Subscribe to Entrepreneur for $5

Hiring Your First Employee

There comes a time when every entrepreneur can't do it alone anymore. Is it time to find your first employee?


"Good luck," your boss said, clapping his hand on your shoulder. Then the big cheese was gone, and you looked down at your desk. And there it was. Your employee handbook.

If you've ever worked for another company, you probably remember it. You barely glanced at it, but if you had a question, there was your manual, ready to solve all your problems-from what to do with your 401(k) to where to park your car.

But now you're the big cheese, and you're likely the one with all the questions about the hiring process. So where's your employee handbook? Exactly. There isn't one. Luckily, in the following pages, we've put together most everything you'll need to consider when expanding your beyond yourself. It's the closest thing to a handbook you're likely to get.

Good luck.

What to Pay

It should be obvious, but here goes: Pay what you can afford.

Jeff Medley, 35, offered his first employee $10 an hour, with no benefits and no cubicle-just a chair and a table in the den of his house. Today, Medley's Indianapolis business, Netfor Inc., has 21 employees and 100-plus contractors nationwide-all with the goal of offering franchised businesses computer support. His company's sales, which have grown steadily every year, will clear $2 million this year, and his roster of clients includes such big names as Mail Boxes Etc.

And what did this new employee think of Medley's job offer, seeing that it had no benefits? "He was OK with that, because when I hired him, I made the promise that benefits were forthcoming, and they were," says Medley, who launched his business in 1995. "In 1999, we got benefits, and now we have one of the best benefits packages in the city."

Paying his employees a modest salary was also the approach 47-year-old Paul Storfer took in 1995, when he launched his Purchase, New York, firm, HR Technologies: "In some cases, people would self-select themselves and say 'I'm not sure I'm a good fit for you,' but in most cases, we were able to establish a salary that everybody felt was fair."

"Salary is always where most [job applicants] fib," observes Barbara Bruno, who runs HR Search Inc., a Chicago agency. "They always quote a higher price than what they'll actually take."

But the bottom-line rule of hiring somebody is that your company has to have enough money coming in. Cash flow-more than cash-is crucial to hiring your first employee, says Mary Wong, a principal and managing partner of HRizen Solutions LLC, a Houston human resources and consulting firm that specializes in helping emerging entrepreneurs. "I dealt with a start-up venture that had a lot of initial venture capital-several million dollars," recalls Wong. "And they thought 'Let's go out and buy computers and phones and 10 sets of desks, and let's hire 10 people to fill them,' but there was no cash flow. As you know, that's probably the number-one killer of a business, and they immediately had to lay off three-fourths of their staff."

Finding Candidates

Medley put an ad in The Indianapolis Star and found three job candidates. He recalls the interview he had over lunch with his first hire, Mike Bankert, who, five years later, is still with the company and now on salary. "I played up the company like I knew it was going to grow," says Medley. "I gave him my vision, and I think he believed it."

If you're going with an ad, be logical in deciding where to place it-whether you decide to post it on or in your local newspaper. "Pretend that you're looking for this job, and then select [your placement] that way," suggests Arlene Vernon, owner of HRx, a human resources consulting firm in Eden Prairie, a suburb of Minneapolis. She's been helping small businesses with their human resources needs for more than 25 years, and she's often found good employees for her clients through the newspaper classifieds.

But if you don't have to hire somebody this minute, she recommends trying to find an employee through word-of-mouth. "Go to industry meetings," she suggests. "Hopefully, you're already doing that anyway, and as you're talking to people one-on-one, mention that you're looking for somebody to hire. Ask 'Who do you know that would be interested in a startup?'"

Mentioning that you're a startup is important, says Vernon, because certain personalities work well with the unpredictable nature of a new business, while others don't.

Interviewing & Paperwork

Questions, ask many questions. Ask them of yourself, and ask them of your potential hires.

You need to know exactly who you want to help you grow your business. What you don't need is to hire somebody just like you, says Bruno, whose agency assists in recruiting secretarial, administrative and human resource professionals. "You want their strengths to complement your weaknesses," she says.

But that's the easy part, according to Bruno, who insists that you investigate prospects' references. "Reference-checking is an art," she says. "And it has to be, because in this day and age, sometimes a person's entire resume is a fantasy." There is one crucial question you must ask every reference, and if you phrase it in just the right way, it's difficult for that person to give a vague answer. It's simply "Is this person eligible for rehire?" "If the answer is yes," says Bruno, "you've got a good person. If it's no, then no."

There are three basic guidelines you should stick to in a job interview, says Vernon:

  • Keep it legal. Because of federal guidelines and laws that vary from state to state, you can get sued if you ask questions that have nothing to do with the job, says Vernon. Stay away from topics such as your potential employee's religion, ethnicity, sexual orientation, whether he or she is married and whether he or she wants children. "Just keep it focused on the job," says Vernon, "and you'll be fine."
  • Be honest. For obvious reasons. "Even be blatantly honest," says Vernon. "If there are difficult parts of the job, let them know upfront."
  • Ask tough questions. "Ask them to show you how they would do something," says Vernon. "If you need an administrative assistant, tell them to turn on the computer and get into Word and write you a letter." Or give them real-life examples of challenges they may face working for you and listen to how they think they'd handle the situation, suggests Vernon.

And how do you explain to your first employee that you're hiring him or her to do the tasks that you'd rather not do? "It's all how you frame it," observes Beth Ellenby, owner of Rest of Your Life Productions, a Norwalk, Connecticut, coaching firm for individuals and corporations. Ellenby's business has been running coaching groups for women in New York City for the past two years. "For some people, the grunt work is doing the accounting. But for [other] people, there's nothing more fun than getting a big box of papers and sorting through them. For some people, they dread making cold calls. Others say 'Let me at it.'"

And Ellenby adds that it's impossible to get rid of all the grunt. "When you're only two people, you're both going to have to do things you don't love doing."

Dealing With Paperwork

W-2s. Payroll taxes. Social Security. 401(k)s. Health insurance benefits.Even if the latter two aren't part of your initial program, the paperwork that goes into hiring an employee can be mind-numbing. That's why the general consensus is: Have someone else do it for you. Do not go it alone.So where do you go for help? If you're going to offer a health plan, you need to find a reputable health insurance agency to work with. But if you want to get payroll off your hands as well, Bruno suggests hiring a service such as Paychex or Automatic Data Processing (ADP) Inc., two services that can also help you with a 401(k), health benefits and just about anything else you'd need. There are plenty of other good payroll companies out there-just make sure you do your homework. You should be comfortable and confident that it's a reputable business.What you will spend to have your checks printed and taxes taken out and everything else that goes along with payroll depends on what kind of deal you offer your employee. At first, Medley paid his payroll service about $40 per month-and that's exactly how often he paid Bankert: once a month. It made sense, because Netfor was being paid once per month. But it also saved money. The more often you pay your employees, the more benefits you offer and the more employees you have, the more expensive your payroll services will be. But it's well worth it, says Medley, explaining that somebody he knows well got into trouble with payroll taxes. "And upon learning how badly that can go, you realize very quickly that you want someone else doing your payroll," says Medley, who adds that if your business shuts down and you still owe payroll taxes, the government will come after you-not your defunct corporation. With a payroll service-again, a reputable one-"then your liability doesn't exist," says Medley. "The risk is all theirs."

Creating a Happy Workplace

To offer benefits or not? That is the million-dollar question, especially when you're not a millionaire. Barbara Bruno of HR Search Inc. has been in the hiring business for 26 years. She says you don't have to offer that first batch of employees a health plan or a 401(k), but if you want to be one of the good guys and find good people to work for you, you should find other, cost-effective perks to offer those working at your company.

Two weeks of paid vacation is just a given. There is no national law requiring it (though some states do have such laws in place), but regardless, "You have to do that," says Bruno.

You can also offer flex hours, says Bruno, where employees can come and go as they please as long as they're working a set amount of hours per day or week. "You can also offer a casual dress code," she says. "People love to dress down and be relaxed." If you offer to pay $50 to $100 per month of an employee's day-care costs, that's a big perk because he or she will get it in pre-tax form, and you can write it off as a business expense.

And what's the biggest benefit that benefits offer your business? A happy, presumably productive, employee.

Working Together

You're hiring more than your first employee; you're bringing aboard somebody who will help your company grow, who will help create your business culture and who will have to understand that in the seven-course meal of the corporate world, you're still small potatoes. Which is why it's better to think of your employee as a partner, rather than yourself as the captain of the ship.

Medley had little choice but to remain humble. As he recalls of that first year working with Bankert, "I have two kids, and my 3-year-old would come busting down the stairs and run through the hall naked and pop through the [office] doors and yell, 'Look, Daddy, I'm naykee!'"

Fortunately, Bankert "thought it was hilarious," says Medley. The clients on the other end of the phone, however, were not as amused. So Medley had to bungee-cord the doors shut. (Later, his third and fourth employees worked out of his basement.) But even now, with the Netfor staff working out of real office space, Medley says he continues to maintain a partnership atmosphere with his employees: "I've never been a real power-trip person."

Creating a Handbook

So when should you write an employee handbook? You should probably wait until the third or fourth employee, suggests Storfer, who had one of his first hires write his handbook. Medley did the same thing, giving the task of writing it to his first employee. "When it's not coming from the employer's perspective, I think it turns into a more applicable tool. It's not a hierarchical dictatorship tool."

But what about writing it yourself? What about throwing caution to the wind and taking it upon yourself to explain your company's mission and rules without seeming like a dictator? Medley laughs. "If there's an entrepreneur out there who starts a business and has the time to write an employee handbook for [his] very first person, I tip my hat to [him]," he says. "That was always my Catch-22. I didn't have time to write an employee handbook, because I didn't have an employee."

Hiring Resources

If you're still craving more information, reach for that mouse or visit the nearest library and check out these resources:

  • To read up on interviewing techniques, Impact Hiring: The Secrets of Hiring a Superstar, offers approximately 300 pages of solid and sage advice from authors Frederick and Barbara Ball.
  • For help with producing an employee handbook, purchase a software program. A quick Web search will list various options, including, which offers personnel policy and procedure manuals for small businesses.
  • is a free Web site for those interested in human resources. Here, you'll get advice, free human resource forms and free articles about human resource issues. Get out your credit card and you'll be able to purchase various products and services, such as a human resource agent to do some of the work for you.
  • To strengthen your knowledge and understanding of the numerous legal elements and government regulations that apply to hiring, click over to the U.S. Department of Labor, where you can get answers to all your questions.

Freelance writer Geoff Williams is hiring: "If you know anybody willing to work for 1914 wages, give me a call."

Entrepreneur Editors' Picks