For many entrepreneurs, reaching the point where you can hire your first employee is a huge milestone. It’s exciting—but also risky—and it’s important to approach it carefully to avoid costly mistakes. Human Resource Management (often called HRM or HR) may feel unfamiliar at first, but it’s an essential part of growing your business sustainably.

HR is about much more than hiring and paying people. It’s about building a legal, efficient, and supportive work environment where your employees—and your business—can thrive. Strong HR practices help you reduce legal risks, improve employee satisfaction and retention, and boost overall productivity. By learning to manage these responsibilities, you protect your business and create a team that’s motivated and committed to your goals.

For entrepreneurs working in poverty or disadvantaged circumstances, building HR capacity can be especially challenging. Limited resources, small workspaces, and labor-intensive operations often mean that, in the beginning, you’re doing everything yourself. That’s why the decision to hire and manage your first employee is such an important step. It brings new opportunities—but also new responsibilities that must be carefully planned and managed.

As an entrepreneur, you need to understand key decision areas that make up Human Resources. These can include:

●    Are you ready to hire?

●    Should the focus be on full-time or part-time employees?

●    Should you actually hire employees or use independent contractors?

●    How should each job be designed?

●    How do you translate job design into a job description?

●    How should you go about recruiting prospects and making selection decisions?

●    What kind of background checks should you conduct?

●    Should an employee be hired on a trial period?

●    How should you manage the onboarding of the first or second employee?

●    How do you determine the structure and amount of compensation?

●    How do you design and conduct performance appraisals?

●    What about the firing or termination of an employee?

●    What labor law issues you need to be familiar with?

●    What do you do about workers’ compensation and payroll taxes?

●    Are there other compliance issues you need to pay attention to?

Before you hire your first employee, it’s important to take a close look at your business and understand your real needs and priorities. Why do you feel it’s time to hire? Do you have a clear idea of what the employee will do and how many hours a week the role requires? How does your cash flow support adding someone to your team?

Some common HR challenges entrepreneurs face include:

• High turnover—employees don’t stay long

• Skills gaps—your team is missing key abilities

• Slow or confusing hiring and onboarding processes

• Role confusion—people aren’t clear on their responsibilities or who they report to

• Inconsistent or missing performance reviews

Once you understand the challenge, don’t immediately blame an employee. Effective HR is about creating strong systems—how work is organized, how processes flow, and how communication happens.

A few practical tools can help you spot where things might be breaking down:

• Process mapping – outline each step of hiring, onboarding, or training to see where issues occur

• Workflow analysis – ask, “Where are things getting stuck?”

• Feedback mapping – track how and when feedback is given, and whether it’s effective

These steps will help you build a stronger, more efficient system for managing your team.

This checklist covers common HR considerations for entrepreneurs. Use it to identify areas where the client may need improvement, compliance updates, or process development.

✅ Checklist: Common HR Considerations.

It is also helpful to try and identify some best practices in business like yours in other cities around the country. You can find businesses like yours that do some really creative things—things that work. Some of these practices may be things you want to copy. It is important to understand emerging trends in the industry together with best practices. Adapting ideas from well-run and profitable businesses is something you should be open to for as long as you have your business. You do not need to re-invent the wheel. Rather, build on top of what others have learned. Of course, the reality of competition and societal change means that these practices and trends are constantly changing. So, it become important to stay on top of things.

A good way to become familiar with the practices and trends is to join the national association or professional organizations in your industry. There is a national association for just about anything, so if you look hard enough, you will find one you fit into. Here are some examples:

• The Association of Resale Professionals https://www.narts.org/i4a/pages/index.cfm?pageid=1

• The American House Cleaners Association https://www.theahca.org

• International Association of Ice cream Distributors and Vendors https://www.iaicdv.org

• National Candle Association https://candles.org

There is also an abundance of information available on virtually any industry through online database services and government reports. You may find that some of these are only accessible through a local or university library. Some of the most useful ones include:

• IBISWorld — https://my.ibisworld.com/ Contains detailed reports on over 700 industries in the U.S. Reports are based on the NAICS code.

• Mintel Academic and Market Sizes — https://www.mintel.com/products/reports/ Provides market research reports in several broad categories of consumer markets in the U.S. Topics covered include: automotive, beauty, drink, food, clothing and apparel, leisure & entertainment, travel etc. Each report includes statistical data and analysis of the competitive landscape, market size, segmentation, market forecast, and consumers.

• D&B Hoovers — https://www.dnb.com/business-directory/company-profiles.hoovers_inc.c14dc02687a545e16e 5e4c17a95a0d66.html Annual company reports, ratio data, executive information, analyst reports, SWOT analyses, credit ratings and recent developments. Also includes, industry reports.

• Key Business Ratios — https://guides.loc.gov/dun-and-bradstreet/key-business-ratios

• Statistica — https://www.statista.com/ A simple to use statistics portal that integrates statistics from thousands of sources, on topics related to business, media, public policy, health and others.

• Factiva — https://www.dowjones.com/professional/factiva/ A major source of newspapers, web news, and industry news, containing 28,000 sources from over 200 countries in 23 languages. Includes Wall Street Journal television transcripts and newswires. Includes company profiles.

• County Business Patterns — https://www.census.gov/programs-surveys/cbp.html A government report published annually that provides county-level economic data by industry. Every county in the U.S. is included. This series includes the number of establishments, employment during the week of March 12, first quarter payroll, and annual payroll.

This step is all about research which means that the process can and will look different for every entrepreneur. Research on trends and best practices can be done online through specific industry blogs, research and trend reports, news articles, etc. Before jumping into any research, it is helpful to make a list of what you are looking for in the first place.

It is important for most businesses that you carry general liability insurance. It covers financial losses related to operating your business or selling your products that result from bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.

You can generally buy a policy through a commercial insurance agent in your local area. They kind of find available policies from different insurance companies that fit the needs of the type of business you have. Rates can vary, so you might shop around and get quotes from a couple of different insurance agents. They earn commissions paid by the insurance company. It is a good idea to ask people who have been in business for a while to recommend a commercial insurance agent.

Depending on your types of business and where you are located, a $5 million policy with good coverage will generally cost less than $1,000 per year, and sometimes less than $500. It is common for small businesses to carry coverage of $1 million per claim, with a $2 million limit for all claims during the year.

While general liability insurance is probably where you want to start, it may be a good idea to consider what is called a ‘business owners policy’, which combines general liability insurance with commercial property insurance and business interruption insurance (which replaces business income that is lost due to a disaster such as a fire). Additional insurance products are available, such as commercial auto insurance if you or your employees drive a work vehicle (your personal auto policy will not cover accidents that happen when you use your personal vehicle for business purposes), or product liability insurance (to cover injuries or damage caused because of a design defect or manufacturing defect). When you sell professional services, such as legal, medical, building contracting, accounting, consulting or counseling services, you can also buy what is called professional liability insurance (or errors and omissions insurance). It covers claims against you for such things as providing inaccurate advice, being negligent, violating good faith, or misrepresentation.

The U.S. Small Business Administration provides a helpful chart with various types of insurance you can purchase in addition to insurance covered by law:

https://www.sba.gov/business-guide/launch-your-business/get-business-insurance

When deciding on insurance, you should consider what it is that you need to protect. Assess your risks. What could potentially cost your business a lot of money? A great rule of thumb is to protect anything you would not be able to pay for out of pocket. Do you have expensive machinery or equipment that you would not be able to afford to fix? Could you be liable for personal injury?

Once you have assessed your risk and determined which policies you would like to purchase, find a reputable insurance agent. Ask around your network, especially other small businesses, for a reliable and inexpensive insurance agent. They will be able to find you policies that match your needs. When it comes to buying anything for your business, it is important to shop around. Don’t buy the first policy you are offered. Instead, gather information and prices from multiple agencies and make sure you get the most bang for your buck.

While you can certainly manage payroll yourself, if it is in your budget, outsourcing payroll is the way to go. There are plenty of companies that specialize in handling payroll for companies of all shapes and sizes. They can also handle payment of payroll taxes (e.g., social security, worker’s compensation). This takes one thing off your plate and allows you to focus your energy elsewhere.

The following information is needed regardless of whether you put together your own payroll system or outsource it to a payroll company:

• your employer identification (EIN) number

• classification of each employee: for tax purposes, determine which workers are employee versus independent contractors (see below for more on this distinction), and which employees are full-time versus part-time workers

• schedule: decide if you want your employees paid weekly, bi weekly, or monthly

• hourly pay rate and number of hours work for each employee (or monthly salary)

• The following information from your employees:

○ full name

○ address

○ social security number

○ tax withholding allowance

○ bank account information

In terms of the distinction between employees versus contractors, an employee is a worker consistently employed by your company that receives regular wages—you take out taxes, social security and Medicare from their wages each pay cycle. The person who consistently works the cash register at your store is more than likely your employee. An independent contractor is usually someone hired by your company for a specific task, like printing for example. Perhaps you have someone come in seasonally to paint a mural on your store window. This person is not a taxed employee but rather someone you pay every time they come to paint. Another example is Uber drivers. They are not considered employees, but are independent contractors. They are using their own cars and setting their own schedules. They are responsible for their own payroll taxes, health insurance, fuel, and car maintenance. For more information, go to https://www.irs.gov/newsroom/ worker-classification-101-employee-or-independent-contractor.

If you plan to proceed on your own, there are templates and even software programs available for free and can be quite helpful. Examples include Payroll4Free (if you have less than 25 employees) and TimeTrex (open source community edition). They can be found at https://www.payroll4free.com/ and https://www.timetrex.com/payroll. Other services offer free trials, such as Wave and Paycheck and fairly low monthly rates for manual payroll, and a bit extra for extra assistance or add-one services.

When first starting out, the entrepreneur usually does most of the work of the business. Especially in the early days of the business, he or she is stretched thin. The entrepreneur is producing goods, selling, keeping the books, cleaning the premises, purchasing materials, dealing with customer problems, and so on. Constant learning is taking place in terms of the roles surrounding the running of a venture. Mistakes are being made. He or she needs help but cannot afford employees.

So, before formally hiring people, the entrepreneur may rely on family members and friends to help out in the business. Although depending upon friends and family may be critical in getting the business going and establishing a foundation, using them as employees should not be approached casually. Family members and friends get involved because they care for you and want to see you succeed. They may feel obligated to help out. They frequently are volunteers. Because of this, it is easy to deal with them from a more personal or informal perspective. Yet, adopting a professional approach will pay off in a number of ways.

A professional approach means that the entrepreneur defines roles for the people that are helping out. Whether the task is working the counter and collecting cash from customers, answering phone calls, helping to make products, making deliveries, or sweeping the floors, define the task, write a short description of the task, and outline what is expected of the task. Break the task down into some simple steps. Take time to provide instructions or training to the family member or friend. Give them helpful (not critical or harsh) feedback. Be encouraging and show your appreciation. If they are demotivated volunteers, they can do significant damage to your image and ability to get traction in the marketplace.

Keep in mind that these individuals are representatives of the business when they are doing tasks for you, whether that is answering the phone or helping deliver the service. You want to help them become qualified for the work they are doing. Set and communicate clear expectations. Keep your personal relationship and your working relationship separate.

Having family members and friends perform basic tasks allows the entrepreneur to observe how the job is being approached by someone else, the problems that are being encountered, and how the elements of the job can be better defined and performed more systematically. In other words, by learning from the experiences of family members and friends, the entrepreneur gets better prepared to hire formal employees.

If you can afford it, and unless it offends them because they just want to help out, try to find a way to pay family members and friends. Track their hours. The amount you pay them may be less important than the message that you value their contributions, and that you are attempting to run things in a serious and professional manner.