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Practical Business Skills

Managing Employees

For many owners of growing businesses, hiring employees is a necessity. Think of these individuals as one of your biggest assets, just as valuable as your business name, reputation and the product or service you provide. Yet leading a team of people with differing personalities, work styles and strengths can be a challenge. Management is an art, and takes dedication and planning. The more effectively you lead, the more value, loyalty and effort you are likely to get in return. You can get off to a strong start by deciding up front how you’ll hire, inspire, support, train and lead your team.

Whether you’re hiring your first employee or your tenth, it’s important to take great care when choosing someone to join your staff. On a small team, each person must be a strong contributor and have unique strengths in order to help drive the business forward. Choosing the wrong person can lead to headaches, lost income and conflicts on the job. Choosing the right person can mean a big lift to your productivity. Whether you’re hiring a family member, friend or someone new to you, these are steps you can take to choose the right person for your business and set that individual up for success.

1. Decide when to hire an employee
In a few cases, like in a restaurant setting, hiring employees may be necessary from your first day in business. More often, a business owner will handle all aspects of their business until they realize it’s too much for one person to manage. Here are some questions to answer when considering whether to add an employee.

  • Do you want help? For some business owners, keeping the business small and manageable is a top priority. Others may be struggling to manage workload or have opportunities they can’t take advantage of because they don’t have the time. These are signs it’s time to hire someone.
  • Can you afford help? Remember that the actual cost of an employee isn’t just the amount you pay that person per hour. It also includes any paid time off, health or retirement benefits and other expenses. Sit down and take a look at your budget; decide how you expect your profits or productivity to increase if you bring on someone new; calculate the salary, benefits and overhead you’ll need to pay if you hire an employee, then see whether you have room in your budget to cover the costs.
  • What type of employee do you need? You may be able to hire a part-time or temporary employee to help out for a few hours a week or during a seasonal rush. As you grow, you may need full-time, permanent employees.

2. Know the laws
Before you hire your first employee, it’s important to learn about legal requirements around choosing employees and how you treat employees once they’re part of your team. Some laws only apply to businesses with a certain number of employees, so get familiar with the requirements that apply to yours. Even if you have a small team now, it pays to know the laws so you’re ready if your business, and your number of employees, grow.

3. Write a great job description
Even if you’re hiring someone you know, it’s important to write out a clear job description. This will help you make sure that you and the employee agree on the responsibilities of the job. If you’re hiring someone outside of your company, the job description is also an important opportunity to attract great candidates. For this reason, you should make sure it’s clear, thoughtfully written and easy to understand. Start by choosing a job title that describes what the role will be. Speak directly to the candidates in the description, being clear and relatable. Also, make sure to communicate the positives of your business. Job seekers will look for tasks, experiences and responsibilities that line up with their skills, so add as much detail around these points as possible. Finally, reach out to friends, family and business contacts to let them know you’re hiring, and advertise the listing where you think you’ll reach your ideal candidates best: through a help wanted sign in your business window, via online job sites, with flyers, at local events, on social media sites or through community job boards.

4. Start interviewing
If you’re considering more than one candidate for a job, you’ll need to set up interviews with your top applicants to find out more about their interests and experience. If you have many applicants and want to filter out the least promising ones quickly, you can conduct a first round of phone interviews to determine which ones you want to meet face-to-face. When deciding who to interview, consider how well each candidate’s resume is presented, whether their skills match the job description, educational background and how long they stayed at previous jobs. You’ll also want to try and determine whether the person is dedicated to their job and takes pride in their work. A sense of character and commitment can be even more valuable to your business than a particular set of skills. Here are more tips for ensuring a smooth interview process:

  • Prepare a list of interview questions. The answers candidates give you should provide you with the information you need to make a decision on which one to hire. Questions should cover experience, skills, strengths, likes/dislikes and even personality traits to help you find the right fit for your team. Many sites offer lists of important questions to ask, which you can use to create yours. Note that there are some questions that are illegal to ask candidates during an interview, including questions about their race, sexual orientation and age. Get familiar with the laws around pre-employment inquiries provided by the EEOC and local law.
  • Take notes on their responses. Their questions can show what they know about your business, how interested they are in the job and any concerns or ideas they may bring to the business.
  • Ask what questions they have for you. Their questions can show what they know about your business, how interested they are in the job and any concerns or ideas they may bring to the business.
  • Be clear about expectations and goals for the business. In some cases, a candidate won’t be that excited about the business or will disagree with your overall goals; it’s helpful to have this information upfront when choosing the right fit.

5. Make your choice
You’ve spoken to a range of candidates and you’ve found that needle in the haystack. This candidate seems excited about the position and has the skills, experience and personality your company needs. Before you formalize the offer, you'll need to:

  • Offer compensation and other possible benefits in a written letter
    This document will give the potential employee a clear picture of all that you plan to provide them in exchange for the job. The benefits you outline in the package may include paid days off, sick leave, retirement benefits, health benefits, maternity and paternity benefits or a discount on company products. You’ll want to be sure that the salary you offer aligns with what others in your industry are offering for similar jobs. This will help you attract strong employees and ensure that they’re happier on the job. To research average salaries in your area, there are several resources available online that provide salary information. If you are hiring someone you know, it’s just as important to make sure you both agree on these details and have them in writing, as it will save you from any miscommunications regarding pay, days off or other compensation-related topics later.
  • Verify information
    Call past employers and other references the candidate has provided to see what they have to say about the individual. What were her strengths and weaknesses? What did he bring to the job? In businesses across many industries, employers run background checks to ensure the person they’re hiring has represented himself or herself truthfully. In some situations, such as a job requiring the employee to drive or operate machinery, drug testing may be done to ensure the candidate is safe to carry out the required tasks of their job.
  • Be prepared to negotiate
    Negotiation about salary is often a normal part of the hiring process. In order to negotiate well, you’ll need to know the salary range for similar businesses in your area, the value the employee will bring to your business, your budget for the position and how high you will be willing to go for this particular candidate. Make sure to calculate the value of any paid time off or benefits you provide, as these are an important part of the overall package you are offering. In most cases, you and the candidate will be able to settle on a number. If you can’t reach an agreement, you may need to consider other, more affordable candidates.
  • Sign the final offer letter
    To formalize the offer, you’ll want to outline compensation, job description and benefits in a final document, called an offer letter. Even if you make the offer verbally, it’s important to follow up with a formal, signed document that solidifies the agreement.

6. Prepare for your new employee
Once an employee has accepted your offer, you can set a start date and begin tasks like getting paperwork in order. This is an important way to ensure a smooth transition before the first day on the job. If this is your first employee, you will need an Employer ID, which you can apply for through the IRS. When it comes to your employee or employees, these are some of the required forms you’ll need to have on hand.

  • Job application form
    This can be collected during the hiring process or before the employee begins. It includes education and work history information, and protects you as an employer if the person has provided any fraudulent information that led to their hire.
  • Form I-9
    This form requires the employee to prove his or her identity and work eligibility. Once you receive their completed form and documentation, you must review it and keep it on file.
  • W-4 form
    This form calculates federal tax withholding, and all employees must complete it before receiving their first paycheck. Employees may change their withholdings over time; you are required to keep only their most recent W4 on file.
  • State withholding and registration
    Many states in the U.S. collect income taxes and require a form to calculate state tax withholding; employees must complete the form before receiving their first paycheck. Contact your state department of revenue to find out the requirements for your state.

Note that there are some differences in tax employment rules for employees in your family. You can learn more about those here.

In addition to these forms, you’re also required to maintain the following records for every employee. As you incorporate a new employee into your business, collect any of these details you don’t have and create either a physical or digital folder where you keep them on hand and up-to-date:

  • Employee’s full name and Social Security number
  • Address, including zip code
  • Birthdate, if younger than 19
  • Sex and occupation
  • Time and day of the week when employee's work week begins
  • Hours worked each day
  • Total hours worked each workweek
  • Basis on which employee's wages are paid (per hour, per week, by project, etc.)
  • Regular hourly pay rate
  • Total daily or weekly earnings
  • Total overtime earnings for the work week
  • All additions to or deductions from the employee's wages
  • Total wages paid each pay period
  • Date of payment and the pay period covered by the payment

Check with your local department of labor to determine whether there are other documents you are required to maintain.

7. Consider an employee handbook
Even if you have just one or two employees, documenting your policies and expectations in a short list or an employee handbook can be a great way to make sure you have communicated business procedures clearly. For a very small business, this may be just a one-page document calling out important details about your business, which you can expand on as you grow. For a slightly larger business, you may want to put more time into creating a longer, more in-depth handbook. Whatever your business size, consider having a human resources specialist or attorney take a look at your employee handbook to make sure it meets state requirements, such as a list of employee rights. Here are some of the items employee handbooks usually include:

  • The company’s mission statement
    This is a formal statement that sums up the goals of your business. By including this, you will communicate your business identity to all employees up front.
  • Paid time off, if you provide it
    Explain how many paid days off employees will be provided with per year, if any, including both sick and vacation days. Spell out how much of the time, if any, rolls over into the next year if unused. You may also include information around overtime.
  • Rules around behavior
    Cover overall rules, such as workplace cleanliness, dress code, late policies and requirements around interactions with other employees. Consider including a list of workplace rights as well.
  • Payroll
    Indicate when employees can expect to be paid each month, along with any practices or requirements around tracking time and payroll.
  • Holidays
    List which holidays employees can expect to get off and whether they’ll be paid for these days.
  • Maternity and paternity benefits
    If you have 50 or more employees, you will be required by the Family and Medical Leave Act to provide employees with 12 weeks of unpaid maternity or paternity leave in the event they have, adopt or foster a child. Although it isn’t required of them, some smaller employers also offer paid maternity and paternity leave. This can be an important factor for employees, so consider whether providing leave will be something your business can afford. There are differing laws related to leave for parents in every state, so you’ll also want to familiarize yourself with the laws in your state.

Make sure to include a line for the employee’s signature and, once it’s signed, keep a copy on file for every employee.

Training your new hire
Paperwork is complete, the start date is set and your new employee is ready to go. Before they start the job, you should put together a plan for training your new employee about your products, services and procedures. No matter how experienced an employee is, they will need to learn about how you run your company and what makes your products stand out.

  1. Make a list of items to cover. As you bring a new employee into the fold, it can be helpful to have a list of all the items on which you’d like to train that person. This could include keeping time, operating company equipment and processes for assisting customers. Having this list can help set the employee’s expectations in those first few weeks and make the training process easier for you.
  2. Ask what the employee knows and needs to know. Advanced skills must build on basic skills, so those will need to be mastered first. Even some of the most skilled employees may need to fill in gaps in knowledge that are specific to your business.
  3. Host training sessions. If you have a larger or more established business, training can keep you aware of trends in your industry and keep your team knowledgeable and interested in the job. If you have more than one employee, consider setting up cross-training sessions where employees share their expertise in a specific area with you and with other employees.
  4. Look into conferences and educational opportunities. At a larger business, educational opportunities will appeal to many employees. Workers often value the chance to improve their skill set and it can make them that much more invested in the job. Research related conferences: the result can be happier, more skilled employees who feel good about what they do.

Employee reviews
Whether you have one or more employees, a good way to keep them productive and continually improving is to conduct ongoing performance reviews. A performance review shouldn’t be the first time your employees hear about something they’re doing well or an area in need of improvement. That feedback should be communicated on a day-to-day basis. The performance review is your chance to sit down together periodically (usually each quarter), review those accomplishments and goals for improvement and create a plan for the upcoming period. These steps will help:

  1. Determine a format for your reviews
    During most reviews, the employer and employee talk over the employee’s strengths, accomplishments, challenges, goals and next steps. In some cases, employees receive scores in specific areas so their performance can be tracked and compared in future reviews. You can find example review forms online; see which details and approach would fit your business best. In addition to filling out a review form themselves, some employers provide the template to their employees so they can fill out a “self-review” first. This can help them think about their own performance and goals and play a more active part in the process. Whichever approach you take, be upfront with employees about expectations of the job and what they can expect during reviews.
  2. Set a timeline
    Decide how often you want to conduct reviews and let employees know when they can expect them. If possible, sit down once per quarter rather than yearly to ensure better communication and to keep goals top of mind.
  3. Track progress
    Rather than try to remember items to include in reviews, keep a running list of each employee’s accomplishments and challenges: goals met, tasks done well, completed projects, compliments from customers or deadlines missed. This will help you provide clearer and more accurate feedback.
  4. Conduct the review
    Remember that the goal of reviews is to ensure open communication and to help yourself and employees grow and improve. They are an opportunity for you to both offer feedback and to listen to employees about what they feel are their strengths, where they’d like more support and areas where they want to learn and grow. For this reason, reviews work best when they are approached as open discussions between an employer and employee. Keep a warm and friendly tone, set a time when you won’t feel rushed through the meeting and listen carefully to any points your employee makes.
  5. Document what was discussed
    It’s easy to forget about the important points covered during a review. To prevent this from happening, take notes on what you discussed and on next steps, then keep a record for yourself and provide a copy to the employee. You can use these notes and the goals you’ve recorded as a starting point for their next review.
  6. Ask for feedback
    One of the best things a manager can do is to request feedback from their employees. Asking what you can do better shows that you are determined to be a good leader and it is likely to create a more open, collaborative and positive relationship. It will also help you learn to provide employees with the support they need and to be the most effective leader possible.

Good communication with employees is necessary for their happiness and your success. For tips on communicating effectively with your team, visit our Leadership section.

Managing time
Managing your time well and helping employees manage their time well is an important aspect of running a successful business. With small businesses in particular, owners and employees tend to manage a lot of tasks, so using time wisely is critical for success. Here are a few ways to ensure the best use of time:

  1. Prioritize
    Teach employees which items are top priority, medium priority and lower priority. For instance, responding to a customer complaint or order issue will probably require immediate attention, while brainstorming a new promotion can probably wait for a day or two.
  2. Plan ahead
    Sometimes, creating plans, whether it’s a business plan or a launch plan for a new product, can feel more time consuming than it’s worth. Yet making a list of items that must be done in order to achieve a goal is likely to save you time in the long run. Creating a plan forces you to consider the steps involved in meeting your goal, and to gauge how much time will be needed for each step.
  3. Avoid pitfalls
    We’re all aware of pitfalls that lead to lost time on the job: Chatting too long with customers or coworkers on an ongoing basis, checking and responding to email too often throughout the day or “reacting” to issues immediately instead of considering where they fall on your list or priorities. Whether you or an employee is losing time, the habit is likely to cost you in the long run. One way to identify these problem areas for yourself is to keep a detailed log of your time throughout a day. When and how are you spending time wisely? In what areas could you improve?
  4. Help employees use time wisely
    Managing your own time wisely is the number one way to encourage employees to do the same. Make sure to start meetings on time; keep daily, weekly and monthly schedules and learn to delegate rather than trying to juggle every task yourself. You can also encourage good use of time by complimenting employees when they manage time well, or by acknowledging employees when they meet goals on time. In some cases, if time isn’t being managed wisely, you may need to sit down with an employee one on one to brainstorm ways you can work together to ensure they are able to work more effectively.

Paying employees fairly, legally and on time is an important part of running a business. But with taxes, tracking paperwork and setting a payroll schedule, it can be hard for busy business owners to know where to begin. As your business grows and your number of employees increases, you’ll need to be familiar with the legal requirements around payroll, have a set schedule and create a master plan for maintaining payroll and related tax records. Start in our Payroll section.

As a small business owner, you spend so much time thinking about the day-to-day of your business, it’s easy to lose track of your plan for the future. But it’s important to plan and save for your own retirement as a way of protecting your future along with the futures of any children, spouses or dependents you have. Plus, offering a retirement plan for your employees can be a great way to attract top-quality candidates and keep them, saving you money in the long run. Find out how in our Retirement section.

As the leader of your business, you have the unique role of setting the vision for your company, motivating and engaging employees and deciding where and how you want your business to go. Knowing your leadership style and goals is an important step in mapping out what kind of leader you are and want to be. Learning strong leadership skills, setting a communication plan and learning how to delegate responsibilities will help seal your success. Find out more in our Leadership section.

You may have started out your business imagining you’d always run it on your own. But building a team of employees to support your goals is a great opportunity to tap into other people’s strengths for the better of your business, and to build a community that will drive your business forward. From paperwork to sharpening your leadership skills, having a plan and continually working to improve your process and leadership will pay off as your business grows.

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