Small Business Startup Considerations
Starting a business by yourself can be difficult. Few small business owners can do it all themselves. Hiring help for your business allows you to focus on your strengths while enlisting others to handle the areas where you have less experience.
This is the eleventh in a series of columns that provide several helpful business topics for the new small business. It is based on one of SCORE’s recent projects that was developed with the help of and in partnership with FedEx. This project is called “Startup Roadmap” and outlines every step in starting a business. A SCORE mentor may use this program to help you reach your goal smoothly.
In this column I will discuss several considerations for you as you plan for staffing your business.
Consideration # 1: Decide Whether to Hire an Employee or Find an Independent Contractor. Depending on your type of business, you should consider these options. Hiring an employee vs. an independent contractor affects your working relationship with the person, the way you pay them, and the business taxes you pay.
The primary difference between employees and independent contractors is one of control. Employees work for you; you set the hours they are required to work and control where and how they do the work. You provide the equipment and tools they need to do their work. You may also provide employee benefits, such as health care, which can be quite costly. You’ll have to withhold taxes from their payroll and pay some taxes on their behalf.
Independent contractors work for themselves, either as business owners or as self-employed freelancers. You hire them to do a particular project or job, but you don’t control how, where or when they do it—you only control the end result. You don’t give them any benefits, equipment or tools, and you don’t withhold any taxes from their pay, which makes the administrative aspects much simpler than hiring employees.
Consideration # 2: Hiring Independent Contractors (if this is the option you choose). One way to find independent contractors is through referrals from other business owners. Talk to people you’ve met in networking groups or on social networks such as LinkedIn.
There are also online marketplaces for independent contractors and freelancers (see Resources below) where you can post your project or needs for contractors to bid on and search for independent contractors who fit your needs. Some sites also act as intermediaries to process your payment to the contractors.
Check references before hiring an independent contractor. You can ask the contractor for references, do an online search or contact the Better Business Bureau (if the contractor is organized as a business). If you hire an independent contractor through an online marketplace, the site may provide ratings or reviews of the contractor from previous clients.
Consideration # 3: Set Up Administrative Details for Hiring Employees (if this is the option you choose). In order to hire employees, you need to put an administrative structure in place, plan for taxes and insurance, and decide on pay rates and benefits for your employees. Here are important tasks:
- Get an Employer Identification Number (EIN)
- Register as an Employer with Your State
- Get Workers’ Compensation Insurance if Required by Your State
- Set up a Payroll System to Withhold and Pay Employment Taxes
- Set up a Record-Keeping System for Personnel, Payroll and Medical Files. You’ll need to maintain three types of employee records: personnel, payroll and medical records.
Consideration # 4: Establish the Positions and Benefits. Go back to your business plan to get an idea of how much you have budgeted for your employees. Now that you’re closer to actually opening, you may need to adjust this amount. Setting a budget will help you figure out how many employees you can hire. You will need to plan for the following:
- Create Detailed Job Descriptions
- Set Pay Ranges
- Decide on Employee Benefits
Consideration # 5: Recruit and Hire Employees. Before you start searching for job candidates, create an application form they can complete that provides you with basic information about the person such as name, contact information, job history and education.
Here is a set of tasks that will help with the process of hiring employees:
- Recruit Job Candidates
- Prescreen Job Candidates
- Conduct Interviews
- Check References
- Conduct Background Checks if Necessary
- Make a Job Offer
- Conduct Drug Testing if Relevant
- Verify Employee Eligibility to Work in the U.S. and Complete Form I-9
- Have the New Employee Complete Form W-4
- Report the New Hire to Your State
In my last column in this series, I will give some suggestions to help you prepare for your grand opening and learn important steps to keep your new business running smoothly in its first year.
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