As your home-based business grows, you have more clients, consider creating new products and services, or even diversifying your initial scope of business. In such a situation, when your business is ready to take off, one of the things preventing its growth is your lack of time to cover all bases. At this point, you probably need to hire one or a couple of employees to help you run the business efficiently.
“Employees? In my home?” Yes, there are a lot of home-based businesses which have employees, working in their employer’s home office. For starters, you could try to hire some of your family members, if you are too uncomfortable about hiring people you don’t know – but as we have shown in another article, involving your family in your home-based business may backfire and hurt both your business and your family relationships.
Now, let us focus on the technicalities of hiring employees – skilled people you do not know personally, but who can help your business grow and maybe, not too far away in the future, move into its own commercial premises. Here are the main steps you need to go through:
1. Obtain Your EIN
The Employer Identification Number is a code which is used for tax purposes, and which you can obtain from the IRS. The EIN is also known as Form SS-4 (this term will help you receive the right forms you need to fill in). You can apply for your EIN online or by phone.
2. Prepare Tax Withholding Records
Once you hire an employee, you need to withhold from their paycheck and report several taxes. These tax withholding records will be submitted together with your financial statements and tax returns. There are three types of taxes you must withhold from your employee’s salaries:
⦁ Federal Income Tax Withholding: you must prepare and file Form W-4 before or on the date when your employee starts effectively working for you;
⦁ Federal Wage and Tax Statement: Form W-2 submitted annually and reporting the salaries you paid to your employee and the taxes you withheld from them;
⦁ State Taxes: this depends on the state you live in; check with your state authorities whether you need to withhold any local taxes on your employees’ wages.
3. Check Out Your Zoning or Homeowners Association Rules
Some residential areas are strictly for inhabitation purposes, and you may find it challenging to run even a home-based business on your own. If you live in a HOA-managed complex, things are even more complicated, because homeowners associations have developed a strict set of rules for the usage of the living space.
If you obtained their approval to run your business on your own, things may get more complicated if you have one or more employees coming in every day and parking their cars in the common parking lot. The wrong way to go about it is to hire people and expect that no one will notice anything different. This will certainly cause you legal troubles. Discuss with the HOA representatives, zoning authorities and your neighbors, and present your case, proving that your employees will not cause any disturbance to anyone and will not affect property values.
4. Upgrade Your Insurance Accordingly
You will certainly need to take a worker’s compensation insurance, third party liability insurance and ensure that your personal and business assets are legally separated and covered by appropriate insurances.
Any kind of accident suffered by your employee inside your home will certainly result in a lawsuit for recovering lost income and hospital costs if do not have insurance covering this aspect. A discussion with your insurer is in order – be specific about how you plan to grow your business by hiring employees, and the insurance agent will detail all the insurance policies you need to have.
5. Consider the Benefits Package You Can Afford to Offer
Apart from the wage, some employers also offer health insurance, paid leave and sick leave. As a small home-based business, you may not be able to afford to offer all these benefits. However, make your financial projections correctly and set a schedule of added benefits for your employee, as your business generates more revenues. If you offer no benefits, chances are you will not be able to find talented and dedicated people willing to work for you.
Once these legal aspects are covered, you should start writing your job advert, being careful to include the relevant tasks which are involved and the level of education and experience of the successful candidate. Do not forget to do a comprehensive background check on each candidate – after all, one of these people will be in your home every day, interacting with you and your family.