Hiring Your First Employee? Remember These Steps
Many businesses, both new and established, grow to the point where the owner needs to hire his or her first employee. Usually this is because the workload becomes too great for one person to handle, and additional staff can help with specialized tasks or take on some of the work that the owner also does.
If you are not sure about whether to hire a “real” W-2 employee, you may decide to engage an independent contractor for a period of time. That is one possible solution, but make sure that person meets the test for an independent contractor, or else they will be considered an employee, (see my earlier blog article on determining when someone is an independent contractor). You could also bring on a temp through a staffing agency, which has less of a commitment.
If you do decide to hire a full or part-time employee, there are certain steps you must follow to comply with federal and state law and regulations, and to minimize the changes of a later claim or lawsuit by the employee for some reason. This article will outline some of those steps.
“At-Will” Employment
In every state, unless there is a written contract setting out the terms of employment, employment is considered to be “at-will.” This means that either the employer or the employee can terminate the employment, for no reason or any reason, as long as it is non-discriminatory (race, religion, gender, or other protected status). When you hire someone, you should provide them with a written offer letter—not an email—that sets out such matters as salary, benefits, start date, etc., but also states that the employment is “at will” and not a contract of employment, which can be difficult to terminate. An attorney can help you draft this language.
Employee Handbook
Even if you have only one or two employees, it is advisable to have an employee handbook. This need not be a lengthy document, but it serves several purposes:
- Sets out workplace expectations, including prohibiting harassment and other policies
- Describes benefits and terms of employment, including hours of work, time off, etc.
- Reinforces that employment is “at-will”
- Provides guidance if an employee has a question or grievance
Authorization to Work
The federal government has tightened enforcement around immigration status, and employers can be penalized if they employ persons not authorized to work in the U.S. You must have every new hire complete an I-9 Employment Eligibility Verification form, and examine the necessary documentation and note it on the form.
Background and Drug Tests
Employees who are impaired by alcohol or drugs (including marijuana where use is legal under state law) can negatively affect workplace safety and morale. Private employers are not required to do pre-employment testing, or testing during the course of employment, but it is good practice especially if employees are operating machinery or equipment. Background checks are also a good idea. They may be required in certain industries or positions, but even so, you may want to know more about a prospective employee’s background to minimize the risk of theft or fraud, as well as the risk of negligent hiring claims (for example, hiring someone with record of prior workplace violence or harassment, that you could have discovered with a background check).
Interview Process: Do’s and Don’t’s
Job interviews give the employer and the applicant a chance to ask questions, learn about each other and assess whether there is a good fit for the position. Employers have certain restrictions on what they can ask during interviews, however, or risk violations of laws on privacy and discrimination. Here are topics not to ask about:
- Race, age, religion, marital status, gender or sexual orientation, ethnic background, national origin
- Past arrest record
- Type of military discharge
- Past salary history (some states, although not Colorado, actually prohibit this)
- Other questions can raise claims of discrimination, such as:
- do you have children? (a way to find out about potential absenteeism or tardiness)
- Are you pregnant or do you plan to get pregnant?
- were you born here? (you can ask if the applicant is authorized to work in the U.S)
- What is that accent you have?
- When did you graduate from high school?
- Do you have a disability?
This can be a complicated area, and it is a good idea to review interview procedures with an attorney to make sure that interviewers avoid these questions and keep to those relevant to the position.
Insurance and Tax Requirements
Employers must carry workers’ compensation and unemployment insurance. Many private insurance companies carry workers’ comp insurance, which covers costs related to an injury or death that an employee may suffer while on the job. Unemployment insurance is paid into a pool that provides benefits to employees who lose their jobs for certain reasons, and the requirements can differ from one state to another. Once you have employees, you must also make certain withholdings from their pay: federal and state income tax withholding, Social Security, and Medicare (called FICA). The employee must fill out an IRS form W-4 and a similar state form for the withholding. As an employer, you also pay one half of the cost of Social Security and Medicare for each employee. Your accountant or a payroll company can assist with managing these payments.
Paying attention to these issues will make hiring your first employee a smoother process and ensure that your business is in compliance with relevant laws and regulations.
If you have questions or would like a checklist of steps to follow, please contact Mark Spitz at Spitz Legal Counsel LLC. Email: mark@spitzlegalcounsel.com. Phone: 720-575-0440.