What You Need to Know Before Hiring an Employee

What You Need to Know Before Hiring an Employee

Job Description

Before you think about hiring an employee, you should develop a job description. This job description will be used when you post your job opening and will be an important document to measure potential candidates against. A job description is also one of the documents that are considered by the judge during a wrongful termination lawsuit.

Employee Handbook

As a business owner, disgruntled employees will be one of the most common headaches you will experience. A properly drafted employee handbook is something you should consider having in place to protect your business against potential lawsuits from employees.

An employee handbook should include policies for the following topics:

  • Employment Basics
  • Workplace Policies
  • Code of Conduct
  • Compensations and Development
  • Benefits and Perks
  • Working hours, Paid-Time off and Vacation
  • Employee Resignation and Termination

It is imperative that you provide the employee with a copy of the handbook, and make sure they read it. You will also want to have the employee sign a copy of the employee handbook and initial each page for your records if you want it to be admissible in court. An employee handbook is one of the most important documents that you can have to help prevent lawsuits.

Candidate Screening

Hiring an employee can often be a daunting task, however, you should not rely too heavily on a candidate’s resume or application. A whopping 85% of employers have found that applicants lie on either their resume or application form. Resumes should only be used as part of your pre-screening process.

The Interview

The interview is where you will gather the most important information about the candidate’s qualifications. However, did you know there are many seemingly innocent questions that are considered illegal to ask a candidate? Asking questions about a candidate’s, age, race, national origin, religion, marital or family status, or any disability they may have are all questions that can be seen as discriminatory and could leave the business open to a lawsuit.

During an interview, you must take care to keep your interview questions focused on the behaviors, skills, and experience needed for the candidate to perform the job.

Before conducting an interview, I also recommend you review How To Spot Lying & Deceptive Behaviors, and How To Tell If Someone Is Lying Using Questioning Techniques. Familiarizing yourself with these will help set up proper interviewing conditions, and prime you to detect deception from a candidate during the interview process.

It should be noted that if you interviewed a candidate that was qualified by reason of skill and experience, but they were dismissed as a candidate because you felt they were lying, you might leave yourself open of a potential discrimination lawsuit. That being said, there are many intangibles that go into finding the right candidate for an open position. While the potential of a discrimination lawsuit is always possible, your gut feeling is often a good predictor of a candidate’s potential success or failure and should not be ignored.

Background/Reference Checks

Once you have come up with a shortlist of prospective candidates after conducting interviews, it is always recommended to conduct a background check and to call the candidate’s references before extending a formal offer of employment.

Legal Requirements

The government does not make it easy for employers. There are several steps that you will have to go through to legally before hiring an employee.

Employee Identification Number (EIN)

If you are a registered legal entity and you are going to hire employees, you first need to go to the IRS and obtain an Employer Identifications Number (EIN). This is also known as the Tax Identification Number (TIN), and it replaces your Social Security Number when filing withholdings, issuing a W-2 to employees and filing other company tax documents. It is free but sets the expectation that the business will be filing a tax return with the IRS. If you are a sole proprietor, it is not mandatory that you get an EIN but since it is free, there are very few reasons not to get one.

Employment Eligibility Verification (I-9 Form)

It is essential that the employee that you’re planning to hire is authorized to work in the US. Employers are required to have new employees (citizens and non-citizens) complete an I-9 form, make copies of the required documents and keep them in a separate confidential file.

Copies of the supporting documents are necessary as evidence to prove that the employee has the right to work in the US if challenged. You are required to sign the copies of the documents as the employer to attest that you have reviewed the documents provided. You do not need to submit the I-9 or the copies of the supporting documents to any government agency, you are simply required to have them as part of your records.

It is up to the employer to spot falsified documents and verify the authenticity of the supporting I-9 documents.

Employee’s Withholding Allowance Certificate (W-4 Form)

Next, you will need to have the employee complete an Employee’s Withholding Allowance Certificate know as a W-4 form so that you can withhold the correct federal income tax from their pay. Similar to the I-9, the W-4 is a form that is needed for your employee records.

Employee Payroll

Once the employee has been hired, there are several other requirements you will have as an employer.

Unemployment Insurance

As an employer, you must fund your employee’s unemployment insurance. Unemployment insurance has two components- a Federal and a State component. Federal Unemployment Insurance (FUTA) is currently 0.6% of Gross Wages on the first $ 7,000 of wages. State Unemployment Insurance (SUTA) is more complicated, in that it varies based on the company’s history and on the state.

Worker’s Compensation

As an employer, Worker’s Compensation coverage is required for all employers that have five or more employees.

As an employer, you must withhold federal, state and FICA from the employee’s check and make deposits on their behalf.

When it comes to payroll, I recommend that you use a payrolling service rather than do it yourself. While tools like QuickBooks allow you to do your own payroll, there are unique requirements and changing deposit frequencies that can make payroll administration painful.

Many institutional banks offer a basic payrolling service for only a few dollars per employee per paycheck. Moreover, they allow you to do direct deposits into your employee’s bank account, saving the time and hassle of printing, signing, and distributing paper payroll checks. For example, if you have ten employees and your bank charges your business $ 2.00 per paycheck, that is only $ 20.00 per pay period to have your bank do all the work for you. This includes all the federal and state filings as well and is about the biggest bang for the buck you can get as a business owner.

Employee Agreement

Many employers choose to have an employment agreement in addition to an employee handbook. However, because many states are considered to be “At-Will” employment, an employment agreement is not really enforceable. Nonetheless, they do clearly state the expectations of the employer and employee which goes a long way toward setting expectations and preventing misunderstandings.

Always have both the employee and the hiring manager sign copies of the job description, employee handbook, and the employment agreement to make hiring an employee official and ensure that you have the proper documentation to protect against potential lawsuits. A sample Employment Agreement for an Hourly Employee and sample Employment Agreement for a Salary Employee can be freely downloaded from the Free Downloads section of this website along with other resources.


All the templates provided are teaching tools employed by Steven Imke. They are intended to be used simply as guidance. The tools do not necessarily cover all aspects and are not relevant to all companies. The use of these tools as anything more than gaining a general understanding is not encouraged by Steven Imke and should be done under the supervision of a professional or at your own risk.

Do you have a process for hiring an employee?

I would like to acknowledge Marcy Flitchall, the CEO/Senior Consultant for HRchitects, Ltd., and a SCORE colleague for her gracious assistance as a reviewer to make sure that the legal issues conveyed in this post were an accurate representation of HR law.

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Author: Steven Imke

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