For many medium-to-small-sized companies, managing the myriad of federal and state compliance regulations is a top challenge. With limited resources, keeping up with the many changes that continue to impact the current business landscape is a daunting task.
Here are five things that every business owner needs to understand when hiring employees.
For business owners looking to expand and grow their business, a critical component is hiring help. More than any other area we get inquiries about, this one is FULL of misinformation that can get a business owner in BIG trouble.
Here are the top mistakes we see business owners make in hiring employees:
1) I can't afford to put someone on payroll, so I'll just hire them as an independent contractor.
Total Red Flag! I can't even begin to explain to people how this can land someone in huge, deep, like depths of the deepest ocean legal trouble.
First, someone is not an independent contractor, or freelancer, just because you say they are. There are a number of government bodies interested in whether you are misclassifying a worker as an independent contractor just to avoid payroll taxes. This includes your state bureau of workers' compensation, unemployment, the IRS and state payroll authorities. All have different tests for whether someone is really an independent contractor or should be on payroll. There is no black and white rule or test for this, the government looks at a range of factors generally around how much you try to control them. The more you have to train someone, tell them what to do, provide them with tools, equipment, or a place to work, how to do something, etc., the more they should be a payroll employee, not an independent contractor.
But, I made them sign an agreement that says they're an independent contractor, so doesn't that make it so? NO. The government doesn't care what you had them sign. They care about what you actually do in practice. If it looks like a duck and quacks like a duck, even though it signed a contract saying it's a cow, it's still a duck.
2) Not using proper non compete, non disclosure and confidentiality agreements. So many business owners are either afraid to use these types of agreements at all for fear of upsetting their employees, or they use ones that are overbroad and not likely to stand up in court. Restricting your employee from working for any competitor in the entire country for the next five years is really broad. A proper non compete should be tailored to the situation.
Non disclosure and confidentiality agreements should make it clear that employees should take all measures to keep company trade secrets a secret. Being sloppy about trade secrets and their protection can come back to bite you big time. Make sure these documents have been vetted by an attorney.
3) Not having written policies and procedures. A lot of times a business owner will go it alone or depend on their payroll company for hiring and issue a flurry of generic documents to their new hires. A few months later, when they start having a problem with an employee, they call me and want to know how they can fire this person without getting sued. When I ask to see their policies and history of documenting the problem, they have nothing. Paper trails are critical in employment matters. Regular reviews and written feedback will help to fire a problem person and help you fight an unemployment claim if necessary down the line.
If you're a business owner looking to expand and hire or get your employment documents in line, reach out and set up a call to discuss.
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.