Is It Time to Hire Your First Employee? A Financial Checklist

Is It Time to Hire Your First Employee? A Financial Checklist

Taking the leap from solopreneur to employer is one of the most exciting—and nerve-wracking—milestones for any small business owner. On one hand, it means you’re growing! You’ve built something successful enough that you can’t do it all alone anymore.

On the other hand, it’s a massive financial and legal commitment.

Hiring your first employee isn’t just about finding the right person. It’s about fundamentally changing your business’s financial structure. At Bay Business Group, we’ve guided many small businesses, non-profits, and government contractors through this exact transition. We’ve seen the success that comes from planning, and we’ve seen the pitfalls that come from underestimating the true cost.

Before you post that job ad, let’s walk through the essential financial checklist. This is what you must know before you hire.

Part 1: The “Fully Loaded” Cost (It’s More Than a Salary)

The most common mistake we see is “backward math.” A business owner thinks, “I can afford a $50,000 salary,” without realizing that employee’s true cost to the business is significantly higher.

A reliable rule of thumb is to budget 1.25x to 1.5x the base salary.

This “fully loaded” cost includes the base wage plus all employer-paid taxes, benefits, and other related expenses.

So, your $50,000 employee will likely cost you $62,500 to $75,000 per year.

Let’s break down exactly where that extra money goes.

Your Financial Checklist for a New Hire

1. Base Compensation This is the “sticker price” and the number you and your employee will discuss most.

• • Salary: The fixed annual amount.
  • Hourly Wages: The rate per hour. (Remember to factor in overtime rules, which are regulated by the Fair Labor Standards Act.)
  • Bonuses & Commissions: Will you offer performance-based incentives?

2. Payroll Taxes (The Employer’s Share) This is the “hidden” cost that surprises many new employers. You don’t just withhold taxes from an employee’s check; you have to pay your own taxes as the employer.

• • FICA (7.65%): This is the employer’s matching share for Social Security (6.2%) and Medicare (1.45%).
  • FUTA (Federal Unemployment): This is a federal tax that, after credits for state taxes paid, is typically 0.6% on the first $7,000 of wages.
  • SUTA (State Unemployment): This tax rate varies dramatically by state and by your industry. As a new employer, you will likely be assigned a standard “new employer rate.”

3. Insurance & Benefits This is where costs can balloon, but it’s also what attracts talent.

• • Workers’ Compensation: This is legally required in almost every state as soon as you have one employee. It covers medical costs and lost wages if an employee is injured on the job. Rates vary wildly by industry (an office worker is far cheaper to cover than a roofer).
  • Health Insurance: While federal law (ACA) only requires employers with 50+ employees to offer coverage, many states and local governments have their own mandates. In a tight labor market, offering health, dental, and vision benefits is table stakes for attracting skilled, full-time professionals.
  • Retirement: Will you offer a 401(k) or SIMPLE IRA? More importantly, will you match employee contributions? That match is a direct, added cost.
  • Paid Time Off (PTO): Remember, an employee on vacation is an employee you are still paying. Factor in the cost of paid holidays, vacation days, and sick leave.

4. “Overhead” & Recruiting Costs Don’t forget the one-time and recurring costs to simply have an employee.

• • Recruiting: Job board postings, background checks, and drug screenings.
  • Equipment: A new laptop, software licenses (e.g., Microsoft 365, Adobe), a desk, or a phone.
  • Training: Will you pay for courses, certifications, or onboarding programs?

Part 2: The Action Plan — Setting Up Your Payroll

You’ve run the numbers, your cash flow looks solid, and you’re ready to hire. Congratulations! Now, you have to create the system to actually pay them. At Bay Business Group, we can help with this.

This is where the administrative and compliance burdens begin.

The Payroll Setup Survival Guide

• Step 1: Get Your Employer IDs
  • You need a Federal Employer Identification Number (EIN) from the IRS. It’s the “Social Security number” for your business.
  • You must register with your state’s Department of Labor to get a state unemployment tax number.
  • You must register with your state’s Department of Revenue for income tax withholding.

• Step 2: Collect Employee Paperwork
  • Form I-9: You must collect this on or before their first day to verify their eligibility to work in the U.S. This form must be kept on file and is a major audit risk if not completed correctly.
  • Form W-4: This tells you how much federal income tax to withhold from your employee’s paycheck.
  • State Withholding Forms: Most states have their own version of the W-4.
  • Direct Deposit Authorization: The most secure and efficient way to pay your team.

• Step 3: Choose Your Payroll System
  • You need to decide how you will calculate paychecks, file taxes, and pay your liabilities. Your options are:
    • DIY (The Risky Way): Using spreadsheets and IRS tables. We strongly advise against this. A single miscalculation on a FICA deposit can result in thousands in penalties.
    • Payroll Software (The Common Way): Using a service like Gusto, Rippling, or ADP. This is a good solution that automates calculations, but you are still responsible for ensuring the setup is correct and the money is in the bank.
    • Full-Service Payroll (The Smart Way): This is where an outsourced accounting firm like ours comes in.

How Partnering with Bay Business Group Can Help

This entire checklist probably feels overwhelming. The good news is, you don’t have to do it alone.

This is exactly what we do for our small business, non-profit, and gov-con clients. We move you from “stressed solopreneur” to “confident employer.”

Here is how we take this burden off your plate:

1. The “Can I Afford This?” Analysis – Before you even write the job description, we’ll dive into your books. We run cash flow projections and model the “fully loaded” cost of a new hire at different salary levels. We give you a clear “Yes, you can afford this” or “Not yet, let’s target Q3” answer, based on hard data.
2. W-2 vs. 1099 Advisory Is this role really an employee, or could it be a contractor? Misclassifying a worker is one of the most expensive mistakes a business can make, leading to back taxes, fines, and penalties. We help you analyze the role and make the right, compliant choice.
3. Full Payroll Setup & Registration We handle all that “Survival Guide” paperwork for you. We’ll register you with the IRS, the state Department of Labor, and the Department of Revenue. We get your EIN and state accounts set up correctly from day one.
4. Seamless Payroll & Tax Management We don’t just set it up; we run it for you.

• • We process your payroll (weekly, bi-weekly, etc.).
  • We handle all direct deposits.
  • We calculate and pay all your payroll taxes (FICA, FUTA, SUTA) on time, every time.
  • We file all your quarterly (941) and annual (940, W-2s) payroll reports.

Your Next Step: Growth, Not Paperwork

Hiring your first employee should be a celebration of your success. It shouldn’t be a nightmare of compliance and tax forms.

Your focus should be on training your new team member and growing your business. Our focus will be ensuring your financials are accurate, your team is paid, and your business is 100% compliant.

Ready to build your team? Before you hire, let’s talk. We can build a financial plan that makes your first hire a true asset, not a liability.

Contact us for a free consultation.