Chapter 6 Hiring Your First Employee

Hiring Your First Employee

• Hiring employees brings additional business complexity and requires careful planning to hire the right people, train them well, ensure their happiness, meet tax obligations, and adhere to legal requirements.
• Hiring and managing employees necessitates good recordkeeping, careful compliance, and a formal training plan to ensure consistency and quality.
• Best practices include preparing a written job description indicating what is expected, and setting measurable metrics for performance reviews.
• Develop a simple employment handbook outlining the mission/vision, employment policies, and standards.
• Resources are available for developing an employee handbook that meets state and federal legal compliance.
• Establish a hiring process including a resume review, application form, and interview.
• Ask each candidate for the same position the same questions and document the interview.
• Trial assignments or aptitude tests can also be administered.
• A 30- or 90-day introductory period can help employers and employees evaluate skills and compatibility.
• A written statement that employment is "at will" should be included, allowing either party to terminate the relationship at any time without cause or notice.
• Hiring an intern is a more affordable and practical option for small businesses and looking for your next great hire in Michigan- you can start your search at mitalent.org/employer.

The Importance of Professional Assistance

• The expense of using skilled professional consultants can be insignificant compared to the gains you could make by putting your time to revenue producing activity or the costly consequences you could avoid if you don't make the mistakes of failing to adhere to regulations, failing to submit documents, or making uninformed decisions.
• Professional services are essential for businesses to operate within financial and legal parameters and can assist in various aspects.
• Financial consultants can help with accounting, bookkeeping, tax prep, and cash flow analysis, while legal consultants can assist with business organization, contracts, and agreements.
• Bankers can help with loans, billing, and credit and information technology specialists can assist with setting up and managing hardware, software, and internet connectivity.
• Insurance brokers can help entrepreneurs obtain necessary coverage, and marketing consultants can help create a brand, build a website, and manage social media.
• Talking to a professional consultant can simplify business operations and facilitate the hiring of talented employees.

Employee vs. Contractor

• Hiring outside contractors or temporary help is an option if there is not enough work for a full-time employee.
• Important distinctions exist between employees and contractors, and their employment status affects tax burden, liability, and benefit costs.
• Misclassifying an employee as an independent contractor without a reasonable basis can result in liability for employment taxes and penalties.
• The IRS can apply tests to determine whether an individual is an employee or contractor; consulting a tax advisor is crucial before making a decision.

Independent Contractors

• Professionals like doctors, lawyers, and accountants offering services to the public are generally considered independent contractors.
• An individual is an independent contractor if the payer has the right to control or direct only the result of the work, not how it's done.
• Earnings of an independent contractor are subject to self-employment tax.
• Three types of evidence can help determine their status:
  • Behavioral evidence involves control over the worker's actions and job performance.
  • Financial evidence relates to control over business aspects like payment, expenses, and provision of tools.
  • The type of relationship considers contracts, benefits, and the work's significance to the business.
• No single factor determines whether a worker is an employee or contractor.
• The key is to assess the entire relationship, your control over the work, and document the decision-making process.
• Filing Form SS-8 with the IRS can provide an official determination of worker status, though it may take six months or longer.

Training and Developing Employees

• Training employees is important for ensuring they represent the business well, add value to the brand, and maintain expected quality.
• A company policy handbook and job descriptions that outline duties, responsibilities, ethical standards, and success criteria are key employment tools.
• Documenting steps, processes, and requirements for specific tasks is suggested to assure consistency and quality.
• Cross-training employees can be beneficial, and some employers invest in specialized education and training for their employees.
• Maintaining effective two-way communication, involving employees in planning, and setting individual goals can keep employees motivated.

Create Clear Expectations with an Acceptable Use Policy

• Outlining clear expectations is important, including a handbook and clear job description to help employees understand their roles and conduct.
• Acceptable Use Policies should provide guidelines and expectations for using company-owned property, such as vehicles or machinery.
• Acceptable use policies related to technology equipment and systems are also important, including acceptable or prohibited use of personal devices.
• These policies can limit liability and workplace/workflow disruption.
• Policy acknowledgment should be documented by a signed and dated receipt, incorporated into onboarding and training.

New Hire Reporting Requirements

• Employers in all 50 states must report new hires and re-hires to a state directory to expedite child support payments.
• This requirement supports family financial stability and children receiving the support they are entitled to.
• In Michigan, report new employees who reside or work in the state to whom the employer anticipates paying earnings, including those who work only one day.
• Report re-hires or recalled employees who return to work after being laid off, furloughed, separated, granted leave without pay, or terminated from employment after 60 days.
• Temporary agencies must report any employee they hire to report for an assignment, report employees once rather than each time they transfer to a new client.

Payroll Taxes

• Businesses with employees must comply with federal and state payroll tax withholding requirements or use a payroll service.
• Major types of payroll taxes in Michigan:
  • Income Tax Withholding (federal, state, and local if applicable)
  • Federal Social Security and Medicare Tax (FICA)
  • Federal Unemployment Tax Act (FUTA)
  • Michigan Unemployment Tax (UIA)
• Every employee is subject to these taxes, with business owners expecting to pay about 16% of their draws to satisfy these taxes.

Income Tax Withholding

• Any employer of one or more persons must withhold federal and state income taxes from wages paid to employees.
• City income tax may also apply, contact the city tax assessor.
• Federal Withholding Exemption Certificate (W-4) and a Michigan Withholding Exemption Certificate (MI-W4), business must withhold a designated amount of taxes from wages.
• Contact the IRS or visit their website for more information about federal income tax withholding.
• Employers must register online at mto.treasury.michigan.gov or contact the Michigan Department of Treasury before hiring.

City or Local

• Contact the city treasurer to check city income tax for new employees, if applicable, obtain registration forms from city treasurer.

Federal Social Security and Medicare Tax Withholding

• In addition to federal income taxes, federal law also requires that employers withhold and deposit Social Security taxes from employees' wages.
• The employer must also pay an equal amount.
• Updated information on tax rates is available on IRS website or by phone.

Federal Unemployment Tax Act

• Authorizes the IRS to collect fees and the U.S. Department of Labor to pay administrative expenses for state unemployment systems.
• Filing for an EIN indicates that employees will be hired, the IRS will mail FUTA tax information.
• For more information about FUTA tax, forms, and deposit requirements, contact the IRS online or by phone.

Michigan Unemployment Tax

• The Unemployment Insurance Agency (UIA) operates Michigan's unemployment insurance program.
• The agency collects unemployment taxes to provide temporary income for unemployed workers.
• Employers pay state and federal unemployment taxes
• Any business that employs one or more persons in Michigan is considered a contributing employer and needs to register with the UIA.
• The UIA offers faster online registration and you can receive the UIA Employer Account Number quickly.
• Contributing employers file tax reports with the UIA quarterly and pay state unemployment tax.

Ensure Your Compliance With Employment Laws and Regulations

• Employers have legal and ethical obligations to provide a safe and equitable workplace.
• State and federal regulations governing workplace health and safety must be followed, and MIOSHA's Consultation Education and Training (CET) Division offers free assistance to create a safe, healthy workplace.
• Michigan employers must display certain posters in the workplace.

Americans With Disabilities Act (ADA)

• Employers must comply with the ADA, which protects individuals with disabilities, prohibiting job discrimination if they can perform essential functions with reasonable accommodations.

Drug-Free Workplace

• Employers need to be aware of issues involving employee drugs and alcohol use with SAMHSA offering information on programs for a drug-free workplace.

Equal Employment Opportunity

• The EEOC enforces federal laws against job applicant or employee discrimination based on race, religion, sex, national origin, age, disability, or genetic information.

Age Discrimination in Employment Act

• Prohibits any discrimination against applicants or employees older than 40 because of their age.

Equal Pay Act (EPA)

• Employers can't pay female employees less than male employees for equal work on jobs that require equal skill, effort and responsibility.

Pregnancy Discrimination Act (PDA)

• Prohibits job discrimination based on pregnancy, exclusively as it pertains to an employee's ability or inability to work.
• Immigration documentation must be kept separate from personnel records.

Fair Labor Standards Act (FLSA)

• The FLSA establishes minimum wage, overtime pay requirements, recordkeeping regulations and youth employment standards.
• Employees are classified as "exempt" or "nonexempt" depending on job duties and salary, those subject to FLSA are "nonexempt".
• For those that qualify as exempt, the job must meet strict salary and duty tests.

Family and Medical Leave Act (FMLA)

• The FMLA allows eligible employees to take up to 12 weeks per year of unpaid, job-protected time off for family or medical reasons for organizations with 50 or more employees.

Michigan Minimum Wage Law

• Michigan minimum wage varies over time and employers pay the higher applicable rate of state and federal wage law.
• Public Act 138 applies to employers in Michigan that have two or more employees age 16 and older.

Patient Protection and Affordable Care Act

• This regulation may undergo changes but was designed to ensure that Americans have access to quality, affordable health insurance.
• Small employers with fewer than 50 employees are not required to provide health insurance, while larger employers have related responsibilities.

Uniformed Services Employment and Reemployment Rights Act

• Known as USERRA, makes it illegal to discriminate against employees who volunteer for or are called to military duty.
• When reservists return from active duty tours that are less than five years, they must be reemployed to their old jobs or equal jobs.

Health and Safety Standards

• Employers must comply with federal and state health and safety standards and laws through MIOSHA.

Tracking Workplace Injuries and Illnesses

• An important component of MIOSHA standards is that employers must record and report workplace injuries and illnesses.
• Each employer is required to keep records of:
• Work-related fatalities.
• Injuries and illnesses that meet recording criteria include days away from work.
• Work-related amputation, loss of an eye or in-patient hospitalization of any employee.

Workers' Compensation

• All states want employers to carry insurance coverage for employees' work-related illnesses and injuries.
• Various rating classifications that exist depend on the type of business that an employer operates.

Required Workplace Posters for Michigan

• These are required to be displayed and can be obtained from the Michigan government.
• Annual Summary of Injuries and Illnesses, Form 300
• Michigan Employment Security Act Notice to All Employees.
• Michigan Law Prohibits Discrimination
• Michigan Safety and Health Protection on the Job
• Material Safety Data Sheets (MSDS) -Michigan Wage and Hour Posters Required by Law
• Michigan Whistleblowers Protection Act

Required Federal Workplace Posters

• These posters are required to be displayed and the following can be obtained from the federal government
• Job Safety and Health: It's the Law!
• Equal Employment Opportunity Is the Law
• Fair Labor Standards Act (FLSA) Minimum Wage Poster
• Employee Rights for Workers With Disabilities Paid at Subminimum Wages
• Employee Rights Under the Family and Medical Leave Act
• Employee Rights Under the National Labor Relations Act
• Your Rights Under USERRA: The Uniformed Services Employment and Reemployment Rights Act
• Employee Rights: Employee Polygraph Protection Act