How to hire an employee

Whether you’re hiring employees for your small business or a growing corporation, you can save time and money by following these steps.

13-step hiring process checklist

1. Prep for government compliance
2. Draft a timeline
3. Determine what type of employees you are looking for
4. Write a job description
5. Promote the job and collect applications
6. Interview top candidates
7. Call the candidate’s references
8. Set up a trial run
9. Extend an offer
10. Run a background check
11. Determine employment eligibility
12. Make sure you’re in compliance if hiring foreign workers
13. Report your new hire to the state

1. Prep for government compliance

Before hiring an employee, you’ll need to register for compliance.

• Obtain an EIN. An Employer Identification Number (EIN) is like a Social Security number for your business. It registers you with the federal and state authorities and is used for tax purposes. All business entities, including corporations, partnerships and limited liability companies (LLCs), need EINs. Most sole proprietors don’t need an EIN and can use their Social Security numbers when filing taxes and business documents. However, sole proprietors do need EINs if they hire employees. Check your state’s labor department for information about how to obtain an EIN, since every state has a different process. And, if you don’t have the best personal credit or don’t want to use your Social Security number to qualify for a business loan, you may be able to land a business loan using your EIN only.
• Register with the state government. Most states require businesses to register with the Secretary of State’s office, a Business Bureau, or a Business Agency like the Small Business Administration (SBA). In most cases, you can do this online.
• Purchase workers’ compensation insurance. Workers’ compensation is required in every US state except Texas, but requirements vary depending on where you live. Purchase through an independent insurance agency or a state-run commission. Check your state’s official website for details.
• File tax paperwork. All hired employees need to fill out Form W-4 (employee’s withholding certificate) and Form W-2 (federal wage and tax statement). Read up on federal tax withholding to find out about employment tax due dates and the requirements for Form 940, Form 944 and Form 945.

Some states require you to complete additional paperwork. For example, Minnesota requires you to obtain an unemployment insurance employee account number to make unemployment contributions.

2. Draft a timeline

It can take six weeks from start to finish to hire an employee. Plan on about two weeks of advertising, two weeks of initial interviews and two weeks of intensive interviews.

In a candidates’ market, you’ll have a better chance of maintaining top applicants if your hiring process is seamless and efficient. Avoid bumps in the road by preparing a feasible timeline.

3. Determine what type of employees you are looking for

The workforce contains various types of employees, including full-time, part-time and freelance workers. There’s no legal difference between a part-time or full-time employee, so you’re free to determine factors like the number of hours required to work. But there are legal differences between a part-time employee and an independent contractor. For part-time employees, you’re required to pay unemployment insurance tax to your state as well as payroll taxes to the IRS. This isn’t required for independent contractors.

4. Write a job description

Write a job description spelling out exactly what you’re looking for. Make a list of:

• The position’s daily responsibilities.
• Key qualities the ideal candidate should have.
• Background and skill set that best serves the role.
• Salary, benefits and the number of hours you expect weekly.

After you’ve established the key requirements, format them into a job description. Avoid fluff or excessive wordiness. The best way to attract top talent is by being straightforward, concise and honest.

You can also find pre-written job description templates for various kinds of jobs on websites like Monster.com. And in some cases, you may also turn to artificial intelligence. Apps like ChatGPT can produce job descriptions based on the job and type of employee you’re seeking. But it’s important to review these for accuracy, grammatical errors and tone.

You might also reference the job description while preparing for the interview process — it can help determine which questions you ask to evaluate whether a candidate has the soft and hard skills required for the role.

5. Promote the job and collect applications

Share your job description with the world through job boards like Monster, LinkedIn, Indeed or ZipRecruiter. Tap into your personal network to spread the word, using social media, peers and colleagues to reach potential candidates.

Consider working with a headhunter whose specialty is recruiting top talent for a fee of about 20% to 30% of the candidate’s final salary.

Another option is paying for a subscription with a resume database. Indeed and Monster both offer massive banks of resumes. On LinkedIn, you can browse the digital workforce for free.

6. Interview top candidates

Finding good employees can be a challenge, so it’s important to develop a strategy to make sure you find and hire top talent. First, screen candidates over a 10- to 15-minute phone call, asking them essential questions about their location, expectations and skills to make sure a longer, intensive interview is worth your time.

Be sure to have questions ready about their work history, career goals and problem-solving skills.

Once you confirm their initial eligibility, schedule an interview, either in person or through a video conference software. Avoid questions about their personal life — some topics are off-limits due to discrimination laws and are illegal to ask about during a job interview due to the Civil Rights Act of 1964, the Americans with Disabilities Act and the Pregnancy Discrimination Act.

Asking questions about personal attributes like age, sex and race can result in legal action by the US Equal Employment Opportunity Commission.

Once you confirm their initial eligibility, schedule an interview, either in person or through a video conference software.

7. Call the candidate’s references

If you’ve found a candidate that aces the interview, check in with their references. During each call, ask specific questions about the candidate’s abilities related to the position you’re trying to fill and its responsibilities and challenges. You’ll want to glean firsthand info about the candidate’s strengths and weaknesses, as well as their social skills.

8. Set up a trial day

A trial day can help you avoid hiring a candidate who aces the interview but lags in real-life application. Once you have someone you’re pretty sure about hiring, schedule a day for them to come in and complete an assigned challenge or trial test.

This can also be a great way to see whether your personalities mesh well in the work environment and whether the candidate will be a good fit for your company culture. Trial days can be paid or unpaid.

9. Extend an offer

You should extend the job offer over the phone first to make sure your expectations are aligned. After sharing the good news, here’s what to cover in conversation:

• Review key responsibilities involved with the role.
• Lay out long-term opportunities for the candidate.
• Emphasize your company’s strengths.
• Explain why you believe they’re the right match for the job.
• Request feedback from the candidate.
• Ask for their verbal acceptance.
• Discuss next steps and a timeline.

If the candidate accepts, send an offer letter with the following information:

• Job title
• Compensation
• Benefits
• Expected start date

Sign the letter, and include a blank line for the candidate at the bottom. They’ll sign it and send it back to indicate their agreement.

10. Run a background check

The best time to run a background check is “after a conditional job offer has been shared with the candidate, but before their employment has been finalized,” according to JDP, a screening service provider. This is mostly due to laws that prevent employers from asking about a candidate’s criminal background during the application process.

Due to the complex legalities of running a background check, most small business owners will go through a third-party agency like HireRight or GoodHire. This usually costs between $20 to $100 a candidate, depending on the service you choose and the information you want.

11. Determine employment eligibility

Specific laws determine whether an employee is eligible to work for you in the US. You can confirm candidates’ eligibility when they fill out Section 1 of Form 1-9.

By the end of their third day, your new hire will need to show you one document from List A or List B of Form-9, paired with a document from List C.

Filling out the I-9 is all you need to do to confirm eligibility in most states, though some states — including Michigan and Arizona — also require that you enroll in the E-Verify program, a system that compares the I-9 information with the records available at the US Department of Homeland Security and the Social Security Administration.

12. Make sure you’re in compliance if you’re hiring foreign nationals

Top talent can be found all over the world, but you need to follow some rules if hiring foreign workers. A foreign national is an employee or independent contractor who works in the US but isn’t a naturalized US citizen. To legally hire foreign employees or contractors, you need to apply for certification through the Department of Labor (DOL). You’d also need to confirm that these employees have work visas from the US Citizenship and Immigration Services. You can verify this through their Form I-9.

13. Report your new hire to the state

Take a moment to celebrate, because getting to this step means that you’ve successfully hired an employee.

It’s time to report the new hire to your state’s labor agency, as required by The Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Federal law requires that you report basic information within 20 days of hiring, though some states require it sooner. The state uses this information to enforce laws and benefits like child support and welfare assistance.

Report your new hire to the state online, by mail or over the phone — check your state’s website for details. Failing to report a new hire could cost you. For instance, in Texas, business owners are charged $25 each time they fail to report a new employee.

What tools or hiring resources do I need?

These tools may come in handy, especially if you’re building a larger team:

• Posters, business cards and pamphlets. If you go to a job fair, bring along printed materials to provide tangible info and give people a lasting reminder of your brand.
• Recruitment software. These platforms can help you automate functions like sourcing and screening candidates, scanning resumes for keywords and non-negotiables to find top talent in the slush pool of applicants.
• Applicant Tracking System (ATS) software. This allows candidates to apply through your company site. On your end, ATS software can help manage applications, schedule interviews and save resumes in an internal database.
• Payroll software. After you’ve made an offer and the new team member comes aboard, payroll software streamlines the process of tracking employee hours and compensating them via direct deposit.

How much does it cost to hire employees

It costs about $4,700 to hire a new employee, according to a Human Capital Benchmarking report for the Society for Human Resource Management.

That number could go up or down, depending on how much you spend advertising the job and the cost of workplace integration. You might need to invest in materials and equipment to bring on a new team member, such as a uniform, computer, desk, chair and software.

Paid job postings can cost anywhere around $5 to $16 a day or $279 to $399 a month.

Bottom line

Hiring your first employee gives your company the bandwidth to do more to charge onward. As your business grows, learn more about what resources you need to succeed.