How to successfully hire your first employee: a step-by-step guide

The good news: business is going so well that you could use an extra hand to keep up. And you have the cash flow to afford it.

The reality check: labor is a steep expense. And making your first hire is a heavy administrative burden for small business owners with no shortage of daily tasks on their to-do lists. 

First, congratulations on feeling ready to hire your first employee! Now, let’s unpack how to get new talent on board, step-by-step. 

3 considerations before hiring your first employee

Before hiring an employee, you should:

Assess your financial readiness

Labor is typically a business’ biggest cost. Beyond just paying wages, you need to bear hiring expenses for recruiting, running background checks, interviewing candidates, and onboarding. Plus there are costs for a new employee’s equipment and office space, as well as payroll taxes and workers’ compensation premiums you need to pay on their behalf. Also keep in mind that an employee’s benefits package—like health insurance, retirement plans, PTO, and leave entitlements—can cost up to 30% of their salary. 

It’s crucial for your business to be in good-enough financial standing to put up all these costs. Check your cash flow and make sure you can reliably cover payroll every pay period. If you don’t have an extra 20% saved up to account for any surprises, you may want to consider forgoing full-time employees in favor of part-timers or independent contractors until you have more cash on hand. 

Evaluate your workload and scalability

You may have plenty of work to dole out to employee number one now, but less later if business wanes. Take note of how your demand fluctuates and try to make sure an employee will have enough responsibilities year round, since you don’t want to let the employee go or keep them on with nothing to do. 

On the flip side, if you’re overburdened with work and can’t take on as many new clients as you’d wish, it’s probably high-time to become an employer. 

Define the role and responsibilities clearly

Prospective employees should have a clear idea of what their day-to-day expectations will be if they join your business. Before publicizing an opening, write a job description concisely outlining daily responsibilities, required skills and experience, the job’s overall purpose, and some information about your company. It also helps to include information about salary and benefits. 

8 steps to hiring your first employee

Ready to make that first hire? Here are the most important boxes to check. 

Step 1: Assess your business needs

Compile a list of daily and weekly responsibilities you need support for. Think about tasks you can handle (and enjoy handling) yourself vs. tasks you either want or need to outsource, keeping in mind that a singular employee may not have the skill set or knowledge base to handle everything on your wishlist. 

From there, you can research competitive compensation ranges—including salary, benefits, and equity—to see what you can afford. Consider using salary benchmarking and compensation management tools to help you out here. 

Step 2: Set up legal and tax requirements

It’s crucial to ensure you’re legally allowed to employ your first hire both federally and within your state. You also need to register with the relevant tax authorities. This typically includes:

• Getting an Employer Identification Number (EIN) through the IRS
• Fulfilling new hire reporting requirements in your state
• Receiving a W-2 signed by your employee for income tax withholdings
• Preparing a Form I-9 to verify work authorization
• Understanding the withholding requirements for federal employment taxes—like income taxes, social security, medicare, and unemployment 
• Signing up for relevant state and local payroll taxes—unemployment insurance, workers’ compensation, state income taxes, etc.

Step 3: Create a job description

A successful job description offers a birds-eye summary of the available role, sets realistic expectations, and helps attract top talent. It should include:

• The job title
• A brief overview of your business
• Specific duties the employee will perform
• The skills, experience, and education needed for the role
• Any preferred qualifications
• The type of employment (full-time, part-time, seasonal, etc.)
• Work hours, location, and salary range

Step 4: Post the job and source candidates

After writing the job description, you need to publicize it. Share your job posting far and wide—using ubiquitous platforms like Indeed, LinkedIn, and ZipRecruiter and more niche job boards that distill opportunities for specific roles or certain industries. You can also use social media, your business website, and word of mouth by emailing or calling people in your network and asking if they know anyone who fits the bill of what you’re looking for. 

Step 5: Screen candidates and make an offer

The previous step will hopefully source a lot of applicants you then have to screen. Look for candidates whose skills, training, and experience match the language in your job description. While it can be difficult and time-consuming to whittle down your applicant pool, tools like applicant tracking systems (ATS) can help you streamline the process and remove implicit bias from the equation.

Choose the candidates who seem like the best fit, and interview the standouts to look beyond resumes, asking why they’re interested in the role and why they think they’re a good match for it. While you should always interrogate your first impression and check references, see if the candidate seems like they’d be a good cultural fit for the business you’re looking to build. 

Next, you can conduct a background check to verify your top candidates accurately represent their histories and don’t have any recent criminal convictions—though make sure you’re complying with privacy regulations and only verifying information you’re legally allowed to. 

Once you’ve completed these steps and screened down to the best-fit applicant, you can make a verbal job offer. 

Step 6: Set up payroll

As soon as you’re ready to make a new hire, you need to also be ready to pay them—accurately, consistently, and compliantly. 

First, determine how you’ll process payroll. You can do this in-house, which saves money but drains time and leaves you on the hook for making manual calculations and staying on top of tax withholding requirements. Alternatively, you can use payroll software, like Rippling, that automatically calculates and files payroll taxes and accurately pays employees within minutes. 

Next, you can decide how frequently you’ll run payroll. Most companies do this weekly, bi-weekly, or monthly. See what works for your business and whether you need to comply with any payroll frequency requirements. 

Step 7: Set up employee benefits

A robust benefits package can both attract and retain top talent. For starters, make sure your new employee can enroll in the barebones requirements—including federal and state unemployment insurance, social security, and any statutory state benefits (e.g., paid leave in California). 

You should also offer fringe benefits like:

• Generous paid time off (PTO)
• Health insurance—consider flexible spending accounts (FSA) and health savings accounts (HSAs)
• Retirement plans like 401(k)s
• Life insurance
• Wellness stipends

When gaming out your benefits package, determine your budget, find the balance between a competitive salary and good perks, and look into resources like a PEO, which co-employs your workforce and can help you access quality plans. 

Step 8: Onboard your new employee

Lasty, you need to set your first hire up for on-the-job success with onboarding. This is an important administrative process heavy on paperwork. But it’s also an interpersonal undertaking, where you can create the foundation for a supportive work relationship and help your new employee feel comfortable in their new role. 

The nuts-and-bolts of onboarding include:

• Sending and collecting a signed offer letter, which outlines the job title, salary, start date, and work conditions
• Configuring work devices and business apps
• Assigning workplace trainings
• Enrolling the employee in benefits
• Scheduling meeting cadences for check-ins
• Sharing an employee handbook that discusses workplace policies (like time off), procedures (like health and safety protocols), and customs (like dress codes). 

Onboarding is a crucial time to open a feedback loop. If the new hire feels supported and properly trained for their job, they’re more likely to stick around and contribute to the growth of your business. 

Simplify your first hire with Rippling’s PEO and recruiting services

The steps on this list may seem daunting if you’re a time-strapped small business owner looking to hire employee number one. But you don’t have to go it alone. Rippling can handle all these first-hire administrative duties—and much more.

Rippling PEO makes it easy for startups and small businesses to provide premium HR services and access benefits that are affordable and locally compliant—all while allowing you to focus on strategic initiatives that help grow your company. 

With Rippling PEO, you can effortlessly manage all your employee benefits—group health plans, FSA, HSA, 401(k), commuter flex benefits, and workers’ compensation—in one convenient and modern platform. You can also streamline your HR and payroll processing and simplify compliance.

Rippling helps small businesses

• Access talented HR advisors and benefits, including large group health plans, 401(k) plans through an integration with Guideline, HSA, FSA, and commuter flex benefits, likely for less than you pay now. You can also pay as you go for workers’ compensation insurance and get access to EPLI coverage to protect your growing business.
• Monitor your federal, state, and local labor compliance with ACA and COBRA administration, mandatory workplace posters, minimum wage compliance, and more. 
• Automatically handle state and local payroll tax account creation and ongoing annual SUI rate management
• Automate processes like ACA and COBRA administration, anti-harassment training, and distributing digital labor law posters to your employees
• Leverage hundreds of comprehensive HR resources, guides, and templates

Frequently asked questions

How do you afford your first employee?

Before hiring new employees, you need to check your cash flow now and how you anticipate it changing later. Make sure you have enough to consistently cover the new employee’s full compensation—salary and benefits which—and hiring costs. You should also have cash reserves that cover potential business downturns or emergency expenses before hiring new employees. 

How do I set up payroll for my first employee?

To set up payroll for your first employee, you need to:

• Get an EIN through the IRS
• Collect signed employee tax forms like a W-2 and W-4
• Calculate payroll taxes and withholding amounts
• Determine payroll frequency
• Calculate gross pay
• Open a dedicated bank account for payroll
• Keep payroll records for quarterly tax filings

You can handle this yourself or through third-party payroll services and software. 

Why should you consider timing carefully when hiring your first employee?

You may want support during a busy period, but if your cash flow lags after making a new hire and you find yourself unable to pay them long-term, you may put yourself in the awkward position of laying someone off because you opened doors for hiring before your business was ready. Think about whether you’ll need your first employee weeks, months, and years down the line—and whether the new hire can drum up business that grows your company—before posting to a job board.

How do I hire my first employee?

If you’re a small business hiring your first employee, you need to get an EIN with the IRS, source candidates online, screen and interview candidates, determine compensation and benefits packages, set up payroll, and distribute locally compliant offer letters and tax forms, and comply with withholding requirements for any federal, state, and local income taxes.

This blog is based on information available to Rippling as of October 4, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.