Building Your First Team: Steps for Hiring Employees

March 9, 2015

You’ve been going it alone as a freelancer for some time, and business is good. You’re rocking your projects and you’ve secured a steady stream of clients… but your workload is starting to get overwhelming. You’re so tied up with project work that you don’t have time to respond to inquiries, handle your bookkeeping, or network with the suppliers and contractors you’ll need for future growth.

When it comes down to it, your business has outgrown your ability to manage it on your own!

While this is a great place to find yourself in – and the ideal for growth-oriented small business owners – the challenge of managing your workload may require that you bring on an employee to help you scale effectively. If you’re ready to bring on your first worker, consider all of the following steps before you press “Publish” on your job listing:

Step #1 – Check your budget

Say you’re a freelance developer with a fledgling SaaS product. A chief sales or marketing executive could be a great complement to your growing company, but if your budget only allows for $50,000 a year in total compensation, you’re going to have a tough time bringing on a top tier sales person.

That’s why any conversation about scaling your business by hiring your first employee must begin with a careful analysis of your budget. Ask yourself the following questions as you prepare to begin the hiring process:

  • How much can I truly afford to spend on a new hire? MIT Sloan School of Management lecturer Joe Hadzima estimates that benefits, vacation time, sick time, workers’ compensation insurance and other employee extras average 25-40% of an employee’s salary. Don’t base your hiring decision on your new employee’s salary alone!
  • Is my business income consistent enough to support my new hire? If you’ve got $10,000 free one month, but only $5,000 the next, base your hiring decision on the lower end of your income. Spending more than you can truly afford will leave you in a sticky position that’s bound to lead to disaster.
  • Are alternative compensation schemes possible? If you aren’t able to afford a full-time worker with benefits, could you bring on a part-time worker as an independent contractor? Or, if you’re dead set on securing a rock star full-time employee, would it be appropriate to give up a stake of your company in exchange for lower up-front compensation? These scenarios won’t be appropriate for all freelancers, but their worth considering if your business income doesn’t support the type of employee you’d like to hire.

Step #2 – Document your business processes

Now you know what you’re able to spend on a new employee – but you’re still not ready to post your first job listing!

Instead, take an afternoon to document the processes you’ve put in place at your business. Take our SaaS developer… Certainly, he’ll want to document the steps he takes when testing and releasing new versions of his program, but he might also want to document how he responds to emails, how he communicates with his vendors or how he records his expenses and income.

The reason this is so important is that, when you bring on a new employee, you’ll be expected to provide him or her with a job description of tasks, as well as instructions on how to complete them – and you can’t provide this information if you don’t know it yourself. Documenting your business processes will show you where an employee will be most helpful and how your new hire will integrate effectively into your business.

Step #3 – Analyze your strengths and weaknesses

To some extent, your business processes will dictate the kind of employee you decide to hire. Suppose our SaaS developer wants to free up his administrative work so that he can focus his time on coding and testing his program. In that case, an administrative assistant or a bookkeeper will likely be his first hiring priority.

But what I’d also recommend is that you take some time to think through what you’re good at, and what skill sets will be needed to complement your own in order to grow the business. Looking at our freelance developer, there’s a good chance he launched his business because he’s good at writing code. And while that might get him pretty far along in the process, his lack of sales and marketing skills may eventually cause his company to hit a growth ceiling.

Bringing on an employee whose strengths complement your own weaknesses will give your growing business the fuel it needs to reach new heights.

Step #4 – Prepare to become a boss

There’s still one more step you’ll need to take before reaching out to potential job candidates… You need to get legal!

Running a freelance enterprise as a sole proprietor is one thing – bringing on an employee and transforming yourself into a boss is a whole new legal game. Too many entrepreneurs ignore the importance of employment law, but missing steps here could set you up for employee conflicts, lawsuits and more down the road. At a minimum, you’ll need to have all of the following elements in place:

  • Employer Identification Number (EIN)
  • Tax withholding registration (including state and federal documentation)
  • An employee verification process that ensures employees are eligible to work in your country
  • Workers’ compensation insurance
  • An employee handbook documenting your employment practices
  • Any NDAs or confidentiality agreements needed to keep your intellectual property safe

The US Small Business Administration (SBA) is a great source of information on the legal requirements associated with becoming an employer, but it’s also a good idea to consult an employment attorney to ensure your policies don’t unintentionally run afoul of employment law.

Only after you’ve completed these steps are you actually ready to begin the process of posting your job, interviewing candidates, and making your final job offer. It’s a long process – and it can seem like a lot if you’re already so strapped for time that you need to bring on a new employee – but doing things right the first time will prevent avoidable legal issues and will set your growing company up for success from the start.

Have a great story about how you prepared to hire your first employee? Share it by leaving a comment below!

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