Module 01 of 08
Your first hire
Hiring someone changes the legal and financial reality of your business overnight. Before you post a job ad, you need to answer three questions: Do I actually need an employee, or is there another solution? Employee or contractor? And full-time or part-time? Getting these right saves money and avoids problems that can follow you for years.
Do you actually need a hire?
Most small business owners decide they need help when they start losing business, working unsustainable hours, or letting quality slip. Those are real signals — but "hire someone" isn't the only answer to any of them.
Before posting a job, consider whether the problem is a capacity problem or a process problem. A bookkeeper working 60-hour weeks because they're doing manual data entry doesn't need a part-time assistant — they need accounting software. A restaurant owner who can't leave because only they know how to close isn't understaffed; they're underdocumented.
THE $10/HOUR TRAP
Owners often assume hiring a part-timer at $10–$14/hr will free them up for $40/hr work. It often doesn't. Training, managing, scheduling, and covering mistakes take real time — especially in year one. Be honest about whether the math works before you commit.
In this Module
Do you actually need to hire?
Employee vs. contractor
Part-time vs. full-time
True cost of a hire
Real-world examples
Related Modules
Payroll basics
HR legal requirements
Genuine signs you need to hire: you're regularly turning away business because you can't take it on; a key part of the operation stops when you're not there; you have consistent, predictable demand that fills more hours than you can work; or the business is ready to expand hours, locations, or services.
Employee vs. contractor: the most important decision
This classification isn't a preference — it's a legal determination. The IRS and your state labor agency have specific tests to determine whether a worker is an employee or an independent contractor. Misclassifying an employee as a contractor is one of the most common and costly mistakes small business owners make.
THE CORE TEST
The more control you have over how, when, and where someone works — not just the result — the more likely they are an employee under the law. If you set their schedule, provide their tools, and they work exclusively for you, they are almost certainly an employee regardless of what you call them.
Consider the different options - select to expand
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You control: How, when, and where they work — not just the end result
Tools: You provide equipment, workspace, uniforms
Tax: You withhold income tax, pay employer share of Social Security and Medicare (7.65%)
Forms: W-4 at hire, W-2 each January
Best for: Ongoing regular work, customer-facing roles, shift-based schedules
Risk of misclassification: Back taxes, penalties, back wages if called an IC but treated like an employee
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You control: The result only — they decide how to do the work
Tools: They use their own equipment and workspace
Tax: They pay their own self-employment tax; you do not withhold
Forms: W-9 at hire, 1099-NEC each January if paid $600+
Best for: Project-based or specialized work (accountant, graphic designer, IT repair)
Risk of misclassification: Low risk if relationship genuinely fits IC criteria — document it
Real-world example
Maya's bakery — contractor gone wrong
Maya hired a "freelance" baker who worked 5 days a week, 7am–2pm, used Maya's ovens and tools, wore the bakery apron, and had no other clients. The baker was legally an employee. When she left and filed for unemployment, the state audited Maya's payroll. Maya owed back payroll taxes, interest, and penalties — roughly $8,000 for two years of misclassification.
Part-time vs. full-time
There's no federal law that defines part-time vs. full-time, but the IRS and ACA use 30 hours/week as the threshold for benefits eligibility purposes. Most small businesses start with part-time help because it's lower cost and lower commitment — but part-time hires come with their own complications.
Part-time advantages: lower payroll cost, scheduling flexibility, easier to scale back. Part-time disadvantages: higher turnover, less investment in training payoff, harder to build team culture, often harder to find reliable candidates who can commit to irregular hours.
A COMMON STARTING POINT
Many first hires start at 20–25 hours/week with a defined schedule (e.g., Thursday–Sunday). This gives the new hire enough hours to make the job worth their time while keeping your payroll manageable as you learn what you actually need.
What it actually costs to hire someone
Hourly wage is only the starting point. Before you can afford a hire, you need to know their true cost to your business — sometimes called the "fully loaded" labor cost.
| Cost component | What to expect |
|---|---|
| Base wage | $15/hr (your area's minimum or market rate) |
| FICA (Social Security + Medicare) | +7.65% of wages |
| FUTA / SUTA (federal + state unemployment) | +1–4% of wages (varies by state) |
| Workers' comp insurance | +2–8% depending on job type and state |
| Approximate true cost | $18–$22/hr for a $15/hr employee |
Estimates only. Actual rates vary by state, industry, and your business's claims history.
This is before any recruiting, onboarding, uniform, or training costs — which are real but one-time. The ongoing payroll burden is the number to plan around.