Many solo entrepreneurs consider expanding their footprint by hiring employees for the first time. Growing your workforce provides scalability, invites innovation and expertise, increases productivity and revenue, and establishes business continuity. Of course, the higher the reward, the greater chance of risk. Adding and managing employees in your organization should be done correctly to minimize the possibility of experiencing financial, legal, or reputational impact.
Here are some of the considerations as you embark on hiring employees for the first time:
Know and understand employment laws: Familiarize yourself with the laws and regulations that apply at the federal level and in every state and locality where you will have employees, including wage and final pay laws, leave entitlements, pay transparency, protected classes, privacy considerations, marijuana, and health and safety standards. Post and distribute mandatory federal and state posters.
Obtain workers’ compensation: Workers’ compensation insurance is required even if you have just one employee. Make sure your policy is active in all states where you have employees.
Establish a payroll system: Set up a reliable payroll system to ensure accurate and timely payment of wages, direct deposit, and tax withholding and filing. In addition to obtaining a federal Employer Identification Number (EIN), you generally must register for state income tax and state unemployment accounts in any states in which you have employees. Employers are also required by federal law to have their employees complete and submit to the employer Form W-4, Employee’s Withholding Allowance Certificate that notifies the employer of the number of “allowances” to which the employee is entitled under federal tax law. Consult with a tax attorney, accountant, or payroll specialist to ensure compliance with tax obligations and reporting requirements.
Create job descriptions: Clearly define the essential duties of each job, including necessary knowledge, skills, and experience, and any physical requirements. Accurate job descriptions help you attract suitable candidates, ensure they understand expectations, and provide a useful reference in performance evaluations.
Classify employees properly: Misclassifying workers as independent contractors or exempt from overtime instead of nonexempt are common violations that lead to consequences including back pay, penalties, and legal fees. It’s crucial to understand the distinctions.
Advertise and hire carefully: Writing accurate and nondiscriminatory job postings is key. For example, writing a job advertisement asking for only digitally native applicants or new graduates creates the potential for an age discrimination claim. If hiring remote workers around the United States, comply with pay transparency laws that may require the published salary ranges in the job posting. And be sure to create an objective and consistent hiring process focused on job-related factors. Consider reference and background checks to increase your chances of a good hire. New Hampshire also requires you to provide written notification to the employee at the time of hire confirming their pay rate, benefits, pay period, and day and method of pay.
Maintain proper employee records: Maintain detailed records of your employees, including application materials, I-9 Form compliance documents, Form W-4’s, offer letters, payroll records, records of hours worked for non-exempt employees, records of on-the-job injuries, medical and insurance records, performance evaluations, disciplinary documentation, beneficiary information regarding benefit plans and other relevant employment history and state required documentation. Maintaining organized records is essential for compliance purposes and can be valuable in employment disputes or legal issues.
Unemployment and new hires: Some states, like New Hampshire, require a new employer to notify the state Department of Employment Security (DES) that it has begun to hire employees by completing an Employer Status Report, and also to report any new hires to the DES (or its equivalent state agency) on a New Hire Reporting Form. New employers should check the unemployment laws in the states in which they will hire employees to determine the necessary state unemployment agency reporting obligations.
Develop a written safety plan: Some states, such as New Hampshire, require employers to have a written safety plan, often depending on the number of employees you have. Check the law in the states where you will have employees to determine if your company must have one.
Consider seeking legal advice: Employment laws can be complex and vary by jurisdiction. Consulting with an employment lawyer can help you navigate the legal landscape, help to ensure compliance, and address any specific concerns or issues that may arise during the hiring process.
Due diligence, reliable resources, and careful planning will help enable new employers successfully minimize employment risks and enjoy a positive impact on their organization’s success and growth.