requirements properly, test candidates' real skills and choose someone who shares your vision. Your first hire could be the start of a great team.