When should you hire your first employee?

As your business grows your workforce must increase to accommodate this. This is an exciting milestone for every small business, but before hiring, you must assess whether your successful business is in the right place to take on staff.

Finding your first employee can be time-consuming. You need to find candidates who have the skills you're after and fit your company culture. Before beginning the hiring process, you must understand when is the right time to take this step and be aware of what you need to onboard qualified candidates.

Let's explore the telltale signs that you need to hire employees and the steps you need to take to onboard them.

11 signs you need to hire employees

1. You're turning down work

Turning down work isn’t ideal for your small business.. It can create a negative snowball effect and can increase your customer acquisition costs. When you’re continuously turning down new business, money, and resources you've invested in attracting new customers go to waste. Acquiring new customers is difficult and time-consuming, and with the costs associated with acquiring a new one, you want to ensure you’re capitalizing on your investment.

The customers you do turn down may consider your competitors, handing them potential revenue. While there are some rare cases when turning down work might be appropriate, being too understaffed is not a valid reason. It's also a clear sign that your business is unprepared for growth which can damage your success in the long term.

2. You're taking your business in a new direction

As a business owner, you constantly explore new revenue-generating opportunities. Whether you're extending your product selection, expanding into new markets, or improving current services you'll need new employees. A new hire can help you boost your ability to explore these new opportunities, increase your business revenue, and improve your personal finances.

Business owners with 10 employees on their payroll can increase their salary by up to 60%. Without help, you may end up struggling with limited time and resources meaning you can't pursue new revenue streams. Hiring staff frees up your time so you can focus on scaling your business into untapped markets.

3. Your customers are complaining

Customer service is key to boosting your revenue. If your customers are complaining then it shows that you’re not meeting their expectations.. But don't worry - if they're complaining it means they haven't left yet. Only 1 in every 26 unhappy customers will complain while the rest will walk away. Complaints allow you to address issues before you lose their business - but act fast.t

Customers can be frustrated for many reasons. It could be poor product quality, bad service, tech issues, or long wait times. These problems can often be fixed once you start hiring, so ensure you execute and deliver on any customer feedback.

4. Poor product quality

Poor product quality is a common customer complaint that may result in losing both customers and money. Without proper quality assurance, mistakes may get missed leading to dissatisfied customers and loss of business. Try to utilize a third party to help you objectively review your work. It’ll help you spot mistakes, as they’re free of bias.

This issue extends to online businesses and e-commerce stores as well. Managing everything on your own increases the chances of spotting issues that affect the quality of your operations.

Getting extra help offers a fresh perspective, so you can spot errors and improve the quality of your products and services.

5. You're struggling to keep up with bookkeeping

If you're busy handling customers all day, it's hard to find time for important tasks like bookkeeping, tax forms, job applications, and, managing your payroll system. Falling behind on admin can cause issues, so setting aside time each day for managing your financials and office work is crucial.

However, as your business grows, so will these responsibilities. If you're struggling to keep up, it's a clear sign you need help. Hiring someone or investing in software can lighten the load.

Tools like QuickBooks, FreshBooks, Xero, and Wave Accounting can help you stay organized, manage cash flow, and automate invoicing. While these platforms can save time and streamline office tasks, they still require attention. If you find yourself short on time even with these platforms, then you almost certainly need help to keep things operational.

6. You need specific skills

As a business owner, you're probably a jack of all trades. But everyone has their limits and sometimes you need someone with a specific skill set to help you fill job requirements to meet a major milestone or explore a new avenue of opportunity.

For example, you could be great at marketing but lack an eye for design. While learning a new skill is a great use of your time it's not always possible especially if you've got competing priorities. Hiring a graphic designer can help you fill this skill gap, keep your business running smoothly, and allows you to work more efficiently.

7. You're working too many hours

Everyone needs a break, yet 72% of business owners skip vacations due to financial concerns or fear of business failure. One in four in this group avoids vacations because of guilt or perceived responsibilities to their business and employees. But it doesn't need to be like this.

Entrepreneur, Mark Cuban stated that he didn't take a vacation for seven years when he first started his business. While he's seen huge success there are big benefits to taking a few days away including improved and more effective productivity and better physical health. One study also found that those who took a vacation less than once every six years were eight times more likely to develop heart issues compared to those who took two vacations a year. Regular vacations can also reduce the risk of dying from coronary heart disease, helping to lower blood sugar levels and boost HDL, the “good” cholesterol well as less instances of burnout and mental health issues.

Small business owners do themselves, and their business a disservice by forcing themselves to work every hour of the day. Getting away for a few days is a great way to clear your head allowing you to return with a fresh perspective. So, consider hiring a new employee to help while you’re away.

8. Business growth is stalling

Daily business tasks can take up a lot of your time and energy, especially if you're a small business owner or solopreneur. This often means that you struggle to find time to develop and execute a growth strategy leading to a stall in business growth and development.

Consider the average growth forecasts for new companies and ask yourself: Are you hitting these projected targets? Startups typically experience rapid growth in their early years, so if you're not seeing this or can't forecast substantial growth in the coming year, think about what’s causing this issue.

Addressing growth obstacles is a key step in moving forward so consider if hiring your first employee could solve these issues. By delegating some of your responsibilities you can focus on less time-consuming tasks and ensure that your business continues to expand and grow.

9. You can't answer customer concerns

Your customers expect you to be easy to reach. There are more ways than ever for your customers to communicate with you, from traditional methods like in-person visits, and phone calls, to newer approaches like instant messaging and social media.

Did you know that 32% of customers expect a response within 30 minutes while a further 42% expect a response within 60 minutes? If you can’t meet these SLAs (Service level agreements) then you should hire support.

10. You're relying on freelancers

While freelancers and independent contractors are great for new small businesses they can limit your growth. An independent contractor allows you to work within a budget, offers flexibility, and gives you the opportunity to cut ties if things don't work out.

Sites like Upwork, Fiverr, and even LinkedIn allow you to explore a freelancer's portfolio and read reviews from previous employers.

However, you are limited based on their time and the needs of their other clients. here may come a time when you need to transition to full-time employees. If you have worked with an independent contractor for a while and have seen them to be reliable then you may consider asking them to join you full time. Hiring a full-time employee provides more control and consistency for your business, offering long-term stability.

11. You can afford it

Hiring employees is expensive. That's why businesses often rely on independent contractors to keep costs down. The average salary in the US is $44,148 a year, with various factors like experience, specialist skills, and educational degrees impacting this. Hiring isn't cheap and when first starting out business owners often can't afford to pay themselves so hiring your first employee is a big financial commitment.

But as your business continues to grow you'll reach a point where not hiring limits your company's potential progress. When bringing on an employee it's important to wait until you're financially stable, but be sure not to wait too long. Failing to deliver is a common reason why startups fail, so once you're ready be sure to find the right person to help take your company to the next level.

Step-by-step guide to hiring your first employee

If you're a small business hiring your first employee, there are a few things that you need to know. Hiring your first employee is a big milestone, so make sure that you do it right.

Here’s our seven top tips:

1. Get an employer identification number (EIN)

Before heading to the job boards to find your first employee, you need to register your organization with the IRS. You’ll need to get an employer identification number (EIN) (also known as an employer tax ID). This is done by filling out an IRS Form SS-41.

An EIN is like a Social Security number for your business. You use it on your tax forms, tax returns, and any other legal document you submit to the IRS. If your business is registered with your state's labor department you likely already have an EIN. If not be sure to get one - the process is free and instant.

After hiring your first employee you'll be responsible for withholding a portion of wages paid for things like health insurance, Medicare, social security, taxes, and other payments that must be sent to the IRS. It's up to the employer to maintain tax records for a minimum of four years. You’ll also need to ensure proper tax arrangements, including federal tax withholding, federal wage and tax statements, and state taxes.

2. Post your job description and start the interview process

Once you’ve registered your EIN with the federal government and established your business as a legal entity with your state, you’re ready to start the hiring process. You must ensure that you follow both state and federal anti-discrimination laws during job postings, interviews, testing, and offering the position.

After your first employee joins, additional responsibilities come into play. You’ll be required to pay at least the minimum wage (whichever is higher—federal or state), keep detailed records of your new employee, hours, wages, and overtime, and comply with workplace safety regulations.

You should begin your search for new employees by posting your job description online to attract a potential candidate. A number of sites have online job boards including LinkedIn, Indeed, Monster, TotalJobs, and even Google. You can also share your job description on your social media channel to reach your company followers.

Ensure that the job title accurately reflects the roles and include the following details in the job posting:

• job specifics
• required experience and qualifications
• desirable soft skills
• salary and benefits
• details about your company and its culture.

Some states like California, Colorado, and New York require pay transparency, so ensure this is required. Once you've attracted a qualified candidate you can move on to the interview stage to narrow down your options and find your new employee.

3. Conduct background checks

You may need to conduct pre-employment checks as part of the hiring process. This could include a background check or a pre-employment screening. This allows you to assess an employee's eligibility and employment authorization ensuring that candidates are who they say they are.

A background check also helps ensure the safety of yourself, your business, and your customers as well as making sure that all legal requirements are met. To comply with all legal requirements speak to a professional for specific advice and guidance.

4. Register with employment agencies

Now, register as an employer with your state. This is primarily for tax purposes and allows you to report and pay state income taxes as required. If your state has an income tax, then it'll be your responsibility to withhold these from your employees' paychecks so you can submit them to the appropriate agency.

Register your new hires with the state's new hire notification system. This helps state governments collect taxes and child support payments, if applicable. All employers must report new employees to a state directory within 20 days of their hire date. You can find specific state requirements through the U.S. Department of Health and Human Services.

Be sure to stay up to date with any deadlines for state registrations and reporting. Failing to comply with state tax and employment laws will result in penalties and legal issues.

5. Get workers' compensation insurance

Depending on your state you may be required to obtain workers' compensation insurance. This protects your business and your employees by providing coverage should an employee become injured or ill due to workplace conditions or job-related activities.

It covers medical expenses, rehabilitation costs, and lost wages for employees while protecting employers from potential lawsuits. Most states require companies to have this coverage even if you only have one employee so check your state's requirements.

You can purchase workers' compensation insurance through a commercial carrier. You can also acquire it on a self-insured basis although this is typically reserved for larger businesses with substantial financial resources. Some states offer their own insurance programs which can be more affordable for a small business.

6. Set up payroll

The next step is to set up a payroll system to ensure that payroll taxes are properly managed. Most businesses use payroll software like QuickBooks to help them handle this process as payroll taxes can be complicated.

This allows you to track your employee's paycheck and hours, calculate tax withholding for federal income, and process payments. The frequency of your payroll taxes will depend on the size of your business so be sure to check that you're compliant. You will also need to decide on a pay schedule for your employee. This could be weekly, monthly, or another frequency that complies with federal and state wage laws.

7. Post workplace notices

As an employer, you are legally required to display specific posters in your workplace that inform employees of their rights and obligations under federal labor laws. These posters cover important topics such as minimum wage, overtime rules, workplace safety, and anti-discrimination protections. You can find information on the required posters for your area by visiting the U.S. Department of Labor's website.

As well as federal requirements, many states have their own labor law posters that must be displayed. Failing to display the necessary posters can result in fines and legal penalties, so make it a priority to stay updated on the latest requirements and place them in visible areas within your workplace.

8. Provide employees with the tools they need

Hiring your first employee is just the beginning. You still need to set them up for success in their new role by supplying them with all the tools they need. While it may not require extensive detail at this stage, especially if you've only had one or two employees, creating a brief employee handbook can help things run smoothly.

Invest time in properly training your new hire and sharing the overall goals of your business. This ensures they understand their role and how their work contributes to the company's success, setting you and them on the right path to growth and success.

Employee benefits

Employee benefits play a crucial role in attracting and retaining employees. They're a way to show your employees that you care about them and their well-being. So, before you hire your first employee consider what benefits you can offer.

Be aware that some employee benefits are legally required. While others are optional they can make a significant impact on employee satisfaction so be sure to consider them.

Required employee benefits

• Social Security taxes: Employers must pay Social Security taxes at the same rate as their employees
• Workers’ compensation: Employers are required to provide coverage through a commercial carrier, self-insured basis, or state Workers’ Compensation Program
• Disability insurance: Mandatory in states like California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico
• Leave benefits: Most leave is optional, except for those covered by the Family and Medical Leave Act (FMLA)
• Unemployment insurance: Varies by state, and employers may need to register with the state workforce agency.

Optional Employee Benefits

Small businesses can offer a variety of optional benefits to attract and retain talent. Even though these benefits are optional, they may still need to comply with certain laws.

• Health insurance: Employers offering group health plans must adhere to federal regulations. Employees can also expand coverage through the Affordable Care Act, and those laid off must be offered COBRA benefits
• Retirement plans: Offering employer-sponsored plans like 401(k)s or pensions is a popular benefit. The federal government provides resources to help small businesses select appropriate retirement plans
• Employee incentives: Programs such as stock options, flex time, wellness programs, and company events can boost morale and attract talent

Including these and other benefits, in an employee handbook ensures transparency and serves as a reference for your staff.

Wrapping up

Before you hire your first employee, it's important to understand all the responsibilities that come with it. But don't be scared of this significant milestone, it's a sign that your business is ready to expand, and with the right planning, it can grow your business and help you meet bigger and more exciting targets.

Understanding when it's the right time to hire your first employee is one of the most crucial steps along with navigating legal requirements and offering competitive benefits that help your small business stand out in the job market. Finding the right employee can help you scale your business, improve customer satisfaction, and free up your time so you can focus on the bigger picture.