Selling on eBay can be very labor-intensive. Sooner or later, you'll be tempted to hire employees to do the "dirty work" (creating listings, packing boxes, answering e-mails from buyers) so you can free up your time to do the more important stuff (sourcing the right products, marketing your eBay Store). Life becomes a lot more complicated, though, when you hire your first employee. Here's a checklist of some things you need to think about first.

1. Can You Afford This Person? Employees cost money. You have to pay them a salary, overtime and basic benefits (such as workers' comp). You have to pay employment taxes on their income and provide them with equipment, supplies, a cubicle and so on. If an employee is not generating enough additional income for your business to cover his or her costs, the shortfall is coming out of your pocket. As a rule of thumb, each employee you hire should generate enough additional income to cover two to three times their base salary. If that's not likely to happen, don't hire anyone.

2. Consider Independent Contractors. By hiring someone as an independent contractor, or "1099," you don't have to withhold income taxes or pay employment taxes on his or her compensation. But you can't "direct and control" the person's activities: Contractors get to set their own hours and must be able to work for other employers. If you are telling someone what to do, when to do it, how to do it and where to do it--even if only for a few hours each week--that someone is an employee, not an independent contractor. Even if the person signs a contract saying he or she is an independent contractor and will pay their own taxes, the IRS has the power to disregard the contract if it suspects you are actually directing and controlling the contractor's activities. The IRS audits very aggressively in this area, so you can't afford to make mistakes. If you're not sure of a person's status, talk to an employment attorney.

3. Hire a Payroll Service. When you hire an employee, you're required to withhold both federal and state income taxes from his or her wages. In addition, you must pay federal employment or "payroll" taxes, which come in three varieties: social security tax (FICA), federal unemployment benefits (FUTA) and Medicare.

These three taxes come to about 15.3 percent of each employee's total taxable wages, and they must be paid on time. If you are even one day late paying your employment taxes, you will hear from the IRS.

Because of the strict penalties the IRS imposes on late payments, most small employers hire a payroll service to register for federal and state employment taxes, deal with the paperwork, and make the tax payments on schedule by debiting the employer's checking account. The three most popular payroll services are ADP, CompuPay and PayChex. If you have fewer than five employees, a local bookkeeper or accountant may also provide payroll services--just make sure they have backup support if they fall ill or go on vacation. For more information about payroll taxes, see IRS Publication 15 (Circular E-"Employer's Tax Guide").

4. Register for Workers' Comp

In just about every state, you'll need to maintain workers' comp insurance on each of your employees in the minimum amounts required by your state law. In addition, most states require your business to pay into an unemployment insurance program that provides a minimum weekly income to downsized or laid-off workers until they can find a new job. Four states (Hawaii, New Jersey, New York and Rhode Island) and Puerto Rico also require your business to pay into a temporary disability insurance program that provides disability coverage for workers who are between jobs. Some payroll services sign you up for these, but many don't. If your payroll service doesn't, your accountant or employment attorney should be able to do the paperwork.

5. Get a Poster. When it comes to employee rights, federal, state and local laws are all over the place. For example, some states prohibit you from discriminating against employment candidates based on their sexual orientation, but others don't. Even in the same state, the rules will vary depending on the type of business you're engaged in, the number of employees you have and other factors.

It isn't enough for you to know your employees' legal rights; you must go a step further and notify your employees of their rights in the workplace. To order a poster that spells out all the federal, state and local requirements for your business and number of employees, go to gneil.com, click on "labor law compliance," then "poster guard compliance protection," or go to personnelconcepts.com. When the poster arrives, read it and then post it in a prominent place (such as your lunchroom) where employees are certain to see it. If your employees work at remote locations, make copies of the poster, mail it to each of them, and make sure you get a delivery receipt.

6. Prepare an Employee Manual. Once you have three or more employees, consider drafting an employee manual that spells out your policies. An attorney will do this for you for a $1,000 to $1,500 fee. Do not copy another employer's manual--your business may have different needs. Call a meeting of your employees and walk them through the manual; have your employment attorney present to answer questions. Give a copy to each employee, and have them sign a receipt saying they have read and understood it.

7. Consider homebased workers. Whenever an employee works from home, your business legally has an "office" there. So if one of your employees lives in another state and uses her home address on business cards, correspondence and so on, you may be required to register your business as a "foreign" entity in that state and pay income, sales and other business taxes to that state's government.

8. Find a Good Employment Attorney. Once you have employees, you need a lawyer who specializes in labor and employment law matters. For a list of qualified local attorneys, call your local bar association, or go to findlaw.com and search by ZIP code (select "employment law" as the legal issue when prompted).

Cliff Ennico is a syndicated columnist, author and host of the PBS television series Money Hunt. His latest books are Small Business Survival Guide and The eBay Seller's Tax and Legal Answer Book. This article is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

Nailing the Interview

You can get into a lot of legal trouble when interviewing job candidates. Here are some basic dos--and one big don't.

Do Say the Job is "At Will." Make sure to state clearly that the position is at will, and that the candidate may be fired for any reason, or no reason. Do not promise that the individual will be employed for any specified period of time.

Do Get the Candidate Talking. The candidate should do 80 percent or more of the talking. That way, you will get the information you need (sometimes too much, which is actually a good thing because it makes it easier for you to weed individuals out), and you dramatically reduce the odds that you will say something stupid that the candidate can use as the basis for a lawsuit.

Do a Background Check. If you hire someone who later turns out to be violent, pathological or criminally inclined, you can be sued for negligent hiring. Do a thorough background check on each new hire--popular online services include amerusa-employment-screening.com, databaserecords.com and employeescreen.com--and don't forget to search the person's name on the web. If the position is a particularly sensitive one, consider hiring a private investigator to conduct a more thorough background check. To find one in your area, go to romingerlegal.com or privateinvestigatordirectory.com.

Do Have a Witness Present. People sometimes say crazy things when they've been turned down for a job. Have another employee or a trusted friend present during the interview so he or she can corroborate your version of events.

Do Check Their Immigration Status. Each new employee must fill out Form I-9 and provide you with two supporting documents, such as a driver's license, Social Security card, green card or U.S. passport, showing that they can legally work in the United States. Do not limit your hiring to U.S. citizens, as you are prohibited from discriminating against legal immigrants.

Do Consider Testing for Drug and Alcohol Abuse. Most states will allow you to test a candidate for drug or alcohol abuse before they start work, but you must make a job offer first. To learn more about drug testing laws in your state, go to drugtest-info.com/laws/index.html.

Do look at the ethnic and gender makeup of your work force when making hiring decisions. If you have 15 employees who are all white males, maybe it's time to hire a female or minority member to achieve greater diversity.

Do Remember the ADA. The federal Americans with Disabilities Act sometimes requires you to restructure a job so disabled people can qualify for it. If a disabled candidate can perform 90 percent of the essential job functions you're looking for, consider reassigning the other 10 percent to other employees so you can hire the individual.

Do Document Your Hiring Decisions. As soon as possible after completing a job search, dictate or jot down your impressions of each candidate's strengths and weaknesses while everything is fresh in your mind. Doing so creates a record that will be extremely valuable if you are ever sued.

Don't Discriminate. Do not say anything that reveals you are conscious of a candidate's race, ethnicity, sex, religion, disability, marital status or pregnancy, even if you mean well. Your only concern is: Is this individual the best available fit to perform the essential functions of the position? --Cliff Ennico

Charting New Waters

The day Christopher Spencer's software crashed and deleted eight years of customer data was the day Spencer knew he needed to hire a new employee to help with The Spencer Company, his eBay drop-off business. After his system failed in December 2006, the 38-year-old entrepreneur decided to move his business from Burbank, California, to Campbell, California, and expand its offerings.

Spencer posted an ad on Craigslist.com to find someone who could manage what would be the drop-off division of his new event-management company, The Chase Group. A few weeks later, Spencer hired 27-year-old Cameron Birdwell as the official online sales manager.

"[Birdwell] walked in with a lot of experience," Spencer says. "It took a lot of the pressure off because now we have somebody who's able to manage operations."

Shortly after he was hired, Birdwell created an entire technology warehouse with bar codes and advanced software to track sales. To avoid system failures in the future, he input inventory items into a remote data backup and data duplication system. He also connected more than 150 of Spencer's former Burbank clients with a new drop-off store that could continue their sales.

As a former eBay PowerSeller, Birdwell came up with innovative ways to propel the business forward. His presence helped boost customer service and perfect sale and post-sale processes. With Birdwell running a tight ship, Spencer had the freedom to steer the company in a new direction.

Now, as the executive vice president of The Chase Group, Spencer focuses on marketing strategies and manages the online trading division for the company.

Because of Birdwell's help, "We can spend more time on day-to-day marketing and getting clients in the door," Spencer says. "We're able to have a bigger vision." --Jessica Chen