Most field service companies get started by technicians looking to leave the roost and make some real money—but what do you do when you have too much work to handle by yourself? While you may have all the skills associated with your particular trade, you might not know how to go about running a business, especially from a rules, regulations, and paperwork perspective. Fortunately, we're here to help! This guide will lay the groundwork for hiring your first employee by answering some common questions associated with the process.
What do you have to do to officially hire an employee
There are several steps for officially hiring an employee. While you should always check with federal and state authorities, these are the basics:
- Employer Identification Number: First, your business will need an Employer Identification Number (EIN). This is like a Social Security Number for your business. You will use it on all the documents you file with the IRS. Depending on your location, you might also need state or local IDs.
- Labor Department: You also need to register with the labor department in your state. Once you hire an employee, you will need to file paperwork and start paying state unemployment compensation taxes on that employee.
- Workers’ Compensation Insurance: In addition to workers’ compensation taxes, you may need to get workers’ compensation insurance. Some states require it.
- Set Up Payroll: Next, you will need to set up a payroll system. You can do this yourself or outsource it. Either way, make sure that you report the income your employee earns and deposit a portion of that with the IRS, Social Security, and Medicare. You may also need to set up benefits, create a compensation plan, and establish pay periods.
- Withholding Allowance Certificate: Each employee will need a Withholding Allowance Certificate (you might have heard of it; this is a W4). This will let you know how many allowances the employee wants to claim.
- Employment Eligibility Verification: You have to get an Employment Eligibility Verification or I-9 as well. This confirms that your new hire is legally allowed to work in the United States.
- New Hire Reporting: Collect this information and complete the new hire paperwork required by your state. This helps authorities locate people who owe child support and have other outstanding obligations.
These seven steps will help you hire an employee, but you also have several obligations to honor once someone starts working for you. These duties include posting notices of worker rights, reporting the federal unemployment tax you pay, and setting up personnel files.
In addition, the steps for officially hiring an employee depend on what classification that person has. Technically, any person who you schedule, dictate the equipment they use, or control where they buy supplies qualifies as a common law employee.
How much overhead should you expect to pay above the cost of the worker's salary?
The actual cost of having an employee is higher than the salary figure you agree to pay, so you should consider this going in. You will also need to pay 6.2% of their income in Social Security Tax, 1.45% in Medicare Tax, and your state unemployment tax. You might also need to pay for benefits and insurance. This worksheet can help you drill down on an exact figure.
What other costs should you expect to pay?
In addition, you can expect to spend roughly $4,000 in recruiting and training your new employee—and that’s if your new hire works out. “Beyond the red tape, hiring mismatches can result in high turnover, absenteeism, higher healthcare costs, workplace violence and theft—substantial costs to an organization's bottom line and reputation,” explains Erika Welz, author of Keep Your Paycheck, Live Your Passion: How to Fulfill Your Dream Without Having to Quit Your Day Job. Background checks, drug testing, and requiring references can help prevent some of the worst issues, but nothing is fool-proof. “In reality, nearly 40 percent of all job applications and resumes include bogus or inflated facts,” says Welz. “Plus, the number of negligent hiring lawsuits in this country is mounting—if your staff member's actions hurt someone, you can be held accountable and sued.” Basically, make sure you take the interview process seriously.
Do you need insurance?
You will need to carry insurance as a company too. In addition to workers’ compensation, you can expect to carry General Liability and Property Insurance. You might also need Commercial Auto Insurance if you provide a vehicle for your new employee. Other types of small business insurance include: business income insurance, flood insurance, and umbrella insurance. Talk to an insurance provider in your area to see what coverage you should carry.
Who will supply the worker's equipment/vehicle?
While you may be able to require your employees to cover the cost of equipment and tools, the rules concerning this vary by state. You will also need to pay for personal protective equipment (PPE)—it is required by the OSH Act.
Conclusion
Sounds like a headache, right? Hang in there! The process seems intimidating at first, but once you go through the motions, you'll quickly find that anyone can jump through all the necessary hoops with nothing more than a bit of dedication and a positive attitude. Should you despair, remember the light at the end of the tunnel: more revenue and a growing business.
