For any small business owner, knowing how to hire is just as important as knowing who to hire. A business that fails to implement smart, strategic, and legally compliant hiring procedures will create a number problems for itself, from missing out on the best candidates to possibly breaking the law. Although following best hiring practices may seem burdensome at times, there are a few steps you can take that will help your small business both meet its hiring goals and insulate it from legal liability in the process.
1. Get it in Writing: Make sure you get ALL employment agreements in writing (Rocket Lawyer's small business index found that lack of written contracts ranked high on the list of small businesses' mistakes). Other employment forms you may need are Work for Hire and Consulting agreement forms.
Use non-disclosure agreements - If the safeguarding of intellectual property rights is vital to your business, it is important to have your employees sign non-disclosure agreements (NDA). An NDA is a legal contract that specifies what material, knowledge, or information you do not want your employees to share with a third party. Such documents are vital for trade secret protection. Make sure that your agreements carefully outline and define what confidential information consists of in your company. If your employee or partner breaches the NDA, you can take legal action in court.
2. Be Specific: Specify the terms and conditions of employment with an Employment Offer Letter that confirms the employee's position, title, start date, salary, benefits, specified probationary period, a statement of the at-will nature of employment, etc. Differentiate between an employee (generally someone who works for a fixed wage and does not provide services as part of an independent business) and an independent contractor (an independent entity or person who provides services for a price). The misclassification of employees as independent contractors can result in serious penalties and legal liabilities.
3. Create a Handbook: Develop an employee handbook that includes benefits provided to the employee including: vacation, sick leave, personal days, holidays, maternal/paternal leave, flex-time, etc. It is also smart to outline company policies and reporting structures so there can be no dispute or confusion as to the processes and procedures of the company. Don't forget to include your company's protocol for social media: one bad tweet can cause an even worse headache and is totally preventable by informing employees of your brand's style and policy at the get-go.
4. Know the Law: Acquaint yourself with state and federal fair hiring practices and job discrimination laws applicable to employers, and create policies that clearly define and prohibit discrimination and unlawful harassment in the work place. For example, establish a no tolerance policy for racist, sexist, and other impermissible actions and/or language (see: Civil Rights Act 1964). Federal laws that prohibit job discrimination also include the Age Discrimination Employment Act, the American Disabilities Act, the Equal Pay Act, and the Rehabilitation Act. It's also critical to stay compliant with state and federal laws regarding the classification of workers (part-time vs. full-time, contractor vs. employee) and particularly wage and hour laws and regulations (minimum wage, overtime, working hours, etc).
5. Worker's Comp: Establish a legally compliant worker's compensation program--this can help a small business avoid costly lawsuits and out of pocket expenses, and protect them from workers suing the employer in the event of an accident. All 50 states have worker's compensation laws requiring employers to provide workers compensation benefits, although each state's laws vary. To keep track of changes in worker's compensation laws, it would be wise to review your program with your state's workers compensation office or your insurance broker.
6. Be Aware of Tax Treatment Differences: You must withhold from employees' earnings state and federal income, social security, and Medicare taxes as well as pay unemployment taxes on wages. You also must complete a W-2 form for each employee. For independent contractors, there are no payroll deductions to be made as contractors are not employees and therefore not on your payroll-employers have to give a W-9 to each employee to complete.
7. Consider Promoting from Within when Feasible: When you already have an employee that understands your company's goals and has a proven performance record, it may be better to promote from within. You will save time on training new employees, cut hiring costs by spending less time and money recruiting outside of your company, and be able to show other employees that they will be rewarded for their hard work. A study done by Matthew Bidwell, an assistant professor at the University of Pennsylvania's Wharton School, found employees that are hired externally cost about 20 percent more than employees hired internally for doing the same job and the external hires got lower scores on employee reviews.
8. Always Consult with An Expert: The scope and complexities of state and federal employment and labor laws can be daunting for even the most savvy and experienced small business owner. While the cost of consulting with a legal expert in the field may at first seem costly, it may end up saving you a great deal of headache and expense in the long run.
Lisa Honey is the Business Lead for Rocket Lawyer's Legal Documents business line. She left the traditional practice of law after seven years in commercial and civil litigation to join Rocket Lawyer. She's licensed in California, Texas and Arkansas.