eguide to small business hiring

7/28/2019 eGuide to Small Business Hiring

1/22

eGuide to

Small BusinessHiring
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2/22EGUIDE TO SMALL BUSINESS HIRING|

table o contents

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g 22



Running a business on your own means youre used to working long

hours and juggling lots o responsibilities. Whether your goal is to

reduce those long hours, to improve productivity, or to bring in new

expertise, hiring independent contractors or employees might be just

what your business needs to keep growing.

Building your team is an exciting step, but some aspects o hiring

and managing workers could pose a challenge i you jump in without

learning the basics. For example, youll need to:

Stay compliant with local, state and ederal employment laws

Decide whether to hire contractors and employees

Stay organized to manage all the aspects o your employmentrelationships.

It may sound like a lot when you rst start out. But i you take care

to check little legal boxes along the way, the whole process will be a

lot easier in the long run. Once youve covered yoursel with basic

employment agreements, handbooks and other solid HR practices,

youll be in an excellent position to make the most o your new

workorce.

This eGuide to Small Business Hiring will lead you through the whole

process. Above all, we want to show you how to get the legal basics

nailed down so you have more time to do what you do best.

Rocket Lawyer eGuide Disclaimer

This eGuide is oered or inormational and educational purposes only and should not be

construed as legal advice. The law diers in each legal jurisdiction and may be interpreted

or applied dierently based on your specifc actual situation. Use o the inormation in this

eGuide is not a substitute or the advice o licensed legal counsel in your state and you should

not act or rely on any inormation contained in this eGuide without frst seeking advice rom

your own attorney.

eGuIDe to HIRInG:

Building YourSmall Business Team

about Rocket

lawYeR

At Rocket Lawyer, were

making legal work easier

and more convenient or

everyone.

We know the law is

complex and mistakes can

be costly. We also know

theres no replacement or

a good lawyer. Thats why

weve developed easy-to-

use technology to help you

do more on your own, and

backed it up with a network

o Rocket Lawyer On Call

attorneys who are ready to

help when you need it.

Since 2008, weve used

this approach to help over

20 million small businesses

and amilies create legal

agreements, plan or the

uture, and eel more

condent.

Visit www.rocketlawyer.com
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When you need to bring in more help, the rst thing to gure out iswhether its best to hire an employee or an independent contractor. Inthis chapter, well explain what you need to know about this distinction,why its important to both you and your workers, and the potentialconsequences o misclassiying the people who work or you.

Its best to start by understanding the dierences between these twotypes o workers.

Employee: Someone who perorms services or labor or you on anongoing basis, and you control what will be done and how. Employeesstay on past the completion o each project. They tend to work at your

businesses location, using equipment and tools that you supply.

Contractor: Someone who perorms services or labor or you, but isresponsible only or the results, not how the project will be executed.A contractors work is usually done at the completion o each projectthere are no ongoing responsibilities. Oten they charge more, usetheir own equipment, set their own schedule and take care o their ownbusiness expenses.

Its a good rule o thumb to base hiring decisions not only on the type oworking relationship you want to have, but also your tax responsibilities.

wHY Its DIeRent

Since contractors are sel-employed, an employer is more like thecontractors client than their supervisor. That means the contractor isresponsible or paying taxes on their earnings. Independent contractorsalso dont get a lot o the same benets as employees: theyre not eligibleor unemployment benets, workers compensation, and social security.Plus, they dont get oered sick leave, vacation, health insurance, andany other benets an employer might oer to attract an employee. Thecontractor shoulders all o these costs since theyre treated like a sel-employed business.

All o this is ne as long as the independent contractor gets to be theirown boss as its intended. Problems can arise when employers want thebest o both worldsthey hire their workers as independent contractors,but treat them like employees, dictating when and how the work is done.Employers avoid paying payroll taxes and providing benets, but inessence they have an employee who they can manage directly.

eGuIDe to HIRInG:

Independent Contractoror Employee?

oR eMploYees

Youll neeD to:

Withhold state and

ederal income tax

Withhold Social

Security tax

Withhold Medicare tax

Pay unemployment tax

on wages

Complete a W-2 orm

or each employee

oR InDepenDent

contRactoRs:

You typically dont have

to withhold taxes

You have ewer reporting

requirements

You may have to le certain

orms (like the 1099-MISC)

to report payments made

to them



wHat Happens I You Get It wRonG

Say one o your salespeople has his own oce and works on commission.You have a second salesperson who works remotely and doesnt receivebenets. You decided to hire them as independent contractors, but basedon your working relationship, the IRS or another government agencymight classiy them as employees. I you misclassiy employees asindependent contractors, youll be on the hook or back payroll taxes,

plus nes.

To prevent that rom happening, make sure everyone is clear on thenature o the working relationship. Choose the designation careullybased on the above guidelines, and create an employment agreementor an independent contractor agreement to document it. Then remainconsistent with the classication. For example, i you treat workers likecontractors in practice (and dont pay payroll taxes) and then claim a taxdeduction or having employees, a tax audit notice is a lot more likely tocome your way. Workers can also make a complaint to the IRS i they eeltheyve been misclassied.

Keep in mind that someone who starts as an independent contractor canassume responsibilities that are more and more like an employee overtime. I you have a long-standing relationship with a contractor, considerbringing them on board ocially to avoid misclassiying them.

Well be ocusing on the employment relationship or the remainder othis guide. For more business tax inormation or inormation on workerdesignations, go to the Internal Revenue Service website.

MoRe Help RoM Rocket lawYeR:

Employment agreement

Independent contractor agreement

I you have a

long-standing

relationship with

a contractor,consider bringing

them on board

ocially to avoid

misclassiying

them.
http://www.irs.gov/http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/independent-contractor-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/independent-contractor-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.irs.gov/



Beore you even begin to drat a job description or that rst employee,you should understand the legal ins and outs o the hiring process.They say an ounce o prevention is worth a pound o curea sayingthat is very, very applicable to the employment process. The USDepartment o Labor estimates a bad hiring decision can cost 30percent o a businesss rst year earnings.

In this chapter well go over air hiring practices, writing a jobdescription, interviewing candidates, the job application, backgroundchecks and reerences, and extending a job oer.

aIR pRactIcesTo begin, its important to have a good sense o air practices in hiringemployees under ederal law. Keeping anti-discrimination laws on thetop o your mind helps protect you rom lawsuits that could arise romyour hiring decisions. Heres a rundown o what you need to know.

Anti-discrimination laws:

Prohibit employment discrimination based on race, color, religion,sex, or national origin.

Protect men and women who perorm substantially equal work in thesame establishment rom sex-based wage discrimination.

Protect individuals 40 or older.

Prohibit employment discrimination against qualied individualswith disabilities in the private sector, and in state and localgovernments.

Prohibit discrimination against qualied individuals with disabilitieswho work in the ederal government.

Prohibit employment discrimination based on genetic inormationabout an applicant, employee, or ormer employee.

Award monetary damages in cases o intentional employment

discrimination.

You can nd more inormation on job discrimination laws at the U.S.Equal Opportunity Commission website.

And dont orget to spread the word about these laws and practices tomanagers and other people with authority in your company to avoidany unnecessary misunderstandings. Outlining your company policiesin an employee handbook is a smart move too (well talk more aboutthis in the next chapter).

QuIck asIDe:

Keep the above laws handy

or the long term, because

they apply not only to hiring

employees but also when it

comes to termination andharassment issues. They also

apply to:

All classes o employees

Advertisements

Recruiting

Testing (like Meyers-Briggs

and other aptitude tests)

eGuIDe to HIRInG:

Recruiting &Making an Ofer
http://www.eeoc.gov/facts/qanda.htmlhttp://www.eeoc.gov/facts/qanda.htmlhttp://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065http://www.eeoc.gov/facts/qanda.htmlhttp://www.eeoc.gov/facts/qanda.html



tHe Job applIcatIon

Once the inquiries start pouring in rom candidates, youll want to havethe job application teed up (heres an Employment Application templateto get you started). Like the job description, a ew rules need to beollowed to make sure everything conorms to the usual guidelines. Hereare a ew pointers:

Include that you are an Equal Opportunity Employer and that

the job description or advertisement is not an oer or guarantee oemployment.

Drat a separate document asking the candidate or approval to conducta background check.

Make sure youre in compliance with the Fair Credit Reporting Act iyou want to run a credit check on a potential employee.

Try and run these documents by your attorney or Human Resourcesmanager. I your company is too small or an HR person, you mightconsider hiring an HR contractor.

tHe Job InteRvIew

Once youve selected a ew candidates that look great on paper, youllwant to bring them in or a ace-to-ace interview to get a better sense owho they are and how theyd t in with your company.

Remember: Its common to share private company inormation during thecourse o an interview. Beore you start talks, make sure every candidatesigns a nondisclosure agreement (you can get started with our nondisclosure agreement). In this document, a candidate agrees to keep yourcondential company inormation private, preventing your trade secretsand other proprietary knowledge rom getting in the wrong hands.

Once the nondisclosure agreement is in place, its important to keepeverything legal in the job interview to prevent misunderstandings andmanage expectations.

The interviewers rule o thumb: The law assumes that everything askedon an employment application or in the ace-to-ace interview will be usedin the hiring decision. Now that you know this, its smart to limit interviewtopics to only:

1. The job

2. The candidates qualications or it

Beore you get worried about what might slip out while having what isessentially a conversation with a job applicant, just ollow a ew basicrules and everything will be ne:

Circle back to the anti-discrimination laws we mentioned earlier andremember not to ask questions on those actors (e.g. age, race, disability,country o origin, etc.).

Avoid asking personal questions (e.g. politics, marital status, belies,etc.)

Describe the position accurately

Job DescRIptIon

Now that youve gotten

amiliar with equal

opportunity laws, you

can start writing the job

description youll use to nd

your next superstar hire.

You want to accomplish two

main things here: (a) nd

the best candidate or theposition and (b) make sure

youre doing it legally. Here

are some dos and donts

beore you drat the job

description:

D: List the jobs

responsibilities (e.g.

what the job supports

and what the employee

will be doing).

List the jobs qualications

and requirements (e.g.

technical skills required,

education, etc.).

Include that you are

an Equal Opportunity

Employer and that

the job description or

advertisement is not an

ofer or guarantee o

employment.

D: List requirements that

cover gender, age, race,

etc. and would violate

anti-discrimination laws.

For example, its better

to say youre looking or

an energetic entry-level

employee, rather than a

young and eager person).
http://www.rocketlawyer.com/document/employment-application.rl?utm_source=1065http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-knowhttp://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-knowhttp://www.rocketlawyer.com/document/employment-application.rl?utm_source=1065



Avoid making predictions about the health o the company, stockvalue, etc.

Avoid making statements that could limit your right to hire orterminate employees down the road (e.g. telling an applicant thatemployees never get red, or example).

In a nutshell, i you keep in mind that the law protects individuals rombeing discriminated against in the hiring process, it will help you hone

your questions and interview style to stay ocused on (a) what the jobrequires and (b) whether the applicant has the skills to ulll the position.Anything else is not a matter or discussion. Its as simple as that.

tHe backGRounD cHecks & ReeRences

Ater the interview is a good time to check reerences and do a simplebackground check. Remember to get written approval rom the applicantbeorehand to prevent any legal headaches (heres a background andreerence check consent orm you can use). Once you have this approval,you can hire a company to do the background check, which coversthings like:

Educational background

Employment history

Driving records

Criminal records

Financial history

I anything unusual or negative shows up in the background check,make sure to keep solid records in case any issues arise rom your nalhiring decision. And i your decision to not hire an otherwise goodcandidate is based on this background check, you might want to consult

an attorney beore making that move just to make sure all your bases arecovered.

Next stop is reerences, which to some might seem like an aterthoughtin the process. On the contrary, its an excellent opportunity to get somemuch-needed perspective on a candidates personality and work ethic.When asking or reerences, try to get the candidate to cast a wide net,covering:

Bosses

Coworkers

Direct reports

Third parties (like vendors or other outsiders the candidateworked with)

As with the background check, youll need to get some clear, writtenand signed documentation rom the candidates allowing you permissionto contact these individuals. And as always youll want to check yourEqual Opportunity checklist to ensure youre not asking discriminatoryquestions.

tIps oR cHeckInG

ReeRences:

a -dd qi:

You want to glean as much

ino as possible on the

applicant, which yes andno questions cant really

help you with.

li i:

Some reerences might

sound more enthusiastic

about some things than

others, which can help you

choose your questions

wisely.

Ghr d:

This is a great opportunityto veriy employment

history, duties and

responsibilities o your

applicant.

Ghr qii i:Ask

questions that give you a

sense o the candidates

work ethic, communication

skills and other personal

qualities.

t : Whileeverything should be kept

condential to respect

everyones privacy, a little

record keeping can protect

you down the road.
http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065



tHe Job oeR

Congratulations! Ater much searching, advertising and due diligence,you ound the right person to help you move your company to the nextlevel. Whether you tell the lucky individual in person or over the phone,an oer letter will be necessary to make everything ocial.

And i youre in the position where you need to negotiate the terms,youre not alone: The 2012 Business Journals survey o 2,200 revealed

that contract negotiations are one o the top legal hurdles when hiring.But dont let that discourage you. Just keep an open mind and expect thecandidate to come back with a counter-oer. Your goal is to come to anagreement that satises you and the uture employee. Sometimes it worksout, and sometimes you have to go back to the drawing board, but thatspart o the process. As with everything, i you need a little guidance, anattorney can be a big help.

welcoMe aboaRD anD oeR letteR

When you and the employee come to an agreement on the terms o thejob, put it in writing with an employment oer letter (ouremploymentoer letter is easy to customize).

Be sure to sign the oer letter and provide two copies with instructionsor the candidate to return the letter.

Now youre ready to welcome your new hire on board. Its a good timeto start a personnel le and include copies o all o the documents wevecovered so ar. Keeping detailed records will help prevent any potentialmisunderstanding down the road.


Employment applicationNon disclosure agreement

Consent to background and reerence check

Employment oer letter

HeRe aRe tHe

basIc eleMents

o YouR

welcoMe letteR:

th ii

1. Position name

2. Organization name

3. Supervisor name & title

4. Start date

5. Copy o job description

sry d f

1. Annual salary and

payment terms

2. Benets (medical, dental,vacation, IRA, etc.)

3. Other benets (e.g.,

bonuses, relocation

expenses, severance)

J rrm

i

1. Frequency

2. Person conducting them

3. Group reviewing them
http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-application.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/consent-to-background-and-reference-check.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-application.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-offer-letter.rl?utm_source=1065



Now that youve successully tackled the recruiting and hiring process,its time to welcome your new employee on boardand it couldnt be amore exciting time. Not only will this new person help carry the heavyworkload, he or she can bring a burst o energy, resh perspectives andnew skills to your business.

To make sure everything starts o on the right oot, its a good idea todo a little prep work to ensure that the new workers rst day starts olegally sound and sets the tone or years and years o productivity andpositivity. In this chapter well walk you through employment policies,government orms and reporting, employment agreements and recordkeeping.

tHe eMploYee HanDbook

Keep in mind that your rst new employee could be one o many youadd to the team as the business grows. Thereore, even in these earlystages, some comprehensive documentation will set expectations orboth the employer and the employees and build a oundation or uturegrowth.

Simply put, you need an employee handbook.

Whether nicely bound in a book, punch-holed in a binder or printed

and stapled, an employee handbook basically documents your HumanResources policies. Every employee handbook should make clear:

1. What you expect rom the new employee

2. What the new employee can expect rom you/the company

3. Your legal obligations as the employer

4. The new employees rights and responsibilities

A well-written and comprehensive document can also provide youwith some legal protections in the unortunate event that an employee

decides to sue your company or termination, discrimination, orsomething else.

But its not just about covering your own interests. Keep in mind thatthe employee handbook is a useul tool or keeping employees happy,recruiting new talent, etc. by highlighting what a great workplaceyouve established. So, dont orget to include the good stu.

eGuIDe to HIRInG:

Your EmployeesFirst Day

tHe eMploYee

HanDbook

An employee handbook

should include:

1. What you expect rom the

new employee

2. What the new employee

can expect rom you/the

company

3. Your legal obligations as

the employer

4. The new employees rights

and responsibilities



InsIDe an eMploYee HanDbook

Here are the general components o an employee handbook. All o theseelements are important, but the parts with the biggest potential impactare listed rst:

Harassment & Discrimination: This section should list your companysequal opportunity workplace policies, outlining:

a. Your equal opportunity employer position

b. Your zero-tolerance or harassment or illegal discrimination in theworkplace

c. Your process or employees to report such violations

d. Your process or responding to these claims

e. The act that employees wont be punished or making such claims

Saety & Security: This section will cover your policy or establishing asae workplace or all employees, including your companys compliancewith ederal and state health and saety laws. Here you might need asecond pair o eyes rom an attorney, but in general you want to cover:

a. Your pledge to create a sae working environment

b. Your employees responsibility to ollow physical and IT policies orsaety and security

c. Your employees responsibility under ederal law to report tomanagement all accidents, injuries, hazards, etc.

d. Any additional policies concerning extreme weather or hazardouscommunity conditions

Wages & Working Hours: You want to make especially clear all mattersconcerning your employees pay, pay categories (ull-time, part-time, etc.)

and time spent at work, including:

a. Working days and hours

b. Timekeeping

c. Breaks and meal times

d. Pay periods

e. Tax withholding

. Benets withholding

g. Overtime pay

h. Salary increases

Behavior & Conduct: This section should cover a airly wide range otopics concerning your expectations about employees behavior andconduct while working and interacting with you, other employees andindividuals outside the company. Here you can address:

a. Attendance

b. Tardiness

c. Dress code

d. Condentiality

e. Personal calls

. Internet use

g. E-mail conduct

h. Drug/alcohol policy

But thats just or starters. Depending on your companys personalityand needs, youll be able to modiy as needed. Is it just a phone-basedbusiness? You might not need a dress code. Do you promote fexible

eleMents o an

eMploYee HanDbook

Harassment &

Discrimination

Saety & Security

Wages & Working Hours

Behavior & Conduct

Employee Benets



hours or a work-rom-home policy? You can make that clear as well,too. On the other hand, i youre a government contractor dealing withsensitive inormation and people, you might need to add some veryspecic details in this section.

Employee Benets: Heres where you can outline the parts o the jobthat attract new employees and keep them enthusiastic about itthedetails (and eligibility) or your companys benets program, including

those required by law (disability insurance, workers compensation andCOBRA) and those you could provide, like:

a. Health insurance

b. Retirement

c. 401k

d. Tuition reimbursement

e. Paid vacation

. Holidays

O course, there are other topics you could (and probably should)cover in your employee handbook depending on the nature o thework involved, like use o company property, leave policy and mediarelations. Visit Rocket Lawyer and well walk you through creating anemployee handbook, step-by-step. Once youre done with a drat, you

might want to run it by an attorney to make sure everything checks out.

eMploYee papeRwoRk

For your new hires rst day on the job, youre going to make sure thatthey eel welcome and excited about the new workplace, but thereare also a ew documents youll want to have them sign to make sureeveryones on the same page and that the governments requirementsare met.

There are several orms to have ready:

Form I-9This document veries whether an employee can legally work in theUnited States. Be sure to make copies o the legal credentials youremployee provides to veriy eligibility (i.e. passports, green cards, birthcerticates, etc.).

Form W-4

This orm tells you how much ederal income tax to withhold rom youremployees paychecks.

New Hire Reporting

Employers must notiy the state o new hires. Each state has its own

requirements or reporting new hires, so you might want to check withyour specic agency.

Employment Agreement

This is probably the most important document or hiring an employee.An employment agreement lays out the terms and conditions o the joboer and employment relationship.

eMploYee

papeRwoRk

There are several orms to

have ready:

Form I-9

Form W-4

New Hire Reporting


Employee invention

agreement
http://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-invention-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-invention-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-invention-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-invention-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-invention-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/View-Legal-Document.aspx?url=http%3A%2F%2Fwww.rocketlawyer.com%2Fdownload%2Fi-9_e.pdf&utm_source=1065http://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065



Heres an employment agreement template to get you started.Remember that both the employer and employee should sign theemployment agreement to make everything ocial.

Employee Invention Agreement

I youre developing products, designs or other intellectual property,have everyone sign one o these, which states that the employerowns any inventions developed during the employees time with the

company.

Or, it could state that the employee owns what he or she invents. Itjust depends on what you want here (you can customize our employeeinvention agreement or your needs).

Quick tip: In addition to the employment agreement, youll also needto make sure the employee reads and signs the employee handbookdetailed above.

RecoRD keepInG

Now that all the orms have been signed and sealed, its a smartmove to have designated les or each employee containing all thesedocuments. In case an issue arises at some point with your new hire, itsokay to take the kitchen sink approach here, ling away such thingsas:

The job description

The job application

The signed employee orms

Signed employee handbook

Perormance evaluations

Warnings or disciplinary actions

Any contracts

Employee benet orms

Every year or so youll want to comb through these records to makesure theyre up to date and maintained. Above all, your recordkeepingbased on a well-documented and legally sound rst day atworkshould make your employer/employee relationship smoothsailing or years to come.

For more guidance on ederal labor laws and contact inormation orstate agencies, visit dol.gov.


Employee handbook

Form 1-9

Form W-4

Non disclosure agreement


Invention agreement

Employment oer letter

eMploYMent

aGReeMent oRMs

oten IncluDe a:

Non disclosure agreement

General statement o

eligibility or benets plan

Noncompete agreement

Rate o pay

Severability clause

Specied probationary

period

Starting date

Statement o at-will

nature o employment

Title o position

Any other state, industry-

specic, or company

required inormation

Statement indicating

that there are no

agreements between the

parties other than those

explicitly stated within the

agreement
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Once youve recruited

superstar employees

and gotten them

settled successully in

the workplace, youll

want to make sure that

your business stays incompliance with ederal,

state and local employment

lawsmany o which come,

go and evolve over time.

Here well go over FLSA

guidelines, tax withholding,

insurance, disability and

amily leave, and HIPAA

privacy laws. Our overview

will get you started, but

youll denitely want to

dig a little deeper to get abetter sense o the state-

specic and local laws in

your area, plus any laws

that may apply to your

specic type o business.

As you go orward, bear in

mind that many o these

rules are in place to make

sure youre ollowing:

Tax laws

Labor laws

Equal opportunity (non-

discrimination) laws

Workplace saety laws

Privacy laws

lsa classes o eMploYees: exeMpt & nonexeMpt

Exempt & Nonexempt

You might have seen these two terms on a job application and wonderedwhat they meant exactly. Or, maybe you assumed that any salariedemployee is considered exempt in the eyes o the IRS. How you classiyyour employees here is an important detail to clariy early on so that youavoid any compliance issues that could cause nes or other penalties.

In a nutshell, the FLSA (Fair Labor Standards Act) guarantees thatcertain workers are entitled to minimum wage and overtime pay. Theseso-called nonexempt employees are typically hourly employees who dont

have managerial responsibilities, and arent proessionals (like doctors orlawyers).

Typically, salaried employees, managers and proessionals are exemptrom FLSA requirements, meaning they dont receive overtime pay.

FLSA worksheets and tests (available at the link below) can help youdetermine how to classiy your employees, based on: a) how much theyrepaid, b) how theyre paid, and c) the type o work they do.

For more inormation on exempt and nonexempt status, visit the USDepartment o Labor website.

Does tHe lsa applY to You?

More than 130 million workers are governed by the requirements o theDepartment o Labors FLSA.

Employees o your business can be covered in two ways:

1. Enterprise Coverage

Employees may be covered i they work or businesses with at least twoemployees which also are:

a. Businesses with an annual dollar volume o sales or business done o$500,000 and higher.

b. Hospitals, medical or elderly care businesses, schools and preschools,and government agencies.

Or

2. Individual Coverage

Individuals whose work involves interstate commerce (commercebetween states) are also covered by FLSA. For example, employees

eGuIDe to HIRInG:

Staying inCompliance
http://www.dol.gov/whd/flsahttp://www.dol.gov/whd/flsahttp://www.dol.gov/whd/flsahttp://www.dol.gov/whd/flsa



who make products that are shipped and sold out o state, regularlyengage with contacts in other states, or even do maintenance work orbusinesses that are involved with interstate commerce are included.

Housekeepers, babysitters, nannies, cooks and other domestic serviceemployees are also covered.

Keep in mind that the nature o work your employee perorms couldmake him or her eligible or minimum wage but not overtime.

The Department o Labor can provide more inormation at www.wagehour.dol.gov.

wItHHolDInG taxes

The next box to check on your compliance worksheets is yourobligation or withholding tax rom your employees paycheck. Eveni you have a payroll person or an accountant to handle these things,its a good idea to amiliarize yoursel with withholding since itsultimately the business owners responsibility i something getsmiscalculated or accidentally swept under the rug.

Each state has dierent rules, so be sure to do a little research. Hereare some o the taxes youll need to withhold:

Federal, state and local income taxes

FICA (Medicare and social security)

FUTA (ederal unemployment)

wHo Gets wItHHelD

Once you have payroll lined up youll want to circle back and gure

out how youve classied your worker (contractor, exempt, etc.), whichwill tell you which taxes to withhold rom the paycheck. Rememberthat you do not need to withhold taxes or contractors, but you willneed to do so or employees.

wHat Gets wItHHelD

You might just be paying your employee a salary or hourly wage. Buti there are bonuses, sales commissions, or other business-relatedexpenses, these types o income may be taxed in dierent amountsthan an employees base pay. Consult IRS Publication 15, EmployersTax Guide and Publication 15-A, Employers Supplemental Tax Guide

(PDF) or more inormation.

paID DIsabIlItY & aMIlY leave

Throughout the course o your time working together, your employeeswill need to balance work and amily responsibilities. And in somesituations they might become temporarily unable to work. The Familyand Medical Leave Act (FMLA) allows certain employees up to 12weeks o unpaid, job-protected leave annually with uninterruptedgroup health benets. There are some rules in place to make sure that

cRuncHInG tHe

nuMbeRs

Once youve determined

the above, its time to

calculate how much

youll set aside rom youremployees pay or ederal,

state and local taxes, in

addition to FUTA and FICA.

The IRS and Small Business

Administration provide

tables or calculating the

percentages to withhold

or each o the above

taxes, in addition to taxes

or the specic state and

city where your business

operates.

I you dont have an

accountant, be sure to

cross every T and dot every

I as well as you can, since

this process can be a little

tricky. Youll also want to

send these payments out

in a timely manner to avoid

late ees.

Check irs.gov and sba.gov

or calculating tables and

online payment methods.
http://www.irs.gov/pub/irs-pdf/p15.pdfhttp://www.irs.gov/pub/irs-pdf/p15.pdfhttp://www.irs.gov/pub/irs-pdf/p15a.pdfhttp://www.irs.gov/pub/irs-pdf/p15a.pdfhttp://www.irs.gov/pub/irs-pdf/p15a.pdfhttp://www.irs.gov/pub/irs-pdf/p15a.pdfhttp://www.irs.gov/pub/irs-pdf/p15.pdfhttp://www.irs.gov/pub/irs-pdf/p15.pdf



the employees job is protected without putting your business in too mucho a bind.

Unpaid leave can be taken:

or the birth o the employees child

or adoption or oster care o a child by an employee

to care or an immediate amily member with a serious health problem

when the employee has a serious health condition

Eligible employees need to have worked at least 1,250 hours over 12consecutive months at a company that employs 50 or more employeeswithin a 75 mile radius. There are some other rules as well, so i youre notclear on what your requirements are as an employer, visit the DepartmentLabors FMLA website.

HIpaa & pRotectInG pRIvacY

The Health Insurance Portability and Accountability Act o 1996 (HIPAA)helps patients and health care consumers keep their personal inormation

private.

Protected individual health-related inormation can include:

Health care claims

Health care payments

Coordination o health carebenets

Enrollment or disenrollmentin a health plan

Health plan eligibility

Premium payments

Reerrals

Injury reports

Health care organizations have to be especially careul how they handlethese records, adopting special procedures and orms or protectingcondentiality. But many small businesses will deal with these coveredentities, too.

I your company has a sel-insured health plan or acts as a liaison betweenemployees and health care providers, you might want to review these ruleand possibly speak with an attorney to make sure youre adopting the righprocedures to avoid civil penalties.

coMplIance MaDe easY

The web has made it a whole lot easier or businesses to researchcompliance laws at the ederal, state and local levels, in addition toproviding downloadable orms and checklists or ocial use. To be on thesae side, you might also want to share your research with an attorney justto make sure youre on the right track.


Compliance Center

ReQuIReD

InsuRance

Any business with

employees is required by

law to pay or certain types

o insurance* to protectworkers rom work-related

injury, disability or losing

their jobs. Generally, they

are:

Workers Compensation

Insurance

Unemployment Insurance

Disability Insurance

*Not all o these are

required in every state, so

check your states rules to

make sure you need to sign

up or them.

local laws

Some local jurisdictions

have special laws and rules

in place to protect workers.

For example, your city or

county might have special

ordinances covering healthinsurance, minimum wage,

overtime and sick leave.

Check with your local

government (or a local

accountant or lawyer) to

make sure youre compliant

with all the laws that apply

to you.
http://www.dol.gov/dol/topic/benefits-leave/fmla.htmhttp://www.dol.gov/dol/topic/benefits-leave/fmla.htmhttp://www.rocketlawyer.com/corporate-compliance-legal.rl?utm_source=1065http://www.rocketlawyer.com/corporate-compliance-legal.rl?utm_source=1065http://www.dol.gov/dol/topic/benefits-leave/fmla.htmhttp://www.dol.gov/dol/topic/benefits-leave/fmla.htm



As a business owner with employees, you can create a sae, supportiveand productive workplace. You can implement a great hiring andrecruiting process, and you can set out employment policies in a legallysound employee handbook.

But no matter how you do things, an employees bad behavior or poorperormance could throw a wrench into the system youve worked hardto create. Thats why youll want to have a clear and detailed companydiscipline policy.

A 2012 Proles International survey revealed that employers lose 79percent o negligent hiring lawsuits, so beore you head down this path

keep in mind that the best (and most air) attitude when dealing with adicult employee is not how to re them but how not to. The ollowingsteps or crating a disciplinary policy, handling disputes and so on willhelp you resolve conficts and protect yoursel and your organizationrom liability.

coMpanY DIscIplIne polIcY

Protecting yoursel in these situations is key, and the cornerstone oyour good employee relations is a well-written and detailed companydiscipline policy. This document will make absolutely clear the stepsyou (or management) ollow when behavior and perormance issues

threaten the livelihood o the business and workplace. You can createa separate discipline policy, or include it as a section o your employeehandbook (see Your Employees First Day section or more inormationon creating an employee handbook).

Anti-discrimination laws that apply when hiring an employee also applywhen it comes to employee discipline. Its against the law to re anemployee because o age, religion, gender, race, or marital status. Andpersonal reasons--not to mention issues resulting rom whistleblowing orocial complaints--also wont fy as grounds or termination. Youll needa legitimate, well-documented reason. Reasons or termination can be

made clear in your employee handbook or the employment agreementlisting general conduct and work expectations.

Going owad, emembe:

Communication is key: As you crat your companys discipline policy,remember that clear and concise communication should be a majorcomponent. You want to keep troubled employees inormed about yourissues rom the get-go.

an employees

bad behavior or

poor perormance

could throw awrench into the

system youve

worked hard to

create. Thats why

youll want to have

a clear and detailed

company discipline

policy.

eGuIDe to HIRInG:

Discipline, Disputes& Liability



Documentation is also key: To limit your liability and preventunnecessary lawsuits, make sure every part o your process is on record.

pRoGRessIve steps

Depending on what your Human Resources person or company attorneyrecommend, you might have your own method or handling disciplinarysituations; however, some companies like to ollow a step-by-step process

that creates a standard or all situations.1. Initial Feedback

This rst step in the disciplinary process is basically a verbal cautionabout the problem. Set a deadline, i it seems helpul, to give youremployee a goal or correcting the problem. I the problem is xable, thislittle chat might be all you need to take care o it.

2. Verbal Warning

I the issue pops up again, youll need to have another talk with theemployee and document the visit on paper (possibly with a witness).

Oten an employer will keep the warning in eect or a specic periodo time.

3. Written Warning

When the rst two steps have not kept the issue at bay, a written warningis needed to inorm the employee that youre entering a more seriousstage o the disciplinary process (our employee warning letter is a goodplace to start). As a rule o thumb, youll want to let the employee knowwhat the consequences could be and remember to keep a copy o thewarning in your personnel les.

4. Suspension

More volatile situations might warrant a little time-out or everybody.I the rst three steps dont help the situation, you could suspend theemployee or a period o time without pay. This can allow you to get backto work and regroup, and it could inspire your troubled employee to nda job elsewhere.

5. Termination

The nal straw, termination can be undertaken when theres reallynothing more you can do to work through an employees bad behavior or

poor perormance.

Remember to document in writing (and with witnesses, i possible)all stages o the disciplinary process (our termination letter orm ishelpul). Not only will this (a) protect you rom lawsuits resulting romthe termination, it will (b) minimize your terminated employees anger,conusion and stress, and (c) maintain morale in the oce by underliningthe act that nothing more could be done in this no-win situation.

establIsHInG

a DIscIplInaRY

pRocess

Its important to have a

process in place rom

the get-go. Considerincluding these steps:

1. Initial Feedback

2. Verbal Warning

3. Written Warning

4. Suspension

5. Termination
http://www.rocketlawyer.com/document/employee-warning-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/termination-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/termination-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-warning-letter.rl?utm_source=1065



laYos vs. teRMInatIon

Firing an employee or behavior or perormance issues is just one sideo the coin: You might nd that your business is not generating enoughrevenue to justiy an employee.

Layos are a completely dierent animal in the legal sense. Here are thedierences:

Termination is when the employee leaves the company due to poorperormance or unacceptable behavior without any chance o beingrehired.

Layofis when the employee is let go because theres not enough workto keep them, but they could be eligible to come back i economic ororganizational conditions get better.

Why the labeling is important: Employees who are laid o are eligibleor unemployment benets* and COBRA (health insurance extensions);in addition, the intention to rehire might need to be part o the exitdocumentation to keep everything legal.

*States have thei own specifc laws about unemployment benefts and

COBrA, so emembe to contact you state and local govenment o ino

i you decide to go this oute.

DIsputes anD lIabIlItY

Employee lawsuits are on the rise, and sometimes the best, mostthorough and well-documented disciplinary policies wont keep a disputerom escalating.

One saeguard is Employment Practice Liability Insurance (EPLI), which

protects your company against lawsuits covering things like: Wrongul termination

Sexual harassment

Discrimination

Wrongul discipline

Emotional distress

Breach o employment contract

Small businesses are especially vulnerable to these claims, since theyoten have neither the means nor the time to tackle them head-on. So iyoure dealing with a dispute, its smart to consult with an attorney. Youdont want to tread into these sticky situations alone.

To sum up, your disciplinary policy helps create a more positive work

environment by encouraging employees to improve, as well as clearlydocumenting your attempts at resolving the problem. A air andtransparent process is good or everyone.


Employee handbook


Employee warning letter

Employee termination letter

a teRMInatIon

letteR:

Helps protect you rom

lawsuits

Communicates the

situation clearly to theterminated employee

Makes the termination

ocial
http://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-warning-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/termination-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/termination-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-warning-letter.rl?utm_source=1065http://www.rocketlawyer.com/document/employment-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/employee-handbook.rl?utm_source=1065


20/22EGUIDE TO SMALL BUSINESS HIRING0 |

Whether your employee is moving on or good reasons or bad, by choiceor against their will, its never easy to see them go. However, like any roadbump in the lie o a business, its an excellent learning opportunity oryou as an employer.

Beore ocially saying goodbye to an employee, there are a ew points toconsider. During this exit period you basically want to:

1. Learn the reasons or the persons departure

2. Assemble inormation on the employees existing projects andcontacts

3. Gather intelligence to share with the employees replacement

4. Account or any company property used by the employee

5. Protect your company secrets

6. Protect yoursel rom liability

Since youve already hammered out an eective hiring process, anemployee handbook and a disciplinary policy, the next logical step is asolid exit interview process.

tHe exIt InteRvIew

When anyone voluntarily leaves your company, you want to know

why. And the exit interview sets aside a designated time to get candid,specic inormation about what its like or someone else to work at yourcompany.

Crat your questions or this ace-to-ace meeting in conversational styleand try to ollow these guidelines:

Create a relaxed atmosphere: Exiting employees are much morelikely to share their eelings i theres zero pressure and an easygoingenvironment.

Ask open-ended questions: Yes and no answers wont generate much

eedback, so try to cast a wide net with your inquiries.

Put the onus on yoursel:Another way to de-stress the interviewee, thiswill also help you retain good employees in the uture.

Listen: The more you talk, the less inormation youll gather rom theinterview.

Take copious notes: Not only will it help your record keeping, but youcan use this inormation to correct any issues that might have infuencedthe employee to move on.

ask tHe eMploYee:

Why are you leaving?

What could have

persuaded you to stay?

How do you eel about

the company?

What is your new

company ofering that

were not/cant?

eGuIDe to HIRInG:

The Exit Interview &Saying Goodbye



Still unsure what you need to ask in the interview? Here are a ew basicquestions you can fesh out or your particular needs. Ask the employee:

Why are you leaving?

What could have persuaded you to stay?

How do you eel about the company?

What is your new company oering that were not/cant?

The above questionsand any oshoots that result rom theconversationshould help you gather enough inormation to makechanges, i any, to your workplace culture. As with any ocial companyprocedure, you might want to consult a lawyer i youre not sure aboutsomething.

Quick aside: Some ormer employees will want to avoid a ace-to-ace exitinterview or one reason or another. I youre unable to meet with them inperson, crat a questionnaire or them to complete during their last dayon the job.

Release o lIabIlItY

Finally, you want to have a record that the employee is not beingred but is in act quitting and will not sue or wrongul termination,discrimination or any other reason outlined in the termination sectiono our guide.

Small business owners can be pretty vulnerable when it comes to ormeremployees, even those who quit voluntarily. The law allows employeesyears to le wrongul termination lawsuits against ormer employers, orexample, and in cases when the employees new job oer doesnt pan out,the ormer employer can sometimes be liable or unemployment benets.

A release o liability orm can make this parting ocial (our generalliability release o claims will help you put it in writing). As with anyliability release, it wont prevent ormer employees rom suing i theyreally want to, but it can make your lie a whole lot easier when you haveclear documentation to back up your side o the story.

You never want to see a good worker go, but it will certainly happen romtime to time during the course o your business career. Establishing asolid exit strategy or each and every employee will provide you with thecrucial eedback to become a better manager and a better employer.

MoRe Help RoM Rocket lawYeR:Non disclosure agreement

Noncompete agreement

General liability release o claims

RetuRn pRopeRtY &

Revoke access

I the exiting employee

uses any company property

regularly or has access to

sensitive inormation, now isthe time to:

Gather or veriy

company-owned electronic

equipment (laptops,

smartphones, etc.)

Collect keys and

security badges

Change passwords to

entryways and online

accounts

non-DIsclosuRe,

non-coMpete

Back during the hiring

process your employee

signed a non disclosure

agreement to protect your

trade secrets and other

valuable inormation.

A riendly reminder o this

agreement should be parto your exit process, and

give you a chance to provide

your ormer employee with a

copy or their records. This is

especially important i he or

she is heading of to work or

a competitor, but its good to

do it every time.
http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/noncompete-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065http://www.rocketlawyer.com/document/noncompete-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/non-disclosure-agreement.rl?utm_source=1065http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065http://www.rocketlawyer.com/document/general-liability-release-of-claims.rl?utm_source=1065


22/22

When your business is strong enough to employ people, its in a specialclass, considering that the U.S. Labor Department estimates that 75percent o American businesses have no payroll. But youll also have

more responsibilities. Youll need to develop employment policies andprocedures, stay up to date on labor and tax laws, and keep good recordsto help protect your business.

As you search or answers and inormation about the process o hiring,retaining and saying goodbye to the people who work or you, youll ndthat many o the orms, contracts and guidelines you need can be oundonline.

From employee handbooks to termination letters, Rocket Lawyer can helpyou put together a wide range o employment related contracts, ormsand other documentation. As you go along, youll probably have more

questions about specic state and local laws too. Rocket Lawyer has anetwork o attorneys who can help you with these employment-relatedlegal questions.

I we can help you with an employment legal issue or anything else, justlet us know and well point you in the right direction.


Labor and employment legal center

As you go along,

youll probably

have more

questions aboutspecic state and

local laws too.

Rocket Lawyer

has a network

o attorneys who

can help you with

these employment-

related legal

questions.

Visit www.rocketlawyer.com

eGuIDe to HIRInG:

Conclusion

Rocket Lawyer eGuide Disclaimer

This eGuide is oered or inormational and educational purposes only and should not be

construed as legal advice. The law diers in each legal jurisdiction and may be interpreted

or applied dierently based on your specifc actual situation. Use o the inormation in this

eGuide is not a substitute or the advice o licensed legal counsel in your state and you should

not act or rely on any inormation contained in this eGuide without frst seeking advice rom
http://www.rocketlawyer.com/labor-employment-legal.rl?utm_source=1065http://www.rocketlawyer.com/?utm_source=1065http://www.rocketlawyer.com/?utm_source=1065http://www.rocketlawyer.com/labor-employment-legal.rl?utm_source=1065

eguide to small business hiring

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