There comes a point when every successful business owner needs to decide what to do about growth. If the goal is to keep things small and in the family, growth must be capped accordingly. But if the goal is to continue growing and expanding, hiring your first employees is inevitable. As a company that specializes in invoice factoring for small businesses, we have experienced this firsthand.
Hiring those first employees can be both terrifying and exhilarating at the same time. It is terrifying in the sense that you are diving into waters you’ve never been in before. Yet it is exhilarating to know that your company is growing enough to need additional help.
While we can help you manage cash flow through invoice factoring for small business, we cannot actually help you hire. But we can let you in on some important things to know before you bring that first new employee on board.
Employees vs. Contractors
Federal tax law makes a clear distinction between employees on the payroll and independent contractors providing necessary services. It is not uncommon for small businesses to classify workers as contractors in order to avoid some of the financial obligations that come with employment. Is this the right approach for you? That’s for you and your accountant to decide.
The reason for mentioning this is that companies need to be incredibly careful about worker classification. The majority of American workers are traditional, salaried employees on the payroll. Contractors are in the minority. Make sure you classify your workers correctly to avoid trouble with the IRS.
State Labor Laws Apply
You should also know that states have their own labor laws that sometimes exceed federal regulations. Minimum wage laws are a good example. A lot of states have established minimum wages that are higher than the federal minimum wage. The point is that you need to know what your state requires in terms of employment laws.
The Employee Identification Number (EIN)
Small, family businesses that only employ the owner and immediate family members don’t have to file for employee identification numbers (EINs). They can file their taxes under the owner’s Social Security number. That all changes when a company hires outside the family.
Before you can hire, you will need to get an EIN. No worries, though. The process is quite simple. You can apply online and get your number instantly. You can also apply by phone or submit a paper document. Phone applications are instant as well.
There Will Be Tax Implications
Unfortunately, there is no getting away from taxes when you’re in business. Hiring means taking on additional tax liabilities related to Social Security, FICA, and federal and state income tax. There is a lot to learn here. Make sure you’re up to speed on everything from payroll deductions to reporting deadlines. You might want to think about hiring an accountant if your company doesn’t already have one.
A Payroll Plan Will Help, Too
Business experts tend to encourage companies to have a payroll plan in place before beginning to hire. That could mean contracting with a third-party payroll company or adding a payroll specialist to the staff. Either way, it is smart to know how you’re going to handle payroll before you actually have to start doing it.
That moment you realize it’s time to hire is a watershed moment for your business. If you need cash to get things rolling, consider invoice factoring for small business through Thales Financial. We can help you meet your short-term financial needs by purchasing unpaid invoices from you. Invoice factoring equals interest-free financing by leveraging receivables as assets.