Hiring the right employees at the right time has a huge impact on whether a growing business can make it in the long run, but many small business owners have little to no hiring experience. The first person they’ll ask to work for their business will be the first person they’ve ever hired. And to be successful long-term, these same entrepreneurs will eventually need to hire a whole host of employees with various skill sets and roles to support their operation. Unfortunately, there are some common hiring pitfalls between attracting the wrong type of candidates to asking illegal interview questions to making the wrong hire.
One bad hire costs an average of $17,000, and that’s before you factor in the lost time and its negative impact on morale. In this way, hiring the wrong person can devastate businesses, especially in their early stages, which can make hiring your first employee feel overwhelming. To help you build an effective hiring process, we’ve compiled this comprehensive guide to give you all the information you need to hire not only your first team member but also every person you’ll need moving forward, from administrative staff to IT professionals to marketing specialists who can help take your company take its next steps. In this guide we’ll cover how to:
- Decide If You Need to Hire New Employees
- Write a Job Description and Create a Job Ad
- Select, Screen and Interview Candidates
- Set Compensation for New Employees
- Offer the Job
- Fulfill Related Legal Requirements, like worker’s compensation insurance
- Onboard New Employees
- Keep Your Employees by Fostering a Positive Culture
While hiring employees can be a challenging step for any small business, it’s essential for growth. Master hiring and you’ll not only have a better chance at growing your business at a steady pace but are also more likely to foster a great company culture where future talented professionals will want to work.
Determine the Right Time – How to Decide If You Need to Hire A New Employee
If you’ve been struggling to stay afloat with your current workload or if you’ve noticed and uptick in customer complaints, then you may want to explore the possibility of hiring a new employee. Other signals include:
- You’re turning down new clients or new projects from existing clients.
- You’ve identified a specific group of tasks that someone else could do to generate money and/or save you time.
- You’ve identified a new product or service line but don’t have enough bandwidth to launch it.
- You’d like to open a second office or shop.
Experiencing any of these factors could indicate that now’s the time to hire someone new, but how do you know if it’s the right time for your company? Follow the three steps below to further explore whether hiring a new employee is the right next step for your business:
- Determine which type of employee could best meet your current needs.
- Determine what level of experience you need.
- Look at your financial data from the past three months alongside your 12-month projections to determine if you can afford your ideal employee’s regular paycheck – if not, consider outsourcing.
If all signs point to ‘yes,’ congratulations! Now it’s time to start searching for the right candidate. For more information, check out our in-depth article on how to decide when it’s time to hire a new employee.
Understand and Communicate Who You Need – How to Write A Job Description and a Job Ad
If you write a poor job description, you’ll likely receive candidates who poorly match your needs. Great job descriptions, on the other hand, not only attract candidates with the right sets of skills and attributes for the job but can also inspire them to buy into your vision, mission and culture before they even arrive for their interview.
Before you set out to write the perfect job description, take some time to think through what skills and experience you actually need. Consider the following factors:
- Do you need someone full-time or part-time?
- What tasks and responsibilities do you want to take off your own plate?
- What are your own weaknesses? You may want to consider hiring someone with these strengths.
- Will they need certain technical training or other specific hard skills?
- Does your candidate need industry experience?
Now that you have a better idea of the type of person you want to hire, it’s time to write the job description, further fleshing it out into a job ad—the external version of your job description meant to promote your business as a great place to work and to attract top quality candidates. So, what do great job ads include besides the job title?
- High-level information about your company—what it does and its mission—along with how this new role will fit into it
- A description of your ideal candidates—not only their experience and skills, but also their personal attributes
- List of duties and responsibilities
- Skills preferences (Bilingual a plus) and absolute requirements and/or qualifications (Must be able to lift up to 50 lbs.)
- Compensation information, like salary range, benefits packages and other perks
- Your contact information, including how you’d like candidates to contact you
- Whether you’d like a cover letter and work samples in addition to resumes
For more information, check out our in-depth article on creating great job ads.
Get the Word Out That You’re Hiring – How to Advertise Your Open Job
As with any other type of advertisement, you need to get your job ad in front of the right people. The good news is that today’s digital technology enables you to reach a larger network of people and to target your job ads to a specific audience. Great ways to spread the word include:
- Paid online job boards like Indeed.com, Monster.com, LinkedIn, CareerBuilder, SimplyHired and more. Most have built-in ways to target candidates based on level of experience, skill sets, education and industry. If you’re looking for a candidate with specialized skills, you may also want to research niche job boards like Dice, MediaBistro and SalesJobs.
- Referrals can lead toward higher quality hires, so ask around! Share your job ad with your own network. Ask if they know of anyone who might be a good fit and if they’d mind sharing your open position more widely.
- Social media gives you an outlet to either share a free post that links to your job ad or even to put some dollars behind your recruitment efforts. Nearly half of candidates use social media as part of their job search, so this could be how you find your next hire.
- Recruiters can take the candidate search off your hands and deliver screened resumes to you. They’ll often take care of pre-interviews too, so all you have to do is interview a few top candidates before you make a decision. Just make sure to give them a detailed job description and an understanding of your ideal candidate.
For more information, check out our in-depth article on advertising open jobs.
Find the Right Person – How to Select, Screen and Interview Candidates
If you’ve written a detailed job description and gotten the word out effectively, then you should have quality resumes rolling in. Now it’s time to sort through that stack, selecting the most promising resumes and pre-screening those candidates to find out which ones are worth interviewing.
Before reading through resumes, reread your job description. Keep your requirements and ideal candidate in mind as you sort each resume into one of three piles:
- Green for standouts you definitely want to interview
- Yellow for candidates you may want to interview
- Red for resumes in which you’re not interested
Watch for These Red Flags When Reviewing Resumes
Most job candidates put their best professional foot forward when it comes to their resume. They’ve had time to create it and polish it, so this is likely the most professional reflection you’ll get of them. That’s why it’s important to check for the following red flags:
- Non-professional email address
- Non-professional language or slang
- Spelling and grammatical errors
- Sloppy or confusing formatting
These could indicate unprofessional conduct or potential communication issues down the road, both between you and the employee, and the employee and your customers. Other red flags include noticeable gaps in employment or evidence of lessening responsibility. These could indicate performance issues, so pay close attention to the job history section.
For more information, check out our in-depth article on screening resumes.
Prepare Interview Questions and Establish and Interview Process
Before your first interview, consider how you can best determine whether a candidate is a good fit based on their skills and their cultural fit. Not only will your interview go more smoothly if you’re prepared, but you’ll also be more able to avoid potential legal pitfalls by sticking to a standard set of prepared questions based on your open position. According to the U.S. Equal Employment Opportunity Commission (EEOC), you should avoid asking questions related to a candidate’s:
- Race, ethnicity, or color
- Gender or sex
- Country of national origin or birthplace
- Marital or family status or pregnancy
Be careful not to ask questions that could be perceived as looking for the information in a roundabout way. For instance, don’t ask, “What part of town do you live in?” This could open the door to perceived socio-economic bias. Instead, ask something like, “Will you have a regular means of transportation to arrive on-time to work?”
Sample Interview Questions
You can use these sample questions as a general framework for your interview, adding interview questions specific to the role and your company:
1. What interests you in working for this company?
The candidate’s answer will show you whether they researched your business and/orthe specific role — in other words, how well they prepared for the interview.
2. Tell me about a time when you dealt with a challenging customer. What did you do to resolve the issue?
Do they give a real example, or do they describe a hypothetical situation? This tests their ability to deal with tough customers—an important skill, especially if you’re hiring a customer service role. This question can also give you a glimpse into how they manage stressful situations and problem solve under pressure.
3. Give me an example of where you assisted in an area outside your normal role.
Occasionally, small businesses may need an employee to jump in and help with tasks outside their own job description, so flexibility is important. Pay attention to the following when listening to their answer:
- Do they readily give examples of wanting greater involvement?
- Do they seem to feel reluctant or resentment about pitching in beyond their role?
- Are they willing to work as a team player?
4. What has been your biggest learning experience to date and why?
A candidate’s answer to this question could reveal all sorts of interesting information. First, this will tell you if they are open to learning new things. It could also demonstrate their willingness to accept responsibility for mistakes and show their comfort level with discussing challenging issues.
5. What do you feel you can accomplish in your first 90 days?
Their answer will reveal how organized they are in their planning and if they feel they can hit the ground running or will require more training and a longer learning curve. Remember, though, that it’s not necessarily a bad sign if they’re interested in further learning what the problems are before suggesting solutions.
6. What questions do you have for me?
The things that interest a candidate indicate his or her priorities. Are they more interested in how much vacation time they’ll have or their responsibilities in the job? Are they curious about your business’s history, current issues and expansion plans?
Their questions will tell you whether they have investigated your business and how interested they are in being part of your organization. Finally, you’ll get an idea of whether they’re able to take advantage of such an open-ended question to think critically and creatively.
Establish an Interview Process
Not only is it helpful to refer to a standard set of interview questions, but it’s also wise to adopt a standard interview process and explain it to candidates at the start of each interview:
- Provide an overview of your company and the new role.
- Ask them some questions that require specific examples.
- Give them time to ask their own questions.
- Wrap up with next steps.
Always give the candidates true time frames for next steps. Even though you may want to hire the ideal candidate as early was the next day, the reality is that it may take a couple weeks or more. Finally, avoid the temptation to talk too much during the interview. You want them to do most of the talking — and you need to listen.
For more information, read our in-depth article on creating an interviewing process and other interview tips.
Screen Candidates Before You Hire
Because bad hires can cost your business valuable time and money, it’s wise not to base your hiring decision solely on an interview. That’s why many small businesses use various screening methods, including behavior assessments, reference checking, background checks and drug tests.
When to Use Behavior Assessments
One way to screen candidates beyond their interview is to ask them to take a behavior hiring assessment. This helps you go beyond whether they seem qualified based on their experience and skill set by uncovering how they’re likely to act in their new position. In this way, behavior tests help you decide which candidates are the best fits for their role and as part of your team and business.
Popular behavior assessments include Selective Hiring and The Predictive Index.
For more information, read our in-depth article on behavior tests for job candidates.
How to Check Their References
Before you extend a job offer to your top candidate, check their references. Why? If done well, reference checks can help you not only prevent a bad hire, but also better understand and prepare for how to manage someone if you do hire them.
When you get in touch with a reference, be friendly. Explain who you are and why you’re calling before asking if they have a few minutes to chat. Be sure to have a list of questions for references prepared ahead of time so you don’t waste anyone’s time. Each reference check should include a verification of employment facts, if possible, as well as questions to assess your candidate’s skills, aptitude and fit.
When to Run Background Checks and Drug Tests
In some states and cities, it’s risky to ask for background checks and drug tests before you extend a job offer. The safest course of action may be to extend a job offer contingent on a clean background check and drug test.
For more information, check out our in-depth article on screening candidates.
Decide What to Pay – How to Set Compensation for New Employees
Salary will be a determining factor in the quality of candidates you can attract, especially their level of their experience and skills. Start by visiting online resources like PayScale, Glassdoor or Salaries.com to review salary data. This can help you set a benchmark for the median salary or hourly wage in your area. Another good salary resource is Glassdoor. The Bureau of Labor Statistics also offers pay scale information sorted by occupation, state and metropolitan area.
Getting compensation benchmarks isn’t the only part of the equation, though. You also need to understand how much you can afford to pay by following these steps:
- Understand employee-related costs beyond salary. These could include new equipment, bigger office space or even a benefits package.
- Consider how these costs fit into your current budget, taking a close look at your 12-month projections.
- Evaluate your profit margin.
- Consider basing early hires around roles that can help drive revenue.
For more information, check out our in-depth article on determining pay rates for new employees.
Make An Offer – How to Write a Job Offer Letter
Once you’ve chosen which candidate you’d like to hire, and after they’ve passed all necessary screenings, it’s time to offer them the job. If you can, share the good news over the phone. It’s often a rewarding experience that allows both you and your likely hire a chance to informally discuss the offer and hear each other’s enthusiasm. It’s imperative, however, that you follow up with a formal letter presenting a detailed record of your employment offer.
Why? Job offer letters help protect you and your new employee should any future disagreements over the terms of their employment arise. If possible, ask a legal expert to review your offer letter to make sure it covers legal requirements and doesn’t use any language that could land you in court down the road. Offer letters should include:
1. State Legal Requirements
Before crafting an offer letter to a potential employee, keep in mind that it should fulfill the state legal requirements for your location. Visit your state ‘sdepartment of labor website to find the requirements for your area.
2. Job Title and Basic Info
In the opening of your offer letter include basic information about the position you’re offering. This includes:
- Job title
- Start date
- Orientation and training dates (if applicable)
- Full-time or part-time status
- Shift (if applicable)
Avoid using any words or phrases that could suggest a guarantee of future employment. The Society for Human Resources Management suggests avoiding terms like “job security,” “we’re a family company,” or “in the future.”
3. Salary and Relevant Bonus/Commission Information
Include details on your potential employee’s compensation and pay period. Set hourly, weekly or per-period compensation so your prospective employee won’t expect to get the whole year’s compensation if employment ends before the year’s end.
Also include information about whom your employee will report to, even if it’s you, and include a brief sentence about evaluation periods, such as “your performance will be evaluated after three months’ employment and on an annual basis thereafter.”
4. Benefits and Paid Leave
Include a brief summary of the benefits included with the position, plus the eligibility requirements and time frames for the following:
- Health insurance
- Life insurance
- Short- and long-term disability
- 401(k) or other retirement plan
- Flexible spending account (if applicable)
- Educational assistance
Describe any paid leave you offer in addition to those legally required (see “How to Fulfill Related Legal Requirements” below). Include relevant information on sick days, personal days, observed holiday schedules, and paid time off/vacation days.
5. Conditions of Employment
Include any employment conditions a candidate must meet. This could include passing drug tests, satisfactory responses to background checks, willingness to sign confidentiality agreements about your business and products, completion of a Form I-9 to verify U.S. employment authorization, and compliance with immigration law, if applicable.
If the candidate worked for a competitor or a similar business, consider including a condition of employment that the employee not be bound by non-compete or other agreements with previous employers. When your candidate signs the offer letter, they’re effectively confirming that they’re free of previous employer agreements.
6. At-Will Employment
In the U.S., offer letters for new employees should include what’s known as an “at-will statement.” This helps clarify that the employer-employee relationship is not a contract, which would obligate you and the employee to contract terms for a specific length of time.
An at-will statement means you can let employees go when you choose, with or without cause. It also allows your employee to resign from their position at any time.
7. Time to Respond / “Respond by” Date
Make sure you include a “please respond by” date
To keep the hiring process moving and to avoid a long waiting period during which your second-choice candidate could accept employment elsewhere, make sure your potential new employee knows when the job offer expires be including a date by which you’ll need their answer. Include a line such as, “Please respond by Monday, June 4, to notify me of whether you’d like to accept this offer. I look forward to the possibility of working together.”
For more information, check out our in-depth article on making job offers.
Stay on the Right Side of the Law – How to Fulfill Related Legal Requirements
Once your candidate accepts your job offer, it’s time to make them an official employee. Beyond a sigh of relief and perhaps a celebratory lunch, there are a few more legal requirements to check off.
A – Apply for your employer identification number (EIN), also known as a Federal Identification Number, which you’ll use to submit tax information related to your employees. When you become an employer, you must withhold, deposit, report, and pay employment taxes. Here’s what you need to know.
- If you don’t already have an employer identification number (EIN), also known as a Federal Tax Identification Number, apply for one online.
- Next, identify that your employee is what’s known as a common-law employee. According to the IRS, this means that you, as the business owner, “control the services that will be done and how it will be done.” Other tax classes of workers include statutory employees, non-statutory employees, and independent contractors. Knowing the tax employment status of your worker helps you identify how to treat the payments you make to the worker when it comes to taxes.
- Set up tax records for each employee. Visit the IRS Employment Tax Recordkeeping page for an up-to-date list of what’s required. At the very least, expect to set up records for Federal Income Tax, Social Security, Medicare, and Federal Unemployment (FUTA) Tax for each employee.
- Learn how to withhold and deposit Federal Income Tax, Social Security, Medicare, and Federal Unemployment (FUTA) tax for each employee by visiting the IRS Understanding Employment Taxes page.
- Visit your state government website for state tax forms required for each employee and learn what you’ll need to complete for each.
B – Partner with a payroll provider. This partner should not only ensure that your employees are paid accurately but will also manage tax withholding documents. Options for small business owners include payroll systems like Intuit Payroll, OnPay, Gusto, PayChex, or Patriot Payroll.
Your payroll system should calculate and withhold social security taxes, employee taxes and workers’ compensation. Use it to file your payroll taxes each quarter, then automatically send in any quarterly state and federal payroll taxes owed. Some payroll systems have additional features and may also integrate with your benefits program or accounting system. They also generate reports to help you manage your business and staffing needs more efficiently.
C – Visit the U.S. Department of Labor’s website to obtain and post required workplace posters. While the DOL provides free electronic copies of the posters – some in other languages – you’ll need to pay for printed versions in some cases.
D – Report your new hire to the state directory. Register with your state’s New Hire Reporting Program. Federal and state laws require employers to report all new hires within 20 days of hire or even sooner, depending on your state.
E – Obtain related insurance. This includes workers’ compensation insurance and family and medical leave as required by your state. Workers’ compensation insurance protects employees and employers by providing benefits to employees who suffer work-related injury or illnesses, and even provides the family of a deceased worker a financial benefit; the requirements vary significantly by state.
Depending on your state, you may have to pay unemployment insurance. Search your state government website for more details. If your business is in any of the following states, there are state-mandated disability insurance requirements:
- New Jersey
- New York
- Rhode Island
- Puerto Rico
Depending on your industry and location, consider protecting your business with a fidelity bond. These bonds help protect businesses from losses due to employee fraud and theft. Finally, you may choose to provide health care insurance and retirement benefits.
For more information, check out our in-depth article on employer-related legal requirements.
Help Your Hire Make an Impact – How to Onboard New Employees
You just spent a lot of time and money on hiring a new employee, so you naturally want them to be as successful in their role as possible. Toward that end, don’t underestimate the importance of effective onboarding which can speed up how quickly your new employee is productive by 60 percent. Organizations that pay attention to their onboarding processes not only get productive employees sooner, they also hire employees who stay at their company for longer periods. A Society for Human Resources Management (SHRM) notes that “good onboarding leads to good retention rates,” citing an example of a company whose new employees were 69 percent more likely to remain at the company up to three years after attending a structured orientation program.
So, what does a great onboarding process include? Everything from obtaining the proper paperwork and explaining benefits to offering a training plan and hosting a team lunch. To ensure everything runs smoothly, plan their first day on the job far ahead of the actual date. Have the administrative items and work equipment ready and notify any current team members, getting on their calendars if necessary. If you can, make time in your own schedule that day to give a tour, make introductions and personally share more details on your small business’s story and purpose.
For help on effectively onboarding your new employees, check out our employee orientation checklist. It’s also important that you create work processes for you new employee’s responsibilities. This can make training the employee much easier and save you time in the long run.
Retain Your People – How to Keep Your Employees by Fostering a Positive Culture
As you can see, recruiting and hiring a new employee is no small feat. It takes a lot of time and effort, which can take your focus temporarily away from other aspects of your role. So, make sure that once you’ve hired a great employee, you do everything you can to support them and keep them on your team. The good news is that, while employee turnover can cost an average of one-third of someone’s salary, employee turnover is preventable 75% of the time, meaning you can avoid costs related to an employee resigning.
So, how do you do that? Nurture a transparent and positive culture. Keep your employees informed, engaged in their work and happy to call you their employer. Try the following strategies:
- Offer great benefits, including tax-advantaged fringe benefits, like dependent care assistance, employee discounts and semi-regular team lunches. Almost two-thirds of employees say that benefits are a very important factor when it comes to how they feel about their job and their company. And, when employees are happy with their benefits, they’re about four times as likely to be satisfied in their roles.
- Conduct stay interviews to keep and invest in your highest performers, and perform exit interviews to understand why people leave and how you can improve. Survey data has shown that high performers are often less engaged than low performers—stay interviews are a great way to show your high-performers than you care about their happiness at work.
- Offer career training and other forms of professional development. According to Adecco Staffing’s 2018 U.S. Workforce Report, 20 percent of employees who resign do so because they don’t see growth opportunities with their former employer. In that same report, more than three-fourths of survey respondents said they’d like to stay at one employer for five or more years, meaning you have a real opportunity to hold onto your best team members provided you nurture their career growth.
For more information, check out our in-depth article on recruiting and retaining employees.
When the time comes, hiring employees is one of the most important things you will do as a small business owner. The ongoing success of your business depends on assembling the right team — helping ensure that you have the right skills, personalities and relationships in place to serve your growing customer base.
While the various steps may seem daunting, don’t get discouraged by the amount of work involved in hiring new employees. After all, the fact that you need help is a great sign — it means that your business is expanding.
We hope you can use this guide as a framework to plan your own hiring process, saving time and reducing stress. Have fun welcoming your new member to your business team!
You’re welcome! Thank you for the nice comment!
Thank you for this lovely article.
You’re welcome! Thanks for reading SBA!
I really liked that you talked about including employment conditions that a candidate must meet. My husband wants to start a new business and will need to hire staff to help complete important tasks for it. We will need to figure out a good technical staff agency to contact to help us with the hiring process.
Thank you for the comment Faylinn!
Great post for corporates. Every corporate should follow these tips
Hi Lena, thanks for your feedback!
very interesting details you have noted, thankyou for posting.
Thank you, Roy!