What to do before you hire your first employee

All companies start with a great idea, and usually it’s born from a challenge that you or someone close to you face. It’s a desire to improve, fix or create a better way of doing something and from that comes a company. No one ever creates a business to be in business, all of the things that go along with creating a company is overwhelming, and there is no definitive direction provided by anyone or anything.

Sure you can ask for help from your lawyer or accountant, but they charge, and that’s also assuming you have one. Many of the greatest minds in business I’ve known were very smart, but had no knowledge of how to create, operate or start a business. When I started Dinsmore/Steele years back, I wasn’t aware of all that would go into creating a company, the forms, the insurances and so on.

Luckily I had great advisors and mentors to help me, but what about others who don’t? In my experience most startups don’t exist to make money, at least not in the beginning, sure they eventually will need to, but they aren’t created to solely to make money. The only thing I’ve ever known that solely is created to make money are banks, and if you’re creating a bank, then you probably are pretty well equipped to know what to do.

Over the years, I have worked with a large number of startups and never once in my experience have any of the founders ever had a great interest in the actual business of running a business. For this blog, I’ll use a typical two-man startup example, one of the founders is the tech mind behind the business and the other is the sales/finance mind. They realize that they need to hire their first employee, but what do they do?

Here is what needs to happen before you hire your first W-2 employee. We’ve broken down each section to make it easier to understand.

Payroll and New Hire Reporting

The startup will need to have a payroll solution to pay their employees and remit state and federal taxes. They are required to have an I-9 and W-4 filled out and on file for each employee. Payroll & New Hire reporting be done in-house or outsourced, to offer direct deposit and to ensure correct tax remittance, it’s easier to find an outsourced solution for payroll. At the year end preparing and ensuring W-2’s are done correctly and sent on time is a nerve-wracking task. Payroll companies will handle all of this for you, along with deductions, garnishments and certified payroll.

Employee Benefits

Obamacare changed a lot for employers concerning Employee Benefits. More importantly though you will be hard pressed to find a viable employee who will work without an employee benefits plan in place. Asides from the fines and penalties that you will incur by not offering employee benefits. In addition to offering health insurance, you should also offer dental, vision, disability and life insurance.  Creating an employee benefits plan can be done either through an insurance broker or by joining an outsourced solution such as a PEO or ASO.

Workers’ Compensation Insurance

Accidents happen, and people get hurt at work, it’s life. You will need to have Workers’ Compensation insurance if you have employees or you will find yourself facing massive state penalties and potential lawsuits from your employees if they are injured.  Almost every state offers a State Funded Workers’ Compensation insurance plan that any company can apply for and join. Pay as you go Workers’ Compensation coverage is the best option it allows you to save the money of front-loading the policy to bind coverage. It also eliminates year end audits and owing money at year end because of additional employees.

Human Resources

To many Human Resources is a dreaded word. If you are an employer and don’t have a solid HR infrastructure, it can be the difference between being in business and being out of business. Human Resources is vital to any and every business that has more than one employee, and it gives your company culture and structure. State and Federal regulations often change state to state and keeping up with those policies is a daunting task. Having an employee handbook that outlines your company’s policies and procedures limits your liability and lets your employees know the how, what, when, where and how of your company.

When I first started Dinsmore/Steele, the best advice I ever received was from a CPA, who has long since retired. It was that the authorities don’t call to tell you there is a penalty until after there is one. It’s very true, the excuse of not knowing doesn’t work in business and the last thing as a business owner is to have your company fall prey to the myriad of bad things that can happen.

If you like to learn what your options are or need help setting up any of the above, contact us. We’ll be happy to help and good luck with your venture.