If you’re feeling overwhelmed with the amount of tasks you need to accomplish in a day as an entrepreneur, it might be time to start hiring some staff.
However, the process of finding the right talent can be an incredibly challenging and time-consuming process.
In this article, I will provide you with everything you need to know about hiring staff for your startup.
Before we get started, if you’re more of a watcher than a reader, then have a look at this great video by Patrick Bet-David, which will give you some key insights to get you started hiring your first employees.
Why Should I Hire Staff?
From my experience, there’s normally 3 main reasons why companies hire:
- Improved Productivity: Staff members bring unique skill sets, experience, and work ethics to your business, increasing productivity and sales.
- Improved Customer Satisfaction: Hiring staff means that work can be done more quickly, increasing customer satisfaction as your product will evolve and support requests will be answered more quickly
- Scaling the Business: As your startup grows, you’ll need to hire staff to support the increasing demand for your products. When you have a great team in place, they can help you to scale your business faster and more efficiently than going it alone
What are Some Potential Issues With Hiring Staff?
While hiring new staff members can be incredibly important for businesses that are looking to grow, there are some disadvantages to hiring new staff members:
- Increased Costs: Hiring staff, especially top talent, can be expensive. It’s essential to ensure that you can afford to hire new staff and that the financial benefits of doing so outweigh the costs.
- Training and Management Overhead: Hiring staff requires a significant time investment to train and manage employees effectively.
- Employee Churn: There is always a risk that new hires may not work out. This churn can significantly disrupt the business as you’ll have lost both time and money in the hiring process.
- Legal Requirements: Hiring staff comes with a whole set of legal requirements, such as tax obligations, workers’ compensation insurance, and compliance with employment laws.
When Should I Start Hiring Staff Members?
Choosing when to hire new staff members is a complex decision and ultimately depends on your business’s situation. While there’s no one-size-fits-all solution, here are a few scenarios where you should consider hiring your first staff member:
- Overwhelming Workload: If there’s too much work for you to get done in a day, it may be time to consider hiring staff to help with some of the more repetitive tasks such as administrative work, marketing, or customer support.
- Growth Opportunities: If you’ve identified a new area that your startup can grow into, you may need more people in your team to reach the opportunity.
- Funding: If your startup has recently secured funding or is generating enough revenue to support additional staff, it may be time to consider hiring
- Missing Skillsets: If your current team is missing a core skillset that would help your business grow, hiring some talent to fill this gap could be more cost-effective than paying to learn the skill to start with.
How Do I Attract Top Talent?
If you’ve decided that it’s time to start hiring, there are a number of things you should do to make your business stand out from other employers to enable you to hire top-tier employees.
Making your company unique can be a key factor in appealing to top talent.
When your company has a unique value proposition or mission, it sets itself apart from competitors and creates a distinct identity that can be appealing to potential employees.
This is particularly important in competitive industries, such as in tech, where companies are vying for the same pool of talent. By positioning your company as unique, you can attract employees who are aligned with your business’s core values and who are passionate about the work that you do.
Lean Into Your Advantages
Although small businesses may not be able to provide the highest salaries to their employees, there are other advantages that can attract top-tier talent to work for them. These can include working with a great code base, remote working options, and an absence of office politics.
The 11 Step Hiring Process For Small Businesses
Ready to take the plunge? If so, here’s my 11-step process to help you understand the process of hiring new staff members for your startup.
Step 1: Obtain an EIN (Employer Identification Number)
Before hiring, you need an EIN—a business’s equivalent of a Social Security Number—for tax purposes.
If you don’t have one yet, visit the IRS website to obtain it for free.
Step 2: Decide Between Independent Contractor or Employee
It’s important that you understand the differences between hiring an independent contractor and an employee before you start the hiring process and choose the right option for your business.
To help you do this, I’ve created the following table to outline the differences.
|Tax Responsibilities||Responsible for their own taxes,including self-employment taxes.||Employer withholds income and payroll taxes from wages.|
|Control over Work||Typically have more control over how, when, and where they work.||Employers have control over work hours, tasks, and location.|
|Flexibility||Generally more flexible work arrangements and project-based.||Often follow a set schedule and may have less flexibility.|
|Benefits and Perks||Do not receive employee benefits or perks (e.g., healthcare, retirement plans).||Eligible for benefits like health insurance, retirement plans, and other perks.|
|Training and Equipment||Use their own tools and equipment and typically need minimal training.||Employers provide necessary tools, training, and resources.|
|Job Security||No job security or employment protection.||Typically have job security and legal employment rights.|
|Costs and Liabilities||Business is not responsible for extra costs or liabilities related to the contractor.||Business is responsible for costs, taxes, and liabilities associated with employees.|
|Termination Process||Easily terminated per contract terms or agreement.||Termination may require legal procedures and notice.|
|Overhead Costs||Lower overhead costs as they are not entitled to benefits or workspace.||Higher overhead costs due to benefits, workspace, and other associated expenses.|
|Legal Relationship||Typically an independent business relationship with the company.||Considered part of the employer’s organization and culture.|
|Worker Classification||Classified as self-employed or freelancers.||Classified as employees and subject to labor laws.|
|Administrative Work||Handle their own administrative tasks (e.g., invoicing, billing).||Employers handle most admin tasks related to payroll and HR.|
|Liability for Errors||Typically responsible for errors and omissions in their work.||Employers may bear liability for employee errors on the job.|
|Benefits of the Worker||Varies depending on the specific contractor and their agreements.||Typically eligible for workers’ compensation, unemployment, and other employee benefits.|
Step 3: Budget for Your Employee
Don’t underestimate the true cost of an employee.
It’s not just their salary; it includes federal payroll taxes, medicare taxes, unemployment taxes, workers’ compensation insurance, and more.
It’s really important to make sure that you’re ready for all of the expenses, otherwise your employees can cause your business to fail.
Step 4: Create an Employee Handbook and Standard Operating Procedures
Having an employee handbook and SOPs is crucial for establishing company culture, policies, and job expectations.
These documents both protect you legally and help you to systematize your business, meaning that the onboarding process for new hires will be quicker and more thorough.
Step 5: Craft a Detailed Job Description
Ensure your job description accurately reflects the role’s responsibilities.
It’s important to be transparent about the exact expectations to attract candidates genuinely interested in the position and are the right fit for your business. Remember, it’s much better to only have a handful of interviews from relevant candidates rather than hundreds of interviews with irrelevant ones!
Step 6: Develop a Talent Identification System
Focus on hiring employees with the right personality fit, not just skills.
You can use tools like aptitude and personality assessments to find top talent aligned with your company culture if you’re looking to hire a lot of employees quickly, otherwise I’d recommend just looking out for this in the interviews.
Step 7: Check Workers’ Compensation Insurance Requirements
Different states and countries have varying requirements for workers’ compensation insurance.
Ensure you comply with your state’s regulations, considering the number of employees and their roles.
I’ve found looking at Insureon’s free state law checker tool to be incredibly useful, so I’d recommend you check it out if you’re wanting to checkup on this.
Step 8: Set Up Payroll
To keep your employees happy, you need to setup a reliable payroll system that makes sure workers are paid the right amount at the right time.
Id recommend investing in a reliable payroll system like QuickBooks Payroll as it simplifies onboarding, tax withholdings, and reporting.
Step 9: Complete Form W-4
All employees, whether full-time or part-time, must complete Form W-4 as it helps you determine the right amount of tax to withhold from their paychecks.
Step 10: Fill Out Form I-9
Yet more forms to fill out!
The I-9 form verifies an employee’s identity and eligibility for employment in the United States. Both you and the employee must complete it during the onboarding process.
Step 11: Remember Important IRS Deadlines
It’s a must that you stay compliant by adhering to IRS-related dates and taxes. Submit W-2 forms to the IRS by January 31st, inform the Social Security Administration by the end of February, and report new hires to your state’s agency within 20 days.
What Does a Chief of Staff Do At a Startup?
A Chief of Staff an incredibly important role in the life of a startup. Primarily focused on assisting the CEO or founder, the Chief of Staff manages the company's operations.
They act as a right-hand person, handling various responsibilities that may include project management, team coordination, and communication.
Their duties often involve strategic planning, streamlining processes, and overseeing critical projects or initiatives.
How Much Equity Should I Offer Staff?
When wondering how much equity to offer startup staff, I often consider the role, experience and contribution of the staff member.
Key team members, such as co-founders and early hires, may receive a more substantial equity stake to align their interests with the company's success, often ranging from 5% to 20%. However, for later-stage hires or non-executive roles, a typical range might be 0.5% to 5%, with specific allocations negotiated based on individual circumstances and market standards.
Now that you understand the essentials of hiring great staff for your startup, check out the 10 business myths that we’ve busted, and our tips on growing your startup to be a million-dollar company.