SCORE: Recruiting good employees requires a plan
It is so great to be a SCORE mentor and watch a small business grow from a one-person operation to where it needs to have help and start having employees. Hiring employees for your small business can help lighten your workload. But it also creates the need to manage something you didn’t need to worry about when you were handling all aspects of your business by yourself.
I will share with you some items from a recent mentoring session that is ready to take off and really grow. Here are some key items.
The first is payroll. Even if you have just one employee, you need to do payroll accurately and in compliance with all legal and regulatory responsibilities. If you don’t, you could incur costly penalties from the Internal Revenue Service.
Before you hire your first employee and put processes in place to handle payroll, make sure you pay attention to two important details.
1. Register for an employer identification number
The IRS requires that you have one before you hire employees. You can apply for an EIN online at www.irs.gov, or contact the IRS to establish one. Your EIN will be used for reporting taxes and other documents to the IRS. You’ll also need your EIN when reporting employee information to state agencies.
Also, check to determine whether or not you’ll need state or local ID numbers to process taxes.
2. Know the difference between an employee and an independent contractor
Laws and requirements are different for them when it comes to withholding and paying taxes and in how you conduct your working relationship.
A few key differences include:
• Generally, employers provide employees with all the equipment, supplies, software and tools they need to perform their jobs. Independent contractors use those that they own.
• Employees typically have their work hours set by their employers, whereas independent contractors control their own work hours.
• With employees, you, the employer, will need to withhold income tax and Social Security and Medicare tax from their paychecks. You’ll also need to remit federal and state unemployment taxes. When hiring help, employees must complete IRS Form W-4 (Employee’s Withholding Allowance Certificate) so you can withhold the proper amount from their pay.
• Conversely, independent contractors are responsible for directly remitting tax payments; you do not withhold taxes from their compensation. Ask them to complete IRS Form W-9 (Request for Taxpayer Identification Number and Certification), which certifies they are not employees.
• Independent contractors send you an invoice for services rendered.
After you have these key action items checked off your list, you can concentrate on other details such as deciding on a pay period and either choosing a payroll system or outsourcing your payroll administration.
The second part of these conversations is about hiring the right talent for your small business. There’s a lot at stake. According the U.S. Department of Labor, the estimated cost of a bad hire can equal 30 percent of the employee’s annual compensation. That’s a lot of money for a small business to absorb, so it pays to do all you can to make sure you’re choosing the right candidates for positions within your company.
Here are some key items to consider as presented by Bridget Weston Pollack, SCORE’s vice president of marketing and communications:
• Clarify what the position will entail. That includes writing a detailed job description, which identifies responsibilities to be met and the skills and expertise needed. The more exact you are in defining what you’re looking for, the more effective you’ll be in identifying candidates who might be the right fit.
• Find qualified applicants. Social media networks, particularly LinkedIn, have become the go-to tools for finding viable job candidates. Ninety-four percent of recruiters use — or plan to use — social media for recruiting, and 73 percent of millennials say they found their last job through social media. More significant is businesses that used social media for hiring employees reported a 49 percent improvement in candidate quality over those found through traditional channels for recruiting.
• Choose the best employee. After taking the time to review resumes, narrow down your list of applicants to those you consider your top candidates. To ensure you legally conduct the interview process, educate yourself about fair employment practices. SCORE.org offers a free “eGuide to Small Business Hiring” that can help you. And don’t skip over checking references provided by the candidates — they can give you greater insight into your potential hires’ strengths and weaknesses.
While there’s no exact science to selecting the right employees, you’ll help ensure a successful hire by taking the time to follow these basic steps. For more guidance on starting to have employees and best hiring practices, consider reaching out to your local SCORE chapter to talk with a SCORE mentor.