How to Hire an Employee
A Small Business Owner's Guide to the Legal Hiring Process
Step One: Create a Hiring Strategy
- What position are you hiring for?
- What skills do they need to perform this job?
- Would a contractor be a better fit for your needs?
- What duties will a new employee have?
- How soon can you hire someone?
- Do you need someone part-time or full-time? Long-term or short-term?
- What salary or hourly wage can you pay them?
- Can you offer benefits, vacation days, or sick time?
Understanding Employment Laws
When hiring new staff for your small business, it’s important that your hiring process complies with employment standards, laws, and regulations.
In the United States, the federal government puts forth minimum employment standards in the Fair Labor Standards Act (FLSA) regarding minimum wage, child labor, recordkeeping, and overtime.
Many states have enacted employment legislation, which can override federal minimums if it is higher than the FLSA. There are even some municipal and industry-specific (e.g. construction) minimum employment standards. Employers are expected to abide by the highest of all minimum standards. For instance, if your state has a higher minimum wage than the federal minimum wage, you must at the very least pay your employee the state minimum.
Step Two: Recruit Candidates
Anti-Discrimination During the Recruitment Process
Employers cannot discriminate against potential hires at any point during the hiring process. Anti-discrimination laws protect applicants from being harassed or screened based on their race, religion, gender, sexual orientation, marital or family status, disability, or age.
To ensure you conduct a fair hiring process:
- Advertise the position in a variety of places to reach a diverse selection of people.
- Avoid discriminatory language or criteria in your job description.
- Refrain from asking personal questions during the interview or reference check.
- Adopt a standard, transparent hiring process and treat each candidate the same.
Step Three: Conduct Interviews
Applicants with Disabilities
If you are interviewing someone with a disability, it is your responsibility to provide reasonable accommodation, such as arranging wheelchair access or providing proper tools for the hearing impaired. In this case, questions about mental, physical, and emotional capabilities may be asked in order to conduct an interview, administer a test, or provide proper working conditions.
Applicant Background Checks and Drug Testing
If relevant to the job (for example, health care, child care, education workers, etc.), employers can perform background checks on an individual’s driving records, credit history, and criminal record. To conduct a background check you should have the applicant’s approval, usually written consent, and also supply them with a copy of the results.
Be mindful of your state’s laws as some regions allow for criminal history checks, while others prohibit hiring based on criminal history.
Like background checks, employers must also have the applicant’s consent for drug testing and should conduct these tests with respect to an individual’s privacy. To be sure you are following proper procedures, review the rules for drug and alcohol testing in your state.
Step Four: Make an Offer
Step Five: Prepare for Your Employee's First Day
- Order the tools and supplies needed for a new hire.
- Set up a workspace, such as a desk with a computer.
- Develop a plan to onboard the new employee, however simple it may be, such as setting them up with software or a company email address, explaining their duties, or reviewing policies.
- Apply for an employer identification number (EIN) if you do not already have one.
- Submit your new hire to the state hiring reporting program.
- Register your business with your state to set up income tax withholding (only in select states).
- Purchase workers’ compensation insurance.
- Set up a payroll system to withold taxes, either by doing it yourself using a payroll accounting software or through an accountant or bookkeeper.
- Post notices around the workplace with information about workers’ rights, resources, and labor laws. Some states also require that you give pamphlets to a new employee (e.g. Time of Hire pamphlet in California).
- Determine state unemployment taxes to report and pay to the IRS.
- Create a file for your employee. You are required to keep accurate employee records for tax purposes. Store this person’s contact information and resume, their offer letter, employment agreement, tax information, and additional forms in their folder.
Step Six: Sign an Employment Contract
- Outlines the new employee’s working responsibilities and performance standards.
- Describes the benefits an employee will receive.
- Mitigates risk for both parties by defining employer and employee expectations.
- Provides recourse for misconduct or other issues.
- Prevents conflict by having terms agreed to in writing.
- Allows employers to control the duration of a job or outline grounds for termination.
- Protect confidential information or trade secrets from being shared by a new employee.
Step Seven: New Employee Forms
- I-9 Form to verify worker eligibility.
- W-4 Form for federal income tax withholding.
- State income tax withholding form, if you’re in a state that collects income tax.
- Non-Disclosure Agreement if you have business information you want to protect.
- Automatic payroll deposit forms if necessary.
- Emergency contact information.