Chapter 6 Starting a Business Hiring Your First Employee

Hiring Your First Employee

• Adding employees increases business complexity requiring careful planning.
• It's crucial to hire the right people, train them, keep them happy, and meet tax/legal requirements.
• Good recordkeeping, compliance, and a formal training plan are necessary to maintain quality and consistency.

Crafting a Hiring Strategy

• Prepare a written job description to clearly define employee expectations.
• Use measurable metrics to evaluate job performance effectively.
• Develop a simple employee handbook that outlines:
  • Business mission and vision
  • Employment policies (work periods, holidays, time-keeping)
  • Standards of employment
• A 30- or 90-day introductory period can help evaluate skills and compatibility.
• "At will" employment should be stated in writing, allowing termination by either party without cause or prior notice.
• Internships offer a low-cost way to start before hiring full-time employees.
• A resource for finding hires in Michigan is mitalent.org/employer.
• The U.S. Small Business Administration (SBA) provides online hiring resources.

Establishing a Hiring Process

• Resumes are a good first impression; selected candidates then complete application forms and schedule interviews.
• Ask each candidate the same questions and document the interview.
• There are many structured interview questions and application forms on the internet.
• Employers can require candidates to perform trial assignments or aptitude tests.

The Importance of Professional Assistance

• The cost of professional consultants can be offset by increased revenue production or avoided mistakes.
• Professional services are necessary to keep a business within financial and legal standards.
• Consultants can function as a bridge for a growing business before hiring full-time staff.

Important Professional Services

• Financial consultants can help with accounting, bookkeeping, tax preparation, cash flow projections.
• Legal consultants can assist with business organization, contracts, and other general issues.
• Bankers can assist with loans, billing, and credit.
• IT specialists can help with hardware, software, and internet connectivity.
• Insurance brokers can secure the necessary coverage at competitive prices.
• Marketing consultants/agencies can assist with branding, websites, social media, and public relations.

Employee vs. Contractor

• Hiring outside contractors is an alternative if there isn't enough work for a full-time employee.
• Employee status affects tax burden, liability, and benefit costs.
• Misclassifying an employee as an independent contractor can lead to tax penalties.
• Consult a tax advisor before making a decision between hiring employees or contractors.

Independent Contractors

• Professionals in independent trades like doctors, lawyers, and accountants are generally independent contractors.
• Their classification as contractors or employees depend on the details in each situation.
• An independent contractor can be directed in the project results, but not how the work is completed.
• Independent contractors pay self-employment tax.

Deciding if Someone Is an independent Contractor

• Three types of evidence can determine proper classification for enough control and independence:
  • Behavioral: Does the company control how the worker performs their tasks?
  • Financial: Does the payer control the worker's business aspects, like payment method and expense reimbursement?
  • Type of Relationship: Are employee benefits and written contracts in place?
• Classifying workers requires considering all factors.
• Some factors point to employee status, while others indicate contractor status.
• Examine the entire relationship and document how the determination between employee and contractor was made.
• If the worker's status is unclear, Form SS-8 can be filed with the IRS to determine status.
• The IRS determines worker status based on facts provided, but may take six months or longer.
• If you continually hire the same types of workers this may be something to file.
• Consult with a qualified HR professional when needed.

Developing Employees

• Training is extremely important for employees to represent the business effectively.
• Job descriptions outlining duties, ethical standards, and success criteria are important employment tools.
• Document steps, processes, and requirements for consistency.
• Create training plans for every employee.
• Cross-training can be beneficial to small businesses.
• Invest in employees through opportunities and incentives for education/training.

Maintaining Employee Involvement

• To keep employees involved with the business:
  • Develop effective two-way communication strategies and methods.
  • Include employees in strategic, operational, and process planning.
  • Work with employees to set individual goals.

Creating Clear Expectations

• To provide clear expectations with workers:
  • Open communication is important.
  • Handbooks and job descriptions help employees understand expectations.
  • Acceptable Use Policies set guidelines for the use of company property.
• Establish policies for use of company vehicles, copy machines, and other equipment.
• Create an acceptable use policy for company technology equipment and systems.
• Include policies on using employee's personal devices on the company property.
• Policies should be understood with documented acknowledgement on a signed document.
• Train new employees with all documented policies on onboarding.

New Hire Reporting Requirements

• All 50 states require reporting new hires/re-hires to expedite child support payments.
• Employers must report new employees who live or work in Michigan and are anticipated to receive payment.
• This applies even if the employee works only one day and is terminated.
• Re-hired or recalled employees must be reported.
• Temporary agencies must report any workers they hire for an assignment.
• Contact the Michigan New Hires Operations Center for information and reporting forms.

Payroll Taxes

• Businesses with employees must meet federal and state payroll tax withholding requirements.
• The major payroll taxes in Michigan include:
  • Federal, state, and local income tax withholding
  • Federal Social Security and Medicare Tax (FICA)
  • Federal Unemployment Tax Act (FUTA)
  • Michigan Unemployment Tax (UIA)
• Taxes apply to every employee.
• Typically, expect to pay about 16% of draws to satisfy the four taxes.

Income Tax Withholding

• Employers must withhold federal and state income taxes from employee wages.
• City income tax may also apply, contact that city to find out.
• Each employee should complete a Federal (W-4) and Michigan Withholding Exemption Certificate (MI-W4).
• Contact the IRS for information about federal income tax withholding.
• Employers must register online with the state before hiring employees.
• State filing requirements vary.

City or Local Income Tax

• Confirm whether it applies to new employees with the city treasurer.
• Registration forms may be provided by the city treasurer.

Federal Social Security and Medicare Tax Withholding

• Federal law requires employers to withhold and deposit Social Security taxes from employees' wages and pay an equal amount.
• Tax rates and maximum earnings may vary, latest information is available at irs.gov.

Federal Unemployment Tax Act

• The IRS receives fees to operate state unemployment systems.
• The IRS mails a packet of information or forms after filing for an EIN.

Michigan Unemployment Tax

• The Unemployment Insurance Agency (UIA) administers Michigan's unemployment insurance program.
• Employers pay both state and federal unemployment taxes.
• Any business that employs people in Michigan is considered a contributing employer and is required to register with the UIA.
• An online process to register is available faster, easier, and more convenient way than mailing forms.
• A contributing employer must file tax reports with the UIA each quarter and pay unemployment tax.

Compliance With Employment Laws and Regulations

• Employers must provide a safe and equitable workplace, while following state and federal regulations.
• MIOSHA offers free statewide safety/health assistance.
• Michigan employers must display workplace posters, available from government agencies.

Americans With Disabilities Act

• Employers must meet requirements to the Americans with Disabilities Act (ADA).
• The ADA gives protections to individuals with disabilities that are similar to race, color, sex, national origin, age, and religion.
• The ADA prohibits job discrimination against people with disabilities where they can perform a job's essential factions.
• Equal opportunity for individuals with disabilities must be provided in employment, transportation, etc.

Drug-Free Workplace

• An employer should be aware of substance abuse, and provide information to make the workplace free of drugs and/or alcohol.

Equal Employment Opportunity

• The U.S. Equal Employment Opportunity Commission (EEOC) enforces federal laws.
• It is illegal to discriminate against a person based on characteristics like race, color, religion, and pregnancy.
• Discrimination is illegal because a person has formally complained about discrimination, not just if they fall under the discrimination umbrella.

Age Discrimination

• This prohibits discrimination against older applicantions or employees 40 or older.

The Equal Pay Act

• Employers can't pay female employees less, for work that requires equal skill.

Pregnancy Discrimination Act

• Job discrimination based on pregnancy is prohibited.

Fair Labor Standards Act (FLSA)

• The FLSA establishes minimum wage, overtime pay requirements, recordkeeping regulations, and youth employment standards.
• Employees whose jobs are governed by FLSA are either exempt or nonexempt from overtime.

Family and Medical Leave Act

• The FMLA allows an employee one year of service to take 12 weeks per year of unpaid leave.

Michigan Minimum Wage Law

• Minimum wage can vary over time and can be different at the federal and state level.
• Employers must pay the higher of the two wages.
• Public Act 138 applies to employers in Michigan that have two or more employees at 16 years or older.
• The law covers wage rates for tipped employees, etc.

Patient Protection and Affordable Care Act

• While more changes may be applied there is still a regulation that Americans can have equal access.
• An employer can be either small with under 50 employees and no full coverage, or a larger employer with 50 employees.

Uniformed Services Employment and Reemployment Rights Act

• The USERRA makes it illegal to discriminate against employees who volunteer for military duty.
• They must be re-employed to their old jobs or equal jobs.

Health And Safety Standards

• Employers are required to comply through the Michigan Occupational Safety and Health Act (MIOSHA).

Tracking Workplace Injuries and Illnesses

• MIOSHA standards require employers to record and report workplace injuries and illnesses, including:
  • Work-related fatalities (must be reported within eight hours)
  • Injuries/illnesses that meet general recording criteria
  • Work-related amputation, loss of an eye, or in-patient hospitalization (must be reported within 24 hours).

Workers' Compensation

• All states require work-related insurance.
• Benefits are payed through an insurance company.
• Approximately 500 different rating classifications for worker's compensation insurance exist based on what type of business.