It’s a classic “good problem.” Your business is taking off and you can’t keep up. But if you’ve been running a one-man or one-woman show, hiring someone to help you may seem intimidating. While it’s true that you’ll be facing some new HR to-dos, it doesn’t have to be overwhelming. To get off to the right legal start with your new worker(s), here’s a quick-start guide to being your own Human Resources department. With a few preparations up-front, you’ll be reaping the benefits of your new helpers in no time.
What Kind of Worker Do You Need?
Before you get started, you need to understand a few distinctions. They’re important to the IRS, so they’ll be important to you, too.
Employee vs. Independent Contractor
First, you need to know whether you’re looking to hire an independent contractor or an employee. An employee does work for you on an ongoing basis, and you dictate how the work is done. They tend to work for you in the longer term–beyond an individual project. Independent contractors, on the other hand, are usually hired for individual projects. They are judged on the completion of a project, and the employer doesn’t dictate how they get the work done.
Hiring employees tends to be more complex, because you need to think about payroll taxes, as well as potentially providing additional benefits, like health insurance, unemployment, disability, vacation, etc. Independent contractors are responsible for providing their own benefits, and the employer isn’t responsible for payroll taxes.
Your reasons for choosing one or the other may depend on the type of work, and the amount of flexibility you want.
One caution: you cannot treat a worker like an independent contractor for tax purposes, and then treat that person like an employee in practice. You could end up being liable for payroll taxes later on if the IRS finds that you’ve misclassified your worker in this way. It’s best to have a chat with your financial advisor and scope out the tax consequences of your choice.
Whether you go with an employee or an independent contractor relationship, make sure you put it in writing with either an Employment Agreement or an Independent Contractor Agreement. That way your work relationship is crystal clear.
Exempt vs. Nonexempt
If you’ve chosen to hire employees, you need to figure out whether they’ll be exempt or nonexempt under the Fair Labor Standards Act (FLSA). This act ensures that certain (non-exempt) workers get a minimum wage and overtime pay. As a general rule of thumb, salaried professionals and managers are exempt from the FLSA, meaning that the minimum wage and overtime requirements don’t apply to those workers. To make sure that you’re classifying your employees correctly, visit the Department of Labor.
Get Off to The Right Start
When you’re ready to find your new worker, it’s a good practice to follow a certain procedure when it comes to hiring. Here are the basics.
To find the right candidate:
- Write a job description.
- Ask candidates to complete an Employment Application.
- Interview candidates (and make sure to avoid discriminatory hiring practices).
- Conduct background & reference checks (remember to get permission from the candidate with a Consent to Background and Reference Check form).
To make the hire:
- Write an Offer Letter (not necessary for independent contractors)
- Create an Employment Agreement or an Independent Contractor Agreement
- Have your new worker sign a Nondisclosure Agreement and an Employee Invention Agreement, to make sure none of your company trade secrets get leaked and to clarify ownership of any existing intellectual property.
- Have your independent contractors complete IRS form W-9, so you can report their earnings. Employees should complete a W-4 so you can determine how much payroll tax to withhold from their paychecks.
Keep Them Happy
Once you’ve on-boarded a new employee—assuming they are a good worker—it’s important to keep them around. And that means keeping them happy. Consider that finding that new employee takes time (translation: money). It pays to do a little legwork to ensure a good working relationship.
It’s smart to put your policies in writing with an Employee Handbook. You wouldn’t want your office to start looking like an episode of Mad Men, right? Your legal handbook covers the gamut: benefits like vacation and health insurance; disciplinary procedures; harassment and discrimination policies; safety; wages & working hours; and much more. Having all of this in writing also helps you comply with federal and state employment laws, while possibly giving you some amount of protection when it comes to an illegal termination lawsuit.
Besides the legal stuff, there’s lots you can do to make your workplace productive, and also fun for for employees. Here are a few ideas (hint: birthday cakes couldn’t hurt).
Get Help When You Need it
While you can do a good job of being your own HR department, it’s essential to know when you need more help.
- A trustworthy financial advisor can fill in the gaps when it comes to tax questions.
- A reputable accounting software can be a lifesaver when it comes to figuring out payroll.
- It’s always a good idea to find a business lawyer before you make your first hire, or anytime you have an unanswered legal question.
Visit the Rocket Lawyer Labor and Employment Center for more help.
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