How to Hire Employees for a Small Business (Successfully)

Small businesses are a major force in the global economy. They employ 61.7 million people in America (46% of the workforce) and created 85% of new jobs in Europe over the past five years. 

If you’re a small business owner looking to add a new employee (or several), you likely want to grow your operations and regain personal time. That’s exciting as scale brings more opportunities—bigger contracts, new revenue streams, faster execution.

However, hiring people can be nerve-wracking, as you may need to fill a role outside your area of expertise. This guide, developed with input from our talent acquisition team, describes how to best approach the hiring process for your small business. 

TL;DR — Key Takeaways

• Hiring an employee makes sense when you have a defined role with recurring tasks, you seek operational scale, and have the finances to cover salaries and payroll taxes.

• Before creating a job posting, identify the must-have and nice-to-have skills for the role. Build out a detailed candidate profile with extra information on desired qualifications, soft skills, character traits, and personal values.

• To attract top talent, offer a competitive compensation package—a fair salary and perks to drive candidates to your business, including intangible benefits like more learning opportunities and greater responsibility.

• Use recruiting software for small businesses to streamline candidate evaluations. Combine several assessment methods—skills tests, structured interviews, role-play exercises, and home assignments—to find the best fit for your business.

• Prepare to onboard new hires. A welcome package and orientation materials transfer knowledge and share insights about the company culture.

• Avoid the common hiring mistakes of relying solely on resumes, neglecting candidate communication, and not building your talent pool from day one. Robust small business recruitment software will keep everything streamlined and support you in making the best decisions. 

How do you know you’re ready to hire your first employee(s)?

Transitioning from solo ops to a team can feel overwhelming, especially if you’ve never led people before. But it’s the right thing to do when:

• You’re overwhelmed. If your workday is unlimited and your work week is seeping into the weekends, hire extra help. Being bogged down with day-to-day tasks undermines your ability to focus on strategy and growth.

• You’re turning down new business. The workload is so hectic that you’re forced to forgo new opportunities due to a lack of capacity. This means your business is growing steadily, and new employees are necessary to scale operations.

• You lack certain expertise. Some tasks are outside your wheelhouse, and you’re not keen to learn another skill set, especially since it would distract you from what you’re already great at. By hiring an expert in a new area—logistics, sales, or programming—you invest in building a better process for your business.

• You want to tap into a new revenue stream, like launching a new product, adding services, or changing your business model. For that, you need time and expertise, which new employees can bring.

Generally, you should hire new employees when you plan to grow (i.e., increase sales volumes and velocity) and when you can afford it (i.e., offer competitive pay and cover social security payments for 12+ months). 

Ask yourself this:

• Do you have enough recurring work for a well-defined role? 
• Will delegating some workload save time or increase profit?
• Can you handle the ongoing employee costs?

If you nod to each point, you’re ready to hire the first employee. But if you’re unsure about your long-term plans or want payroll flexibility, hiring freelancers might make more sense.

Hiring an employee is better when…	Hiring a freelancer is better when…
✔️ You have enough recurring tasks for a specific role  ✔️ The work is a core part of your business operations  ✔️ You need specific skills for an indefinite period  ✔️ You’re ready to offer a fixed salary and employee benefits	✔️ You need someone on a temporary or intermittent basis  ✔️ The work is peripheral to your core business operations ✔️ You need niche expertise for a specific project  ✔️ You want to keep payroll flexible and cost-effective

How to hire employees for your small business

Hiring a new employee is about building an effective process for attracting, selecting, and choosing the right fit. 

If you’re unclear about what you can offer a potential employee or what you need from them, you’re setting everyone up for a major letdown. 

Instead, it pays to do some grunt work and adopt the following recruitment best practices, which are designed to save you time, money, and the awkwardness of dismissing poor hires. 

Identify the skills needed for the role

What are you looking for in a solid candidate? List the specific skills, experiences, and qualifications necessary for the role. Consider both functional skills and character traits.

Once you’re done, review and sort all entries into three buckets:

• Must-have
• Nice-to-have
• Bonuses

New and seasoned hiring managers often search for the perfect candidate—someone who ticks every box but likely doesn’t exist or may be too expensive to hire.

Create a fair compensation package

You have a limited payroll fund, so offering a lower starting salary may be tempting. But even the most passionate employees won’t stay long with small paychecks, and hiring new employees on a rotating basis comes at a high cost. 

Here’s a tip from our People Ops team: It’s smarter to offer competitive compensation from the get-go to attract and retain the best candidates.

To get a fair number, check the legal requirements at your local Department of Labor (acceptable minimum wage).

Then, browse public salary data for similar job titles on sites like Glassdoor or Indeed. Salary benchmarking tools like Ravio (Europe) and Pave (US) help you build personalized compensation packages using the latest market data.

That said, small businesses can’t always outcompete big corps on pay. But you can entice potential employees with other perks:

• Flexible hours and time off
• Mental wellness initiatives
• Salary advances
• Paid professional development
• Community and volunteering initiatives 

Many people prefer working for small businesses due to a stronger sense of community, greater influence on business trajectory, and local community impact. Emphasize your culture, values, and social commitments to attract the right talent.

Create your ideal candidate profile

A candidate profile is a snapshot of the person you want to see in the role. It includes a list of skills, competencies, and personal qualities a great candidate should have to excel in the job and fit in with other team members.

As a small business owner, you want people who have the chops, get your business, and align with your work style. To create a candidate profile, list:  

• Job-specific skills 
• Expertise and qualifications 
• Soft skills and character traits 
• Motivation and initiative 
• Personal values 
• Learning aptitude 

Create a detailed job description

A candidate profile is an internal hiring document encapsulating your “wants” and “nice to haves.” 

A job description is a public version designed to attract job seekers with preferred skills, experiences, and cultural qualities. A well-crafted job posting includes: 

• Eligibility requirements (e.g., age, location, licences) 
• Employment type (e.g., part-time, full-time, remote, hybrid, contract-based) 
• Compensation range (salary bands and extra perks) 
• Recruitment process overview (key steps and estimated timeline) 
• Role description (e.g., duties, responsibilities, performance expectations) 
• Candidate requirements (e.g., years of experience, qualifications, skills)  
• Any extra legal requirements (e.g., a background check or work permit) 
• Details of your company culture 

The goal of a job description is to “sell” your new role to the right “buyer.” To do so, drop the jargon in favor of simple, relatable language to describe what your company does.

After all, you don’t need a person “building cutting-edge digital solutions” but rather someone who can “improve the UX of an e-commerce app.” 

Assess candidates for real skills

In a small business, everyone’s input is visible. You want people with real skills, not just fancy resumes and strong interviewing skills.

Another great tip from our very own People Ops team at Toggl: One simple way to improve your recruitment process is to adopt skills-based hiring.

Skills-based hiring uses competency assessment methods like skills tests, homework assignments, and case studies to verify if candidates have the right chops for an open role. It doesn’t fully remove resumes or interviews but provides hiring managers with more reliable data on candidates’ abilities and future job performance. 

For example, product development studio Mooncascade narrowed down 246 candidates to the top 6 in half a day using Toggl Hire recruitment software. With less time wasted on selection, you can focus on having quality 1:1 convos with the best fit(s) to secure your ideal match! 

Perform structured interviews

A candidate interview is not just a get-to-know-you chit-chat—it collects comparative data to assess each candidate’s strengths and weaknesses.

In a structured interview, you ask each candidate the same pre-defined questions and then evaluate their replies using a grading rubric for different skills and competencies. Instead of judging candidates’ answers against each other, a structured interview aims to assess each candidate’s thought process and abilities individually against the expectations.

For example, if your startup is hiring its first marketer, ask each candidate to “suggest three strategies for launching my new product” and evaluate their responses using the following rubric. 👇

	Poor (1p)	Mixed (2p)	Good (3p)	Great (4p)
Market understanding
Feasibility of implementation
Communication and presentation

Structured interviews measure specific skills, eliminate hiring bias, and gather more data for hiring decisions at the early recruitment stages. 

However, they’re not the best tool for better understanding the candidate’s personality or motivation for joining your company. For that, you may want to prepare some behavioral or strategic interview questions to ask during the final interview round. 

Don’t forget about soft skills

Soft skills like communication, teamwork, and adaptability are just as important as job-specific competencies. Low interpersonal skills lead to tensions and inefficiencies in teamwork. Lack of time management and independence results in low performance, while an employee’s lack of tact and emotional intelligence can hinder client relationships.

You can assess soft skills in two ways.

• During the hiring process. Create a soft skills test with a mix of open-ended or multi-choice questions to assess specific competencies like “self-management”, “problem-solving”, or “remote work readiness”. You can get ideas from our question library.  

• During the interview process. Ask situational and behavioral interview questions to understand how the candidate deals with some tricky situations. Use role-play exercises to assess communication, negotiation, and conflict resolution skills for customer-facing roles.  

Send out a clear job offer

The final and most exciting step in the recruitment process is making an offer to the top contender. 

A job offer is an official letter to the selected candidate(s) with details of the role, schedule, salary, and benefits. Although it’s not legally binding in most countries, it signifies your readiness to hire the person on the outlined terms. So, don’t make promises you can’t keep!

As a rule of thumb, give the candidate two to three work days to respond. A longer reply warrants a follow-up (and might indicate hesitation or a looming rejection).

To avoid such scenarios:

• Specify the compensation details, including base salary, pay schedule, bonus schemes, and all employee benefits (e.g., health insurance, paid overtime, etc.) 

• State the next steps like expected start date, and information needed for the employment contract and legal paperwork. Clarify other onboarding steps for the new hire.

• Encourage questions. Invite the candidate to request more information or clarifications about the employment terms, compensation package, or process steps.

Start new hire onboarding

Onboarding includes practices to help new hires settle in and ensure they have the necessary tools and information to succeed in the new role. A typical onboarding process has three key components: 

• Legal. Signing an employment agreement and all other relevant tax and legal forms, plus compliance training on policies, safety, or regulatory requirements.

• Orientation.  An overview of company organization, key processes, and responsibilities to get up to speed on the way things are done.

• Culture. Introduction to the company culture, values, and mission, as well as the current social environment of the workplace.

Use software to streamline most of the legal and orientation onboarding steps and focus more on transferring the company knowledge during 1:1 and team meetings.

Common hiring mistakes most small business owners make

Over the years, we saw small businesses successfully grow from a team of one to a team of a hundred (ours included!). But most of the journeys (again, ours included) have not been one without some hiring mistakes.

Here are the top goofs to avoid.

Don’t rely only on resumes to make hiring decisions

A resume is like an Instagram profile—it often gives us a glossed-up ‘preview’ of the person behind it. While a resume gives an idea of the person’s career progression and competencies (also available on LinkedIn), it doesn’t always reflect their real skills, aptitudes, and personal traits. 

Also, some important soft skills like problem-solving or high emotional intelligence are hard to convey in words. Candidates with relevant skills but non-traditional career paths may slip through the net entirely. 

To make a more informed choice, create a holistic candidate evaluation process combining skill assessments, test assignments, and interviews to progressively narrow down the pool of potential candidates using objective criteria.

Don’t forget to communicate with candidates throughout the process

Consistent communication at every stage of the recruitment cycle is key to building a strong rapport with potential hires and improving the candidate experience. Equally, these are essential for establishing your employer brand and attracting better candidates. 

Provide updates and feedback after every stage within a few days. Remember, a third of job seekers will assume they’ve been ghosted after one week of no coms and will move on with accepting a competing offer or worse—air their grievances publicly, deterring other applicants. 

Don’t forget to stay in touch with qualified candidates for future roles

When done right, your recruitment strategy will attract a ton of strong candidates for one role. While you may not be able to hire several people now, you can save yourself time by adding them to your talent pipeline.

With Toggl Hire, you can maintain an active database of pre-qualified candidates to fill new positions faster. You’ll skip publishing a new role to the job boards and go straight to speaking with vetted matches from the previous hiring rounds or candidate recommendations from our global talent pool.

Don’t forget to stay compliant

If you’re hiring for the first time, check in with your local labor and tax authorities. You may need to get an employer identification number. Also, register to pay workers’ compensation insurance and payroll taxes. 

Beyond that, you should also check your offer complies with regulations in the area of: 

• Equal employment 
• Wage and hour regulations
• Occupational safety 
• Employment eligibility 
• Pay equity and transparency 
• Privacy and confidentiality laws 

Don’t stop building a strong company culture

Your first few employees (and the experiences you create for them!) will form the norms and values defining your company’s culture. To shape them, integrate culture-building initiatives during hiring and onboarding by: 

• Educating new hires on company mission and values 
• Encouraging candid and transparent communication 
• Learning to spot and eliminate any sort of biases 
• Regularly checking in and seeking feedback during onboarding 
• Investing in team-building activities as the headcount grows 

For 92% of employees, culture strongly impacts their decision to remain with an employer. Happy employees are more likely to provide job referrals, further reducing the hustle of hiring new rock-star employees for your business! 

Create a smooth hiring process with Toggl Hire

Wondering how to implement the above recruitment best practices without breaking the bank or twisting your brain? Try Toggl Hire—the recruitment software built for small teams requiring fast results. ⚡

You don’t need to be a tech whizz or have a decade of experience in human resources to attract 10X more qualified candidates or halve the time to hire. 

Our app is simple (and free,) offering a simple, slick interface, loads of customizable templates, and step-by-step workflows to support full-cycle recruitment—from job creation and posting across job boards and social media to skills assessments, video interviewing, and savvy hiring automation. 

Create a free account to see how Toggl Hire simplifies recruiting.