When to Hire & The Financial Checklist
Hiring your first employee is a monumental step. It's a sign that your business is growing, your vision is expanding, and you're ready to build a team. But with that excitement comes a new set of financial complexities that can feel overwhelming.
From payroll and taxes to benefits and compliance, the financial side of becoming an employer is a world away from running a solo business. This guide will walk you through the essential financial checklist you need to prepare for this exciting milestone and show you how a bookkeeper can be your most valuable partner in the process.
“Why"—Is It Time to Hire?
Before you post that job opening, it's crucial to confirm your business is financially ready. Ask yourself these key questions:
Is the Revenue Consistent? Can your business reliably generate enough income to cover a salary, payroll taxes, and benefits for at least six months, even if revenue fluctuates?
Is Your Time Maxed Out? Are you spending so much time on administrative tasks or lower-value work that it's preventing you from growing the business? Your first hire should free you up to focus on higher-level strategic work.
Can You Afford It? You need to do more than just budget for a salary. You must also account for additional costs like federal and state payroll taxes, workers' compensation insurance, and unemployment insurance. These can add up to 10-20% of the employee’s salary.
If the answer to these questions is yes, you're ready to start preparing your business financially.
The Obligations: What’s What!
Hiring an employee requires more than a simple handshake. You need to set up the right systems to ensure you're compliant with the law and your finances stay in order.
Obtain a Federal Employer Identification Number (EIN): This is a unique nine-digit number assigned by the IRS to business entities. You'll need it to report taxes and file returns.
Understand Payroll Taxes: You are responsible for withholding and paying a variety of taxes. The due dates and frequency for these payments (which can be monthly or semi-weekly) depend on the total amount of tax liability your business has. You must deposit these taxes electronically via the Electronic Federal Tax Payment System (EFTPS).
Federal Taxes: You'll pay these to the IRS (Internal Revenue Service). They include:
Federal Income Tax: Withheld from your employee's wages based on their W-4 form.
FICA Taxes (Social Security and Medicare): You withhold a portion from the employee's pay and must also pay a matching employer's portion.
Federal Unemployment Tax (FUTA): This is an employer-only tax that funds unemployment benefits.
State Taxes: These vary by state, and you'll pay them to your state's tax or revenue agency.
State Income Tax: Many states require you to withhold state income tax from an employee's wages. However, some states, like your home state of Texas, do not have a state income tax.
State Unemployment Tax (SUTA): All states require employers to pay a state unemployment tax. This is typically paid to a state workforce or labor commission.
Know Your State Laws: Every state has different requirements for payroll taxes, unemployment insurance, and workers' compensation. Make sure you are registered and compliant with all the necessary state agencies.
Establish a Payroll System: You need a reliable system for paying your employee and handling the tax withholdings. This can be done manually, but using a payroll service or a feature within your accounting software is highly recommended to ensure accuracy.
Create a Detailed Budget: Now that your expenses are increasing, your budget needs to be airtight. You must account for your new employee’s wages and all associated payroll costs to ensure you maintain a healthy cash flow.
The Payroll Co-Pilot
The financial complexities of hiring your first employee are often a surprise for new employers. This is where a professional bookkeeper becomes your most valuable partner.
Expert Navigation: We can guide you through the process of setting up your payroll system, ensuring you’re registered with the right government agencies, and correctly calculating all necessary tax withholdings. We'll help you navigate the tricky compliance requirements so you can focus on building your business.
Time and Stress Savings: Every hour you spend trying to understand payroll taxes is an hour you could have spent training your new team member. We handle the financial details, so you can focus on leading and growing your team.
Preventing Costly Mistakes: Miscalculating payroll taxes or missing a compliance deadline can result in significant fines and penalties. We ensure your records are accurate and all your obligations are met on time, giving you peace of mind.
Hiring your first employee is a milestone to be celebrated. By taking the time to prepare financially and by having a trusted partner on your side, you can ensure that this exciting step leads to sustainable growth and long-term success.
Ready to take the leap? Contact us today to learn how our services can simplify your payroll and help you build a strong financial foundation for your growing team.
