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Hiring Your First Employee

How and when to make that first hire for your homebased business.

Q: Now that my homebased business has begun to take off, I really need somebody to help me answer the phone and handle customer orders. How do I go about hiring an employee, and how much should I pay someone to come work for me?

A: Delegating work to someone else is a very important step in building a business that's more than just you. The good news is that an employee is a full-time worker who is available to do the lower-level work so that you, as the owner, can focus on making sales, building customer relationships and developing new products. The bad news is that employees don't work for free. Apart from paying the employee's salary, you're going to need to pay payroll taxes, possibly offer health insurance and other benefits, and expose your company to the risk of being sued for discrimination, harassment and other workplace-related issues.

Ask yourself the following five questions before you make that first hire:

  • What do I need my employee to do for me?
  • How many hours per week do I need my employee to work?
  • How many more sales do I need to bring in to cover my employee's salary?
  • What employee benefits can I afford to provide?
  • How much time will I need to spend managing my employee?

Once you answer these questions, take a sheet of paper and draw a line down the middle of the page. Make a list of the pros and cons of hiring vs. not hiring an employee. Unless your business can afford to pay at least $7 to $9 per hour in wages ($9 to $11 per hour including the employer's share of the payroll taxes), and there's enough work to keep an employee busy for at least 20 hours each week, it's probably premature to hire an employee. Then again, if you need someone with specialized skills or an assistant to cover the phones or greet customers while you're away from the office, an employee may be a necessity. A more cost-effective alternative may be to bring in freelancers or independent contractors on a part-time or project basis or to outsource the work to a company that can take the order fulfillment or customer service responsibilities off your plate. This way, you can pay for only those services that you need, and any federal, state or city taxes will be the contractor's responsibility, not yours.

Assuming that you do decide to hire an employee, keep these dos and don'ts in mind:

  • Do write a clear and concise description of the position before you post your ad.
  • Don't neglect to scan the classifieds (either online or in your local newspaper) to get a sense of how much other employers are paying for comparable positions.
  • Do interview at least three candidates for the job.
  • Don't hire the first candidate who walks in the door.
  • Do call at least two references (preferably former employers) to check the candidate's background.
  • Don't ask the candidate any questions about his age, race, gender, family or health.
  • Do hire a candidate who has the potential to grow with your business.
  • Don't hire a candidate because you're burned out and desperate.
  • Do prepare an employee handbook and require your employee to sign it.
  • Don't forget to obtain worker's comp insurance, employer liability insurance and any other coverage to protect you and your business.
  • Do give the employee an offer letter spelling out his duties and compensation.
  • Don't promise raises and benefits you can't deliver.

Rosalind Resnick is the founder and CEO of Axxess Business Centers Inc., a storefront consulting firm for start-ups and small businesses. She is a former business and computer journalist who built her Internet marketing company, NetCreations Inc., from a two-person homebased start-up to a public company that generated $58 million in annual sales.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

Rosalind Resnick is a New York-based freelance writer, entrepreneur, investor and author of The Vest Pocket Consultant's Secrets of Small Business Success.

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