Hiring your first employee – part 3

This is the final installment of “Hiring your first employee” which began on Monday of this week.

Hiring even one employee (the first is the hardest) puts a paperwork burden on the business owner. It also requires budgeting more money than just the base pay. At a minimum, the employer is responsible for paying the employer’s portion of Social Security and Medicare insurance, and paying for workers compensation and unemployment insurance.

The employer is responsible for depositing withheld taxes in a timely fashion or risk large penalties and interest.

So, many business owners ask me, why not just hire the employees as independent contractors and avoid the paperwork and additional costs?

This may be a good idea if the individuals really do qualify as independent contractors. A partial list of qualifications includes: the person can work his/her own hours; the person is free to contract with other businesses; the person provides his/her own tools – such as computers. If you hire an individual to work as a “1099″ employee, be prepared to justify to the IRS that the person qualifies as an independent contractor. (1099 is the form on which annual payments to an independent contractor are reported).

A person you contract with to fix your computer, or install your phone system, or even comes in once a week to do your billing will probably fall into the independent contractor category. Someone who works part time but for whom you set the regular work times and hours, and who must work at your facility using your equipment, probably will not qualify as an independent contractor.

It does not pay to short-cut the process and call what should be an employee an independent contractor.

Please note that I am not qualified to give legal or tax advice. You should check with your legal and tax authorities before making a move to add a regular or 1099 employee to your staff.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com
will@limkemann.net

Hiring your first employee – part 2

So you have decided to hire your first employee, and have done a careful analysis confirming that it makes financial sense to do so. How do you go about recruiting and hiring?

I assume that you have a job description and personal requirements written down (see my first post on Hiring Your First Employee).

Now get the financial and legal things in order. Your accountant can help make sure you make the proper applications for city, state, and federal withholding tax authorizations, set up an unemployment insurance account, and a workers compensation account. Your attorney can give you the advice you need to keep from asking illegal questions (such as age) during the interview process, and other legal information that you should know before interviewing and hiring. Get a good job application form – these are available on the Internet and at Office Max – you attorney may also be able to supply one.

Now you are ready to recruit. The least expensive way is to network with colleagues, previous co-workers, friends and family who might themselves fit your requirements or know of someone who would be qualified. Often you can get results by placing an inexpensive want ad in a local weekly newspaper. If the job is quite specialized and you believe that you need to draw from a wider geographic area, then on-line job sites like Monster.com may be appropriate, and more expensive.

Depending upon the type of job, you will get resumes, or people will call for appointments for job interviews. Use the telephone for pre-screening to save your time and theirs. Through some well placed questions you should be able to determine if they meet be basic requirements you have set for the job.

Hopefully you will get several candidates to choose from. Normally you do not want to settle on the first candidate until you have had a chance to compare with others.

Once a candidate has shown oup for an interview, have them fill out an application form. Remember that a resume reflects only the best that a candidate can offer. The application form will often tell another story. Set a ground rule that everything on the application must be filled out – and failure to do so may in itself be grounds for disqualification. Why? First, failure to provide information may indicate a problem the candidate does not want you to know about. Second, failure to follow instructions at this crucial time may indicate a pattern that you do not want to see repeated once the person comes to work for you.

Interview the prospect asking questions about prior jobs. Determine what they liked about prior bosses, what the liked best about prior jobs, what they liked worst about prior jobs, and why they left prior jobs. Let the prospect also interview you – after all, you will be starting a relationship with the new employee. Also, sell your self and business to the candidate. In one of my early experiences in hiring, I found the perfect job candidate who would work out well. After he turned down my offer, I realized that I had done nothing to sell him on me and my organization.

Check every reference. Many businesses are reluctant to say anything that might be construed as negative, yet one question that usually gets closest to the truth is “Would you hire this person again?”. If the job requires handling cash or doing accounting work, you might want to do a credit check – which has to have the candidate’s permission. Poor credit could mean that the employee might have a propensity toward fraud if the opportunity were to present itself.

If you have not found a candidate that fits your qualifications and with whom you are comfortable, don’t just “settle” on the best one. Keep looking. There is someone out there.

Having found the ideal candidate, provide him/her with a written job offer. Again, you need to have help from your attorney to make sure the offer says what needs to be said. If, for example, the job entails dealing with confidential information or trade secrets, the job offer should include protection for you.

Once hired, make sure that the necessary forms (see your accountant), including the I9 form with proof of legal status in the United States, are filled out by the employee.

One final note. If the employee does not work out – it is to your benefit as well as the individual’s to terminate the relationship as quickly as possible.

Will Limkemann
Limkemann Business Advisors
440-871-0976
www.neobizadvisor.com