Want to recruit my first employee, what do I need to do?

Hi John,

The IRS doesn't say anything in their notice about WHERE an employee works. It's more about direction and control of the work. I often see on-site contractor jobs published in job posting sites. So it's more than the "where".

http://www.irs.gov/newsroom/article/0,,id=173423,00.html

Employee vs. Independent Contractor – Seven Tips for Business Owners

IRS Summertime Tax Tip 2010-20

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. The IRS uses three characteristics to determine the relationship between businesses and workers:

* Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

* Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.

* Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.

4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

.

Frances
so glad you brought up the issues regarding Contractors - the independent contractor employee myth.. John, the reason that the IRS AND DOL are both hiring over 300 people in each department to crack down on misclassification, is because the reality there is no such thing as an independent contractor employee. and though it is rampant misclassification, the practice is illegal. Many will argue this point till they are blue in the face- they want to have employees, but not pay the necessary costs.. Social security, unemployment taxes, and so on.

Question to ask yourself, if it was such a Great idea, then why are Not ALL the companies doing it.. then hopefully the lightbulb will go off..

To best summarize. One is either a Contractor, or one is an employee.. One CANNOT be both * (caps for emphasis) - only one or the other.

-- what exactly is a contractor? well 7-11 is a contractor, your supermarket is a contractor; your lawyer is a contractor; your doctor is a contractor; the person who paints your house is a contractor

- A contractor is an independent business whom you pay a specified amount for specific work to be done (hourly or lump sum) - there is no salary.
- They have their OWN clients
- A contractor Has no boss and the general rule is that the client only can Direct the RESULT of the work done by the contractor - not the means, or methods in getting to the final results
- A contractor doesn't attend meetings, follow procedures, rules, and they can do what they want, when they want, because they want to.. and don't have to ask permission to do so..

I have several documents on hirecentrix.com that really help with regards to this information -- one amazing one is Independent Contractor (Self-Employed) or Employee? Information to avoid Misclassification http://bit.ly/9g7sfa

Hi John,
make sure you are very clear on what type of person your are looking for, have a clear understanding of all legal issues when becoming an employer - your responsibilities, have a good understanding of employee rights, have a clear Job Description, ensure your remuneration & compensation meets industry level or above (this allows a good presentation of candidates), ensure clear working hours and Overtime agreement, holidays, special leave, etc. Have clear payroll standards, payment times, advance payment regulation and reimbursement. Ask a Lawyer when drafting the contract, ensure a probation period. Also get legal advice for corporate standards, ethics and Code of Conduct (this ensures things are clear from the onset of the relation and you are covered as employer; this being part of the contract. When advertising, make sure the add is clear, direct and to the point. The work environment needs to meet industry standards. Ensure you have sufficient capital in case you have to close down for eventual payout and compensation (normally 18months salaries). When interviewing, ensure you are basing the interview on competncies and skills and don't asked the 'no'-Qs, as they are discriminating and can get you into great difficulties. Feel free to ask more. Good luck.

Hi John,
I would add to what Anke said that you also need a strong mission statement for your business.
Your Mission statement should contain the code of conduct and ethics of the company.
The environment in which people will work in the company i.e. open communications
It should also state how the customer/vendor/suppliers and guest will be treated by the company internally and externally.
This presents a code that everyone including yourself will live by while working for the company. It will tell potential employees what will be expected of them as an employee and what they can expect working for your company.
This will attract employees with the same values. Then you can concentrate on skill sets and personality.
You must also ask yourself if this is the person who can do the job for future projects not just the immediate ones.
Best of Luck John. I wish you success.

Thanks for your time on this. All this to take care of before hiring someone certainly is enough to scare a startup !

Guess what we need immediate advice on is : once we identify the right person, what should be the next steps? We intend to hire 5 people.

You need to clearly state the mission of the company, the goals, what is to be achieved, clearly state expectations and how achievements are being measured, time span; phasing the new staff into the jobs (takes between 3-6 months, recommended a buddy program or coaching), allow errors / trial & error periods, guide the new staff member(s), have regular meetings: team meetings, etc. Have a simple Performance Management System - allows a good understanding of expectations. Someone with HR experience is certaily an advantage, as such a person will know how to best guide and advise.
Most important: communication and empowerment/staff engagement. It works best in a smaller company to obtain a partnership rather than a supervisor/subordinate working environment.
Hope this helps. Once again, good luck and ask if you need more help. Ann

1.Find a person who can complement YOU! Each of us has a limitation ; it helps to choose some one who can negative our weaknesses!

2. Someone who has the potential to scale up to higher responsiblities -as the operations become bigger & complex

3.It is imperative the person must be able to quickly learn, unlearn & relearn, as the world is a dynamic place.

4. A sense of humour :-)!

thanks again, I am looking for some specific suggestions; do I need a company like paychex to start with , what else? Like I said,I have shortlisted the people I want to bring on.

John:

Payroll can be confusing. Paychex is good. Quickbooks also has a service you pay for monthly that helps simplify, along with the QB software, managing the 'burden' (taxes) associated with payroll. We have 12 employees and use it and it works well. Of course the Quickbooks part is critical. You must use something to manage the accounting side.

I would take every other comment above to heart - they all appear to be feedback from earnest business people speaking from experience. Anke's tips on clearly stating your mission and expectations, putting performance mgt systems in place prior to hire, actually everything she said, Joseph, Achyut, and Karen's feedback - wow, you probably could have paid for all that advice. Put it all down on notecards on your conference table and see if you start seeing the value in each comment. Prioritize them and spend time to organize your thoughts and plan. Organizing will pay dividends.

And have FUN!

Boy this sounds scary. I work with high-tech startups and most of them start staffing up by using contractors while they set up their systems and decide who they really want to hire. The IRS has specific rules about the difference between a contractor and an employee:http://www.irs.gov/newsroom/article/0,,id=173423,00.html. The main elements are that a contractor works their own hours, under their own direction, and is able to work for others.

Contractors provide flexibility that is often a good match for startup companies. Each gets to check the other out before a more formal relationship is established. With a contractor, you but don't need to set up a payroll, pay employment tax, workman's comp insurance, benefits, etc. You just have them give your their social security number and send them a 1099 at the end of the year. My company uses several contractors which makes our team able to expand and contract based on client demand. This system works out great for everyone.

I have worked with some people in this arrangement, however, they are working from home. Now, when we want people to work from our office, to keep the status as a contractor would be difficult , wouldnt it?

John,

Before you hire your first employee, get all the set-up out of the way. Here are some steps that are essential that are often put off until the last minute.

1. You must carry Workmen's Compensation insurance whether through a state pool or an insurance provider. Check with your state for their requirements.

2. A bank account for depositing withholding, SS and medicare payments from the employee as well as your contribution. The bank can set it up to auto pay to the government and let you know how often you need to pay out the funds deposited.

3. Make sure you have the required state and federal posters that you need to display such as information on Workmen's Compensation, any pertinent OSHA posters and many more. For a list of federally required posters go to www.dol.gov/elaws/. Check with your state for posters they require.

4. Determine if you are going to verify their employability status manually with the accepted list of ID, Form I-9, or use the e-verify system. http://www.dhs.gov/files/programs/gc_1185221678150.shtm. The system is free but you have to sign up and do some online training before using it. To be absolutely legal and fair with this system, run your own information through it as well.

5. Determine if your employee will be exempt or non-exempt from overtime pay. The rules can be found at www.dol.gov/esa/whd/.

For further information on pre-planning for your first hire, please read my article at http://www.2womenentrepreneurs.com/index.php?/Employees/employees-pre-hire-pl.... 2 Women Entrepreneurs is a free website for women (and brave man) dedicated to helping people start and grow their business legally and ethically.
5.