Hiring Your First Employee?

Talk To Your Accountant

You’ve put in the hard work as a solo entrepreneur, and now it’s time to add your first employee. Congratulations on the growth of your business. If you’re adding an employee in this economy, you’re really doing something right. It’s OK to spend a moment patting yourself on the back.

Once you get done with that, your next task should be speaking with your accountant. Preferably, this should be done before you even begin the interviewing process.

Why Talk to my Accountant?
Different hiring situations present different accounting challenges. We won’t even attempt to list out all of the possibilities here. The main reason it’s important to talk to your accountant before you hire an employee is because you want to make sure to do the right things right from the start.

Getting your employees’ tax and withholding information is important. It’s also important to understand how hiring on a new employee will affect your business taxes. You will have new financial/tax responsibilities, and it’s important to make sure they’re handled correctly from the beginning. Small mistakes can cause big headaches down the road. It’s much better to get it right the first time.

Additionally, there are several tax benefits to hiring an employee. It’s important for you to be aware of the various ways you can lighten your tax burden when you hire a new employee. Sometimes, the information your accountant provides may factor into who you choose to hire.

What Should I Ask?
There’s no way to list out everything you should ask for your situation. After all, your business isn’t a carbon copy of other businesses. Many of the questions you’ll need to ask are specific to your business. In many cases, the questions you should ask won’t even become obvious until your accountant starts asking you questions.

With that said, though, there are some common questions which most business owners should ask their accountants when preparing to hire their first employee. These include:

• What accounts do I need to set up with the government in order to keep everything legal and above board? Without going into detail, there are often more details to be considered than the average small business person thinks about.
• What tax benefits can I expect from hiring someone right now? In some cases, there are significant tax incentives to hire. This varies from state to state and from industry to industry. Your accountant will know where to find the information you need to take advantage of these programs.
• Are there benefits to hiring from a specific group? Some programs specifically benefit companies who hire from a particular group, such as veterans, minorities, etc. This isn’t to say you should limit yourself to hiring from these groups. But if doing so helps your bottom line, you’ll want to keep this information in mind when hiring.
• How should I set up my new employee’s tax withholdings? Having an accountant help you set this up from the start will ensure that you don’t make a costly error. Taxes and withholdings are something that pays to get right the first time.
• What tax advantages will my company realize related to our benefits package? You may not even be considering offering benefits such as health care or training incentives. But if tax incentives cause these kinds of benefits to cost less, they may be worth looking into. A better benefits package will attract a better caliber of employee in most cases.
• Do you see any unintended accounting or financial consequence hiring an employee could have on my business? It’s always a good idea to get your accountant’s view on how any major changes in your business could affect your bottom line. Adding employees is no exception.

Depending on the nature of your business, you may also want to ask your accountant’s advice about whether to add your employee as a true W-2 wage earning employee or a W-9 subcontractor. In many cases, sales and similar positions can be handled by W-9 subcontractors. Both arrangements have advantages and disadvantages which should be considered before making your decision.

Of course, the questions above are by no means exhaustive. You’ll undoubtedly have many additional questions which relate to your specific situation. Ask as many questions as you need to until you’re confident you know the impact hiring your new employee will have on your business.

Common Mistakes
One of the most common mistakes small business owners make when adding their first employee is bringing someone on board without spending the time to do it properly. Don’t make that mistake. Make sure all of the paperwork is filled out properly.  Make sure you fully understand what your new employee is going to cost you, and what benefits you can expect for hiring her.

Another common mistake new employers make is hiring an employee without considering the hidden costs associated with having employees. Up until now, your expenses and receipts have been pretty straightforward. That’s not always the case when you have employees.

Someday, your company may grow to have many employees. When it does, you’ll be glad you took the time up front to speak with your accountant. When you set the accounting up properly, adding employees is a lot easier and more rewarding.

About the Author:

Dominique Molina is President of the American Institute of Certified Tax Coaches, an organization of tax professionals who are trained to help their clients rescue thousands of dollars in wasted tax and is a registered educator with the National Association of State Boards of Accountancy (NASBA). In addition to her blogging and speaking engagements, Dominique also provides engagement letters, accounting marketing and a range of accounting templates to her clients.