Hiring Your First Employee: What You Need to Know

Congratulations on growing your business and being taking on your first employee! It can be an exciting and anxious time bringing your first hire into your workplace.

To make sure you are fully prepared for this huge milestone of hiring your first employee, there are certain things you should know in terms of government regulations, legal requirements and more.

Here are some things you need to know before employing your first employee:

1. Get an employer identification number (EIN) before hiring your first employee

The EIN is a legal requirement by the IRS for every business that has employees. It is a distinct nine-digit number which is used to identify your business for tax purposes. If your business is registered as a partnership or corporation, you may already have an EIN. If not, you can apply via the IRS website. Check on your state’s labor department website to find out the process for applying for an EIN. Every state has distinct processes for businesses to obtain their EIN and it is essential for hiring your first employee.

2. Register your business with your state labor department when hiring employees for the first time

Once you hire your first employee, you will have to start paying state unemployment compensation taxes, which will contribute to your state’s unemployment compensation fund. The aim of this fund is to provide assistance to workers who have lost their jobs. You can find out the details of your state’s labor department by going to the Department of Labor’s main website.

3. Collect records for taxes when hiring your first employee

One of the main things you need to know when hiring your first employee is how you will withhold their taxes. Before hiring your first employee, you need to complete three types of documentation:

Federal income tax withholdings. Form W-4 is an employee withholding certificate. Before you employ your first employee and he/she starts working for you, they need to complete this certificate, which asks the amount of federal tax that should be taken from their pay. After this has been done, you then need to send the form to the IRS.
Federal wage and tax statement. A Form W-2 has to be completed for every employee. This form shows your employee’s earnings and tax withheld for the relevant year. It’s your responsibility to send a copy of Form W-2 to your employee by January 31st. Copy A of the form must be sent to the Social Security Administration by the last day of February.
State taxes. Different states have different tax withholding forms. So, go to your state’s website to find out what you need to do. It is recommended that you keep your tax records for at least six years to have evidence of your employment tax filings. Being prepared for tax season means that you create an organized system to keep your records updated which also helps to provide an accurate financial analysis of your business.

4. Hiring employees for the first time means it’s time create personnel files

Set up a personnel file for your first employee to keep any documents that are related to their job, such as job applications,IRS Form W-4, performance reviews and sign up forms for employee benefits. You should also have a process for keeping confidential information such as, medical details and immigration status safe as you start hiring employees. The more organized your personnel files are, the easier it is to access this information if the need arises.

5. Have a clear definition of the role when hiring your first employee

Before taking on your first employee, you need to understand the role that you are hiring for. Make a list of what your business needs from its first employee and the most immediate support that’s required. You also need to consider the duties that your new hire will be responsible for.

When defining the role, consider factors like:

How senior the role should be.
The type of work that needs to be done.
Your hiring budget.

You also need to think about the candidate’s background, skillset and experience that will be needed for this role. After you have done this research, you need to write a good job description to attract the most appropriate applicants. [Learn More: Sample Job Description]

If you are looking for ways to get the best outcomes from your application process, download our 5 ways to improve your application performance ebook today.

6. Source your candidates the right way when hiring employees for the first time

When sourcing your candidates, you can use referrals from past colleagues, different platforms like, free job boards or professional networking sites, such as, LinkedIn. Ideally, you should use different platforms to source the best candidates when hiring your first employee.

To ensure that you find the most suitable candidates, you can use Fountain Boost to get better results. With Fountain you can advertise using free job boards or,to spread your net wider. Tell us how many employees you need and we will recommend a budget and post your job advert to these platforms. You can sort out all your applications in one convenient dashboard, so there’s no need to log into different websites to review the applications you receive.

7. Set up interviews to hire your first employee

Rather than initially scheduling a face-to-face interview, you can use the pre-screening method of one way video interviews to ensure that you only invite the most suitable candidates to an in-person interview.

As a small business hiring your first employee, saving time and resources is critical and you want to be sure that only the right candidates take up your time. With Fountain, we have a video recording feature that enables you to ask your applicants to record a video on their smartphone to talk about an aspect of themselves, or the job. For example, you can ask a candidate to discuss their career aspirations and why they want this job.

Using video recordings before setting up face-to-face interviews allows you to make a decision about important skills that candidates will need – for example, communication. This is important when taking on your first employee. After using the video interview to pre-screen your applicants, you can then invite them for a face-to-face interview after you have decided on an interview panel.

Ideally, there should be more than one person on the interview panel. If you are a small business, you could outsource this function to a H.R professional so that they can ensure that everything is legally above board.

8. Run a background check when hiring your first employee

When you believe you have identified the right candidate, it is recommended that you run a background check.This hiring process step is important to help safeguard yourself, your business and also your potential new hire.

Check with your state to find out the types of background checks you can carry out. For instance, some states have a ‘ban the box’ policy where you are not allowed to ask about an applicant’s criminal history on job applications.

When you have determined that you can run a background check and the timeframe, you should use software that makes this simple and easy. With Fountain, we integrate with the most reliable and trustworthy background checking services to ensure that the information that your candidate has given is accurate. Using the background check services with your recruitment software makes the hiring of your first employee smarter and more efficient.

9. Ensure that your first employee has the right to work in the U.S.

You have to make sure that when you employ your first employee that they can legally work in the U.S. If you have not done your due diligence and your employees do not have the right to work in the U.S., you will face fines and could even be liable to criminal prosecution.

To determine if your first hire is eligible to work in the U.S., you should:

Provide the employee with a Form I-9 before they start their job, which asks for information like their Social Security Number, contact details and employment eligibility.
Ask your first employee to show you documentation that they have the right to work in the U.S. by their third day on the job.

This documentation can include a U.S. passport, permanent residence card or a driver’s license, combined with something like a Social Security card.

You can find information about the documentation your first hire will need to prove their eligibility to work in the U.S by reviewing the following lists:

List A – This list of documents establishes an employee’s identity and their right to work in the U.S. Passports and permanent residence cards are some documents on List A.
List B – This list includes documents that confirm an employee’s identity for example a a drivers license.
List C – This list gives you information about the documentation you need to see to verify that the employee has the right to work in the U.S and includes documents, like a Social Security Card.

Your first employee will need to show a combination of documents from the above list to satisfy the state and the federal government that they are lawfully entitled to work in the U.S.

Generally, completing a Form I-9 and seeing the relevant documents would be adequate to determine eligibility.

However, sometimes this is not the case if you are taking on employees in certain states. You will then need to enroll in the E-Verify Program.

10. Apply for workers compensation insurance when hiring your first employees

The National Federation of Independent Businesses (NFIB) has a useful guide about workers compensation insurance, which covers employees who may become ill or injured at your place of work. Different states may have different stipulations for you to obtain an insurance policy for your employees, so you need to review your state’s requirements before taking out your workers compensation insurance.

11. Set up a payroll system before hiring your first employee

When you hire your first employee, you need to have a reliable system to pay them accurately, on time and also withhold the relevant taxes. You can do payroll yourself, outsource this function to an accountant or use a payroll software. Most small businesses use payroll software such as, Xero or Sage. No matter how you choose to implement your payroll, you need to familiarize yourself with the basics, for example:

What is required to pay employees.
How you pay taxes.
How you fill out tax forms.

12. Keep workplace posters in obvious places

It’s your responsibility to display workplace posters in obvious places like staff rooms to inform your employee of their rights and your responsibilities. This is a requirement by the Department of Labor and is non-negotiable. You can obtain these posters for free. The Department of Labor has information about the workplace posters required at federal level and also for different states.

When hiring your first employee, you need to think about things such as:

Minimum wage.
Employee benefits, like health insurance.
Career progression.

Conclusion: How to hire your first employee

Be sure to seek legal advice as to what is required of you, as this post is for general information only.

One thing you should familiarize yourself with is modern hiring software. As your company grows, invest in the best software to source, recruit and on board the most suitable candidates, fast.

Fountain provides all the functionality, such as easy communication by SMS and integration with other recruitment services, for a complete hiring process.

Hiring Your First Employee: What You Need to Know