How to hire employees for a new business
It is not possible to include all the complexities and legal rules pertaining to employees. MOBI does not give legal advice, but we recommend you maintain ongoing access to a labor lawyer. In this session, you will learn how to prepare for employees from job descriptions through legal considerations. Your success in finding, hiring, training and motivating good employees will play a key role in building a successful business.
- Step One: Before You Start
- Are you hiring an employee or independent contractor?
- Retain a payroll service provider or a
professional employer organization
- Have job descriptions in place
- Have a benefits package in place
- Determine overall costs of new employees
- Create an employee handbook
- Attracting applicants
- Interviewing practices
- Drug screening
- Americans with Disabilities Act
- Understanding workplace harassment
- Prevention of workplace violence
- Employment eligibility verification
- Selecting outstanding employees
- Legal considerations
- Growing employee skills
- Importance of retention
- How to retain good employees
Step One: Before You Start
It is not possible in this session to include all the complexities and legal rules pertaining to employees. Since employees play such a large role in achieving success, we recommend maintaining ongoing access to a labor lawyer to keep current on labor matters including hiring and firing employees. It is far better to avoid mistakes by securing legal advice before labor issues or claims are raised than to deal with expensive consequences later.
Your success in finding, hiring, training and motivating good employees will play a key role in building a successful business. Since payroll can be the single highest expense in operating a business, a mistake is especially costly when starting. A failure with your first employee will be harder to overcome than when you have many employees.
Employee or independent contractor?
You cannot assume that a hired person is an independent contractor rather than an employee. Unless a person falls clearly under the definition of independent contractor, you will be hiring an “employee” and will be responsible for withholding income tax, social security, and other taxes.
Or would it make more sense to retain a temporary employee through a temporary staffing company? If you do not have a stable operating budget, it is easier and less costly to end a temporary assignment than it is to lay off an employee.
Hire a payroll service provider (PSP) or a professional employer organization (PEO).
Payroll Service Providers: The growth of low-cost PSPs has made internally prepared paychecks no longer cost-effective, even for a single employee. Also, changes in reporting rules and tax requirements are increasingly more complex and without proper knowledge, it is easy to make mistakes.
PSP responsibilities include preparing paychecks, withholding and sending tax payments to local, state and federal tax agencies, preparing quarterly and annual reports to these agencies and preparing year-end employee information (W-2 forms in the U.S.) In the event of a bankruptcy, any unpaid withholding payments are not discharged and the government will look personally to the business owners for payment. Having payments made by a PSP avoids this risk.
Many PSPs provide other employee management services as well, such as administration of retirement and health insurance plans. Your PSP can become a cost-effective, outsourced Human Resources (HR) department! To select a PSP, schedule interviews with firms in your area and compare how they can meet your needs and their costs.
Professional Employer Organizations: PEOs enable firms to outsource management of all human resources including health and other benefits, payroll and workers’ compensation. Perhaps the greatest benefit is if you have employees in more than one state when payroll matters can become quite complicated.
Once a company contracts with a PEO, the PEO will then co-employ the company’s employees. The PEO and company share certain responsibilities and liabilities: the PEO assuming responsibility and liability for the business of employment such as payroll and employee tax compliance and the company retains responsibility for business operations.
Job descriptions. For each employee, you should write out a job description which clearly outlines the tasks and responsibilities of each position. The wording used must be carefully thought out to avoid potential problems such as: “This assignment is not in my job description!” Or a poor job description could limit initiative and creativity.
It is a mistake for a small business to think that benefits packages are only for big companies. High employee turnover is far more damaging to a small business than to a larger one and your turnover can be minimized by a good package. While you must exercise caution in not making promises that will be hard to keep in business downturns, here are some benefits you should consider:
- Health insurance is a must. A good insurance broker specializing in health insurance can explain options and costs.
- A retirement plan. Some plans such as the Simple IRA in the U.S. are designed specifically for start-up and small businesses.
- Paid vacation, holiday and personal days. You can tailor these days to what is offered by your competitors. If your competitors do not, you can build valuable employee loyalty by providing this benefit.
Budgeting for payroll expenses. Your payroll budget should include nonrecurring expenses such as “position available” ads, recruiter fees and investigative reports. There will also be expenses for employees’ tools such as computer equipment, furniture, mobile phone, travel expenses, etc. Your ongoing budget for payroll expenses should include the expenses you pay in addition to wages. Here is a sample budget spreadsheet.