A Small Business Guide to Hiring Your First Employee - Page 2

By Pam Baker
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Legal Advice on 'Hiring to Fit'

One of the things you should focus on is managing a new hire's expectations, starting in the interview process and moving forward. However the job description may not be enough, and both you and the prospective employee may make assumptions in the conversation that do not mesh. This can be a sign of trouble ahead. One way to offset that is to look for similar business cultures in the prospective employee's work experience.

"Assuming the hire is justifiable, I encourage my clients to look to candidates from smaller organizations because, on balance, those candidates tend to better understand the fluid startup culture. They have expectations that are more in line with the do-all job description and typically 'fit' better with the startup culture—which translates to lower transaction costs associated with the hire," says Nina B. Ries, principal of Ries Law Group.

Step-by-step Hiring Advice from HR Experts

"First, it's important to know the laws of your state. Make sure you have your workers' comp set up and unemployment registered with the state," says Beth Kahn, CFO and HR manager at eZanga, a search engine company. "And don't forget that you'll need a federal tax ID number. Your state's Department of Labor is a great resource for tools on getting started with all of these things."

How to hire employees for your small business

"It's also vital for you to do your research on Human Resource Management," she added. "The HR software I chose came with basic forms that we altered to meet the requirements of our business. Honestly, I learned a lot the hard way, and ignorance is not bliss. So now I have a spreadsheet of all the dos and don'ts."

  • Kahn's HR spreadsheet includes the following:
  • Get basic employee information to put into payroll system
  • Have employee fill out an emergency notification form
  • Obtain employee's direct deposit information
  • Have employees fill out I-9 and W-2 forms
  • Review employee handbook with new employees and have them sign a form acknowledging that they received all company policies and procedures
  • Have new employees sign a job description, so they know exactly what is expected of them
  • Show a sexual harassment video that explains what won't be tolerated in the workplace
  • Notify state Department of Labor about your new hire for potential wage garnishments—it's required by law

Sandra Powers, HR manager at LawyerReviews, also keeps a checklist to make sure she hasn't missed any steps. Powers' list includes:

  • Welcome letter to the employee
  • Provide employees with copies of the "Employee Handbook," and have them sign for it acknowledging that they understand the organization's policies and procedures
  • Any corporate disclosures should be explicitly explained, signed by the new employee and filed away for safe keeping by the company. Examples include: confidentiality and proprietary agreements, trade secret information agreements, background check and drug testing agreements
  • Obtain W-4 paperwork that indicates amount of money the employee wants withheld for tax purposes
  • Obtain form I-9 for Employment Eligibility Verification. A copy of the drivers license, passport, Social Security card, birth certificate, or permanent resident card may be needed for purposes of recording the identity of the new hire
  • The Affordable Care Act (ACA) requires employers give employees written notice of the health insurance exchanges
  • Provide employees with a brochure on company benefits, retirement programs, 401k contributions, etc.
  • Obtain payroll Information

You may want to adopt one of these lists, or some combination of the two, for your own needs.

Advice on Insurance and Hiring

There are lots of insurance rules that you must know and stay on top of from the moment you hire an employee. Too often small businesses and startups skip this part thinking they'll come back to it later. That's a costly mistake as penalties and fines can hit your business hard, as can any uninsured losses.

Small business owners on the cusp of hiring their first employee need to focus on two main items, according to Jon Schildt, founder and managing principal for an insurance brokerage firm called Calculated Risk Advisors.

  • Workers Compensation Insurance. "The minute a small business hires its first employee, state and federal laws require workers compensation insurance to be purchased on that employee," says Schildt. "This cost should be factored in to the overall cost of hiring."
  • Employment Practices Liability Insurance. "While workers comp is required, employment practices insurance (EPL) is simply prudent," he says. "This type of insurance protects the business owner for allegations of discrimination, harassment, and other misconduct towards their employee or potential hires. There can also be protection for wage and hour disputes. If the business hires an hourly employee, who feels he was incorrectly compensated for his time, a lawsuit could ensue. EPL insurance can be structured to provide a limited defense for the business."

Schildt acknowledges that small businesses must take a lot into account when hiring an employee, and they stand a lot to lose. "These risks can be transferred through good hiring practices, internal controls and insurance," he says.

But there are other insurance considerations as well.

Kevin Barnicle, founder and CEO of Controle, an IT/legal consulting and software firm, has some helpful advice and experience to offer regarding employee health insurance.

"Obviously this depends on if you are going to offer health insurance. But if you decide to offer it, you need to determine how much of the bill you as business owner are going to pick up," Barnicle said.

Typically, Barnicle, says, companies pay somewhere between 40 and 70 percent of the total cost. He believes health insurance is not an area where you want to skimp.

"Someone is taking a risk by joining you, and if you are a one-person shop you want to make them feel as comfortable about that risk as possible. Making health insurance a non-issue goes a long way."

Taxes and Hiring Employees

Yes, you need to be aware of the taxes associated with hiring employees, but they're not as scary to deal with as many fear. Before Barnicle began his own business, he spent a lot of time worrying about managing the tax burden, and everything entailed with it. It turned out to be less complicated than he thought.

"There are many resources available to help you figure out what your real requirements are—including the IRS, which I found surprisingly helpful—and tools, such as Quickbooks, to assist managing it all," says Barnicle.  "If you still feel overwhelmed you can meet with an accountant or a tax attorney for a single session for less than $200. Just make sure you come prepared with questions."

Pam Baker has written for numerous leading publications including, Institutional Investor magazine, CIO.com, NetworkWorld, ComputerWorld, IT World, Linux World, Internet News, E-Commerce Times, LinuxInsider, CIO Today Magazine, NPTech News (nonprofits), MedTech Journal, I Six Sigma magazine, Computer Sweden, the NY Times, and Knight-Ridder/McClatchy newspapers.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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This article was originally published on August 13, 2014
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