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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 yourshoulder. Then the big cheese was gone, and you looked down at yourdesk. And there it was. Your employee handbook.

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

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

Good luck.

What to Pay

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

Jeff Medley, 35, offered his first employee $10 an hour, with nobenefits and no cubicle-just a chair and a table in the den of hishouse. Today, Medley's Indianapolis business, Netfor Inc., has21 employees and 100-plus contractors nationwide-all with the goalof offering franchised businesses computer technology support. Hiscompany's sales, which have grown steadily every year, willclear $2 million this year, and his roster of clients includes suchbig 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, becausewhen I hired him, I made the promise that benefits wereforthcoming, and they were," says Medley, who launched hisbusiness in 1995. "In 1999, we got benefits, and now we haveone of the best benefits packages in the city."

Paying his employees a modest salary was also the approach47-year-old Paul Storfer took in 1995, when he launched hisPurchase, New York, human resources firm, HR Technologies: "Insome cases, people would self-select themselves and say'I'm not sure I'm a good fit for you,' but in mostcases, we were able to establish a salary that everybody felt wasfair."

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

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

Finding Candidates

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

If you're going with an ad, be logical in deciding where toplace it-whether you decide to post it on or in yourlocal newspaper. "Pretend that you're looking for thisjob, and then select [your placement] that way," suggestsArlene Vernon, owner of HRx, a human resources consulting firm inEden Prairie, a suburb of Minneapolis. She's been helping smallbusinesses with their human resources needs for more than 25 years,and she's often found good employees for her clients throughthe newspaper classifieds.

But if you don't have to hire somebody this minute, sherecommends 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 topeople one-on-one, mention that you're looking for somebody tohire. Ask 'Who do you know that would be interested in astartup?'"

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

Interviewing & Paperwork

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

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

But that's the easy part, according to Bruno, who insiststhat you investigate prospects' references."Reference-checking is an art," she says. "And ithas to be, because in this day and age, sometimes a person'sentire resume is a fantasy." There is one crucial question youmust ask every reference, and if you phrase it in just the rightway, 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 gota good person. If it's no, then no."

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

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

And how do you explain to your first employee that you'rehiring 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'sbusiness has been running entrepreneurship coaching groups forwomen in New York City for the past two years. "For somepeople, the grunt work is doing the accounting. But for [other]people, there's nothing more fun than getting a big box ofpapers and sorting through them. For some people, they dread makingcold calls. Others say 'Let me at it.'"

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

Dealing With Paperwork

W-2s. Payroll taxes. Social Security. 401(k)s. Health insurancebenefits.Even if the latter two aren't part of your initialprogram, the paperwork that goes into hiring an employee can bemind-numbing. That's why the general consensus is: Have someoneelse 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 areputable health insurance agency to work with. But if you want toget payroll off your hands as well, Bruno suggests hiring a servicesuch as Paychex or Automatic Data Processing (ADP) Inc., twoservices that can also help you with a 401(k), health benefits andjust about anything else you'd need. There are plenty of othergood payroll companies out there-just make sure you do yourhomework. You should be comfortable and confident that it's areputable business.What you will spend to have your checks printedand taxes taken out and everything else that goes along withpayroll depends on what kind of deal you offer your employee. Atfirst, Medley paid his payroll service about $40 permonth-and that's exactly how often he paid Bankert: oncea month. It made sense, because Netfor was being paid once permonth. But it also saved money. The more often you pay youremployees, the more benefits you offer and the more employees youhave, the more expensive your payroll services will be. Butit's well worth it, says Medley, explaining that somebody heknows well got into trouble with payroll taxes. "And uponlearning how badly that can go, you realize very quickly that youwant someone else doing your payroll," says Medley, who addsthat if your business shuts down and you still owe payroll taxes,the government will come after you-not your defunctcorporation. With a payroll service-again, a reputableone-"then your liability doesn't exist," saysMedley. "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 HRSearch Inc. has been in the hiring business for 26 years. She saysyou don't have to offer that first batch of employees a healthplan or a 401(k), but if you want to be one of the good guys andfind 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 nationallaw 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 cancome and go as they please as long as they're working a setamount of hours per day or week. "You can also offer a casualdress code," she says. "People love to dress down and berelaxed." If you offer to pay $50 to $100 per month of anemployee's day-care costs, that's a big perk because he orshe will get it in pre-tax form, and you can write it off as abusiness expense.

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

Working Together

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

Medley had little choice but to remain humble. As he recalls ofthat first year working with Bankert, "I have two kids, and my3-year-old would come busting down the stairs and run through thehall naked and pop through the [office] doors and yell, 'Look,Daddy, I'm naykee!'"

Fortunately, Bankert "thought it was hilarious," saysMedley. The clients on the other end of the phone, however, werenot as amused. So Medley had to bungee-cord the doors shut. (Later,his third and fourth employees worked out of his basement.) Buteven now, with the Netfor staff working out of real office space,Medley says he continues to maintain a partnership atmosphere withhis employees: "I've never been a real power-tripperson."

Creating a Handbook

So when should you write an employee handbook? You shouldprobably wait until the third or fourth employee, suggests Storfer,who had one of his first hires write his handbook. Medley did thesame 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 ahierarchical dictatorship tool."

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

Hiring Resources

If you're still craving more information, reach for thatmouse or visit the nearest library and check out theseresources:

  • To read up on interviewing techniques, Impact Hiring: TheSecrets of Hiring a Superstar, offers approximately 300 pagesof solid and sage advice from authors Frederick and BarbaraBall.
  • For help with producing an employee handbook, purchase asoftware program. A quick Web search will list various options,including, which offers personnelpolicy and procedure manuals for small businesses.
  • is afree Web site for those interested in human resources. Here,you'll get advice, free human resource forms and free articlesabout human resource issues. Get out your credit card andyou'll be able to purchase various products and services, suchas a human resource agent to do some of the work for you.
  • To strengthen your knowledge and understanding of the numerouslegal elements and government regulations that apply to hiring,click over to the U.S.Department of Labor, where you can get answers to all yourquestions.

Freelance writer Geoff Williams is hiring: "If you knowanybody willing to work for 1914 wages, give me acall."

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