Let’s face it, hiring employees sucks.
It’s expensive, time-consuming, and half the time, you don’t get a rockstar; you get half a star.
Unpopular opinion, it’s not them; it’s you.
But don’t worry, you just need a better process!
Hi, my name is AJ! I recently sold my business for a multi-million dollar exit.
After hiring dozens of people, I created this guide to help you navigate the process of hiring employees.
Let’s turn your rag tag team into a dream team!
Key Takeaways
- Creating a hiring process is essential for small businesses
- Don't use an employee contract, use a position agreement instead
- Use a trial period. You don't need a lifelong commitment out of the gate!
Related Reading: How to Fire an Employee
Step 1: Regiester Your Business With the State
The boring sutff…
If you’re hiring employees, I’m sure you’ve already gotten a business entity.
If you have one, move on to step 3; if not, let’s move forward!
What is a Business Entity?
The term “business entity” describes organizations designed to conduct business.
The business entity you choose is (semi) crucial because it will determine how you conduct business, your tax liability, and your business rights.
Here is a quick list of the most common business entities.
- Sole Proprietorships
- Partnerships
- Corporations
- C-Corporation
- S-Corporation
- LLC (Limited Liability Company)
How to Get a Business Entity.
You can pay the fees and apply for a business entity through your state’s secretary of state website.
Go to Google and type “Your State + Secretary of State” to find it.
My recommendation (if you’re still reading) is to go with an LLC. It’s inexpensive and easy to set up.
Benefits of an LLC
- Limited Liability: As the name suggests, an LLC offers liability protection. Which means your assets are protected if you get sued.
- Flexible Profit Distribution: Unlike a corporation, you don’t have to take profit based on shares held
- Tax Advantages: Profits and losses are passed through to the owner. You can also sign up for the s-corp election saving you additional cash.
Step 1.1: Get State or Local Tax IDs
The next step is to get any necessary state or local tax IDs.
These are required by the state or local government to ensure you pay taxes on the wages you’re paying your employees.
What is a State Tax ID?
A State Tax ID is a unique number issued by the state or local government.
It’s used to collect and report taxes on your business, employees, and other activities in the state.
For example, if you’re doing business in Minnesota (like I am), you must obtain a Minnesota State Tax ID.
How to Get a State Tax ID
You can apply for a State Tax ID online or through your local government office.
Each state has its process and requirements, so make sure you research the requirements for your state.
Once you’ve applied and been approved, you will receive a State Tax ID via email (or in the mail, depending on the state).
Step 2: Get an EIN
The last legal step in hiring small business employees is getting an Employer Identification Number (EIN).
What is an EIN?
An Employer Identification Number (EIN) is a unique, nine-digit number issued by the Internal Revenue Service (IRS) to identify your business.
It’s used for tax purposes and to report wages and taxes on employee W-2 forms.
Think of it like a Social Security Number (SSN) for your business. If you don’t have one, you don’t exist (which is bad business).
How to Get an EIN
You can easily apply for an EIN online with the IRS. All you have to do is fill out a form and submit it.
Once your application has been approved, you will receive an EIN immediately by email.
This typically takes a handful of minutes to fill out but a few days to get one. So start now!
Step 3: Decide the Employees Status
Once you have your EIN and State Tax ID, the next step is to decide how you want to classify your employees.
Here’s the thing. A lot of entrepreneurs want to grow their business (and their ego) with headcount. My recommendation is to do the opposite.
Try and run your business lean with subcontractors (more on that later).
Here is an overview of the different employee statuses.
Full-Time Employee
A full-time employee works at least 40 hours per week and is eligible for benefits such as health insurance, vacation days, and other perks.
Part-Time Employee
A part-time employee works fewer than 40 hours per week.
Depending on your company’s policy, they may or may not be eligible for benefits.
Temporary Employees
Temporary employees are hired for a specific period and are not eligible for benefits.
They may fill in for a full-time or part-time employee on vacation, sick, or maternity/paternity leave.
Seasonal Employee
Seasonal employees are hired for a specific period, usually during certain times of the year.
They may fill in for a full-time or part-time employee during peak business times. Or, they may be used to help with a particular project or event.
Independent Contractor
(My personal favorite)
Independent contractors are not employees of your business.
Instead, self-employed individuals are hired to complete a specific project or task.
They are not eligible for benefits and are paid a flat fee or commission for their services.
Intern
Interns are students or recent graduates who are hired for a temporary period of time to gain experience in the field.
They may be paid or receive college credit for their work.
Step 4: Decide on Your Pay Periods
When hiring employees, you need to decide on your pay periods. There is no set rule for what your pay periods should be.
However, most businesses use biweekly or semi-monthly pay periods.
My personal favorite is twice a month. It’s easy to set up, and your employees (or subcontractors if you’re listening) love it.
Here are some common ones I see consistently.
Weekly Pay Period
Weekly pay periods are when you pay employees every week, usually on Fridays.
This is the most common pay period for hourly and part-time employees but can also be used for full-time employees.
Biweekly Pay Period
Biweekly pay periods are when you pay employees every two weeks, usually on Fridays.
In total, employees are paid 26 times per year.
Semi-monthly Pay Period
Again, my personal favorite.
Semi-monthly pay periods are when you pay employees twice a month, usually on the 15th and last day of the month.
This differs from biweekly pay periods in that employees are paid 24 times per year.
Step 5: Create a Compensation Plan for Holiday/Vacation Leave
Once you’ve decided on your pay periods, the next step is to create a compensation plan for holiday/vacation leave.
You must decide what holidays and how many vacation days you will offer employees.
Pro Tip: You don’t need to worry about holidays when you’re hiring subcontractors (catching on yet?).
The most common holidays are:
- New Year’s Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving
- Christmas Eve
- Christmas Day
You must also decide how many vacation days employees should receive each year.
Most companies offer between 10-15 days of paid vacation per year.
Some companies now have unlimited vacation policies.
If you still think you want to hire full-time employees, be careful with unlimited vacation policies.
Create STRICT guidelines for how work will get done throughout the year. The more granular the details, the better.
Step 6: Create a Position Agreement
Please don’t get all legal on me.
You don’t need a full employee contract. You need a position agreement (shout out to the E-Myth).
What to Include in Your Position Agreement
A position contract outlines the job duties and other terms of employment.
- Position Title
- This is the name of the position.
- Managers Position
- This is the name of the person directly managing this position.
- Results Statement
- This brief statement outlines what results the employee is expected to achieve for the company. It should include measurable performance outcomes.
- Tactical Work Listing
- This is the list of measurable tasks with specific outcomes for which the employee will be responsible. Depending on the job, you can create a list of everyday tasks or major projects.
- Standards
- This is a list of qualities or behaviors the employee should adhere to to perform their job successfully.
These standards should be broken down into position-specific and company-wide standards.
- Position Specific – These are qualities or behaviors that should be demonstrated for the employee to successfully perform their job (e.g., punctuality, problem-solving, customer service).
- Company Wide – These qualities or behaviors should be demonstrated to maintain a positive work environment (e.g., respect, communication, collaboration).
- Signatures
- This is the signature of both parties that is required to make the contract legally binding.
See the example below!
Step 7: Find Candidates
Once you’ve created a position contract, the next step is to find job candidates.
Remember, when writing a job description, make it less formal. Show your company’s culture!
Write a Job Description
The first step is to write a well-written description of the job. It should include the following.
Brief Company Overview
The job description should include a brief overview of the company.
This should include information about the company’s mission, values, and any awards or recognition they have received.
You want to give applicants a sense of who you are and the culture of your workplace.
Qualifications Needed (If Any)
Qualifications needed for the position should be clearly outlined in the job description.
This could include education, experience, technical skills, or other traits needed to perform the job.
You want to be as specific as possible so the right candidates apply.
Tactical Work Listing
You can copy that here if you did a good job writing the position agreement.
If you wrote a lot of bullet points, you can break it down to the main ones; you’ll always have time to discuss more at the interview.
Salary Range
The job description should include the salary range for the position.
This is the salary range you are willing to offer the successful candidate.
You want to include a range rather than a specific number. This will give you some flexibility during negotiations.
Job Location
A job description should include the location of the position.
This is important for applicants needing to relocate or commute to take the job.
It’s also important to specify if the position is remote or in-person.
Post Your Job
Once you’ve written your job description, the next step is to post it.
Below are some of the most popular ways to post a job.
Online Job Boards
Online job boards are one of the most popular ways to post a job. There are a variety of free and paid job boards available.
Some of the most popular job boards are Indeed, Monster, and Glassdoor.
Research the different job boards and find the one that best fits your needs.
Linkedin is a great way to post jobs and reach qualified candidates.
Not only can you post the job on your company page, but you can also share it in relevant groups and on your personal page.
Job Specific Boards
There are also job-specific boards that you can use to post your jobs.
For example, if you’re looking for a web developer, you could post the job on GitHub or Stack Overflow.
These types of boards often have more qualified candidates that are looking for specific kinds of jobs.
College Career Centers
If you’re looking for recent graduates, you can post your job at a college or university career center.
These centers are often free to use and are a great way to reach qualified candidates who may not be actively looking for a job yet or may not have the experience needed for more competitive positions.
Professional Associations
Another way to post your job is through professional associations.
These are organizations that are specific to an industry or profession.
They often have job boards where you can post jobs and reach qualified candidates.
Freelancer Websites
In the past, I’ve had luck with posting a job to Upwork, finding a candidate, and hiring them directly (outside of Upwork).
FYI – This is a big no-no for Upwork. You will probably get banned if you aren’t careful.
Step 8: Conduct Interviews
The next step in the hiring process is to conduct interviews. Interviews are a great way to get to know the candidates and assess their qualifications.
I have a process that I like to follow when conducting interviews.
Narrow Down Resumes to Five Candidates
The first step is to narrow down all applicants’ resumes to five candidates.
These should be the five that you think are most qualified for the position.
Complete a discovery call with all the candidates to get an initial feel for the person and discuss the job position.
A discovery call should be conducted on the phone and only needs to be about 20 min long.
Narrow the Search to Two Rockstars
The next step is to narrow the search from five candidates down to two rockstars.
Conduct an in-person or Zoom interview with each of the candidates.
An in-person or Zoom interview should be about 45 minutes long and include questions about their experience, qualifications, and how they would approach the job.
During this interview, you should assess their skills, knowledge, and cultural fit. This should be more in-depth than the discovery call.
Narrow the Search Down to One Elite
The next step is to narrow the search from two candidates down to one elite.
Schedule a second interview with your final candidate.
This interview should be in-depth and focus on technical knowledge, problem-solving, and other job-specific skills.
This is also a great time to discuss salary and benefits. Paying employees competitive salaries is a great way to show them you value their contribution.
If you’re hiring local, I’ve always thought it was a great idea to meet for a beer to chat. Remember, you’re not only relying on this person to help in your business, you have to work with them too!
Step 9: Extend a Trial Period(s)
Most entrepreneurs feel like they need to jump in and make the hire.
My personal thoughts (and experience) are don’t!
Once you’ve selected a candidate, extend them an offer for the first trial period (typically a month) with a promise for an additional trial period for three months.
I’ve always found that setting two trial periods (1 month and 3 months) (with clear expectations) was great for gauging an employee’s fit for my company.
You should also be clear about expectations from the beginning.
Make sure they understand their responsibilities and what tasks they will be expected to complete.
This is where you review the position agreement in full detail.
Pro tip: There is also an option to save money by hiring the employee at a lower wage for the first month to gauge the fit. From there, you’ll employ them full-time for a better starting wage.
This way, you aren’t wasting additional resources on someone who isn’t going to work out.
Bonus Step: Onboard Your New Employee
The final step in the hiring process is onboarding your new employee. Once the paperwork is completed and the offer letter has been signed, it’s time to welcome your new hire!
Onboarding should include the following:
- A thorough company orientation.
- Job expectations.
- Safety protocols.
- Policies and procedures.
- Other information to help employees acclimate to their new role.
An employee handbook can be a great resource during the onboarding process.
Ensure to introduce new employees to their team members and provide them with the resources they need to succeed.
Hiring remote employees or hiring managers can differ slightly, but the onboarding process should be thorough and comprehensive.
By doing this correctly, you can ensure that your new hire is set up for success.
Subcontractors Vs. Employees
I personally ran a multi-million dollar business comprised of (mostly) subcontractors.
I think a lot of entrepreneurs get the ego behind hiring. “I want the biggest team” is what I typically hear.
Don’t automatically assume that a larger team equals more profitability.
Think through if you need employees or if a contractor will work just fine.
If you have written SOPs, try handing them to a subcontractor before jumping into a hire. You might be surprised!
The other option is to start with a subcontractor, and when you’re paying them more than you would be paying a full time employee, make a hire!
Just my two cents here, but I’ve had a ton of headaches with employees, and a lot less (and more money) with subcontractors.
Wrapping Things Up
When you hire an employee for your SMB, it can be a daunting task, but with the right process and knowledge, you can make sure that you find the best candidate for the position.
Take your time, do your research, and make sure to ask the right questions during the interview process. This will help you find a great employee who fits your business well.
Did we miss anything? Let us know in the comments below. Good luck!
FAQs about topic
You can refer to online resources for step-by-step guides on how to hire employees. Start by researching the job market, creating a job description, and posting job ads. Then you can review applications, narrow down candidates for interviews, and make a selection. Finally, extend an offer letter and onboard your new employee.
The amount of money you will need to hire an employee depends on various factors, such as the position you are hiring for, the salary you are offering, any benefits or bonuses that may be included, and the job location. It’s best to research the typical salary for the position you are hiring for and decide on a budget that works best for your business.
The five stages of the hiring process are job analysis, recruitment and selection, interviewing, decision-making, and onboarding.
The key to successful hiring is to clearly understand the skills, experience, and qualities you are looking for in an employee.
Employers typically look for strong communication skills, the ability to work well in a team, and a positive attitude.
The five key strategies for hiring new staff effectively are setting clear expectations, defining selection criteria, conducting effective interviews, using background checks and references, and onboarding new hires.