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When hiring, employers are required to follow labor and tax laws. While this may sound confusing, employers across the country, from the smallest to the largest, prepare the right legal documents in advance to make this a much simpler process. You may want to group your documents into three primary categories:

  1. Pre-hiring documents.
  2. Hiring documents.
  3. Employee documents.

Pre-hiring documents:

Essential pre-hiring documents to prepare include a job posting and an Employment Application. When you have an open position, using a Job Posting Template keeps you focused on the job description and requirements.

Requiring candidates to submit an Employment Application, in addition to a resume, can help when it comes time to evaluate and compare applicants. Employers, however, may want to consider carefully reviewing their Employment Applications to avoid asking questions that may offend or violate the law, including those about family status, sexual orientation, or religion.

Hiring documents:

Before extending a formal offer, hiring, or on-boarding, there are many more important documents to complete.

Typically, after interviewing and selecting an applicant to hire, employers send an Employment Offer Letter. Sending a clear and understandable Employment Offer Letter can help you and your future employee get off to a good start. In your Offer Letter, you may want to discuss the terms and conditions of your job offer to make sure they understand what you are offering, including hire date, salary, benefits, and more.

An Employment Contract describes the terms and conditions of employment. This typically includes the hire date, salary, benefits, bonuses, additional agreements, and ability to end employment. Before asking your new hire to sign an employment contract, it can be helpful to have a lawyer review the agreement to make sure it complies with your state and local legal requirements, and that you are legally protected if the employee suddenly quits or does not work out.

Requiring new hires to pass background and reference checks are standard parts of the hiring process. When extending an offer, or before doing so, you may want to request a Consent to Background and Reference Check. Signed consent, or even providing copies of reports you receive, may be legally required in your state.

Depending on your industry and the employee, a Noncompete Agreement can help protect your business when an employee leaves your organization. These are usually intended to protect companies from former employees working for a rival or starting a competing business. Most companies can use Noncompete Agreements, but they are not allowed, or may be much more limited, in some jobs or states.

Employee documents:

Before an employee's first day, there are a few more legal requirements for employees. An essential form for onboarding new employees is IRS Form W-4. This tax form tells employers about an employee's tax filing status, amounts of credits and deductions, and any other data related to tax withholding. It is critical to make sure that you are withholding taxes based on the employee's guidance shown in Form W-4.

Additionally, filling out a Form I-9 to verify an employee's eligibility to work is a legal requirement that cannot be ignored. Failing to do so can result in penalties and fines.

Lastly, after hiring an employee, handing them an Employee Handbook that covers employment expectations, responsibilities, benefits, vacation, and other rules can help new workers learn about your specific policies and the do's and don'ts.

When it comes to hiring, independent contractors are not treated like employees, although both may perform tasks and services for your organization. When you hire an independent contractor, you typically do not control how or when they work. Also, unlike employees, contractors are not kept on the company's payroll, and federal, state, and employment taxes are not withheld from their pay.

You may want to make sure that you have the right legal documents in place when hiring contractors. While you can use some legal documents for both employees and contractors, such as a Job Posting Template or a Consent to Background Check, some documents are only for contractors. Here are some key documents to consider adding to your hiring processes for independent contractors.

Independent Contractor Agreement. An Independent Contractor Agreement outlines the contractor's scope, expectations, payment amount, schedule, and deadlines. You may, however, have your contractors sign a more industry-specific service contract, such as a contract between your business and a freelance web designer or bookkeeper. These legal documents contain rules for the job, such as the description and scope of work, payment terms, legal and insurance requirements, and more.

Non-Disclosure Agreement. If your contractors work with sensitive company information, or may be included on company communications, a Non-Disclosure Agreement may be critical to protecting your business's information and intellectual property.

IRS Form 1099-NEC. Like using Form W-4 for your employees, a tax record may be required when hiring independent contractors as well. Form 1099-NEC reports payment to non-employees, such as independent contractors, freelancers, gig workers, and any other non-employee service provider.

Notice of Contract Termination. A Notice of Contract Termination may also be helpful to have ready when hiring an independent contractor. This notice can help avoid an independent contractor accruing additional costs and billing you after a project ends.

Before an employee can legally start working, employers must complete Form I-9, which is required by the Immigration Reform and Control Act (IRCA) of 1986. Form I-9 confirms an employee's identity and whether they can legally work in the United States. Employers are required to have these forms completed and stored properly.

The employee must show that they can work in the United States by providing certain records proving their identity and legal status, such as passports, work authorizations, driver's licenses, Native American identification cards, military identification cards, and Social Security cards.

Because independent contractors are not employees, they do not require a completed Form I-9, unless they are working on a federal contract subject to special rules.

Employers may be able to save time by signing up for E-Verify, a government operated online system. E-Verify allows employers to electronically verify employees and their ability to work in the United States.

What happens if I let an employee start working before confirming they can legally work in the U.S.?

Suppose you hire a new employee who can legally work in the United States, but you did not E-Verify, forgot to complete the Form I-9, or did not complete it correctly. If you fail to correct the error, you could face penalties and fines from federal regulators. For example, in 2022, fines can range from $252 to $2,507 per violation.

You may also face unannounced inspections by the U.S. Immigration and Customs Enforcement.

If you hire an employee who cannot legally work in the United States, you may face penalties and fines under the Immigration and Nationality Act ranging from $250 to $3,200 per ineligible employee. Also, if you make a habit of hiring employees who cannot legally work, you may face criminal charges.

If you have more questions about essential legal documents for hiring employees and contractors, reach out to a Rocket Lawyer network attorney for affordable legal advice.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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