The minute you start building your team to help with your business, you will learn a lot along the way. Some of them will be a true asset to your company and help it grow, while others you will have to let go. It’s all a part of running your business, so it’s best to know everything there is to know about handling employees.
Hiring Employees
According to the Louisiana Workforce Commission, any hires that are under any contract to perform services for wages are deemed to be an employee. The contract could be written or oral, and expressed or implied.
Basically, this means that if you decide to pay the workers as 1099 Independent Contractors, even if the worker agrees, the state can issue fines and penalties for failure to pay payroll taxes, unemployment, or workers compensation insurance. Don’t get caught in this trap!
Types of Employees to Hire
The first part of hiring employees is understanding the type of employees you need and it’s not just determining whether they’ll work full-time or part-time. What you’ll also need to determine is whether they will be a normal employee or an independent contractor.
Employees
Most people usually hire people as normal employees. This means that the company has more control over how the person does their job because they directly represent the business. Therefore, you will need to put them on payroll, give them a W-2 annually, and cover them with worker’s compensation and unemployment insurance.
Independent Contractors
These types of workers are much more independent than normal employees, hence the name. They have more control over how the service is performed, especially when it comes down to the method of how the service is performed.
Normally workers like freelancers and virtual assistants are independent contractors. Here are some factors of what determines a worker as an independent contractor:
- The individual has their place of business separate from that of the company
- The individual provides their equipment, supplies, and facilities to perform work
- The individual has other similar contracts with other companies
- They take care of their expenses such as travel, permits, licensing, etc.
- The individual advertises their services
- The arrangement between the individual and your business is a written contract with a specific contract amount and definite terms
- The services the individual provides is of professional or technical nature, where the discretion is left to them as details are outside the usual course of business
The risk in paying workers as independent contractors is that you as the employer may be penalized, fined, and required to pay back employment taxes if workers are paid incorrectly. The employment taxes include state and federal taxes, and there’s a possibility that workers could take actions to recover the share of taxes they paid.
Employee or Independent Contractor?
Every situation is unique but the key is to analyze the employment relationship. Be sure to document each fact used to make your decision in the IRS comes knocking. The IRS will consider the following when it comes to independent contractors:
Behavior: Does the worker have control over the work they complete?
Finances: How does the worker get paid? Do they cover their expenses?
Relationship: Is there an employment contract? If so, what does it say? Are any benefits offered? Is there a duration for employment?
Therefore, if hiring independent contractors, make sure they fit the descriptions of one. Also, they are to receive a 1099 form instead of a W-2 that normal employees receive.
Reclassifying Workers
If you need to reclassify workers, you should think before doing it right away, since that will raise a flag with the IRS. Fortunately, the offers a type of amnesty program that may allow you to avoid some liability.
The IRS has a Voluntary Classification Settlement Program which is a step-by-step process to reclassifying independent contractors as employees. The application must be completed at least 60 days before the change.
The settlement program consists of:
- Paying 10% of employment tax liability that would have been due on compensation paid to workers in the recent tax year
- Avoiding any interest and penalties on that amount
- Avoiding an employment tax audit for prior years
This program from the IRS is highly recommended if you need to reclassify who works for you. Speak with an advisor before making any changes.
If you have trouble with classifying employees, there is an assessment tool offered by the Louisiana Workforce Commission. If you are considering hiring independent contractors it may be worth it to take the assessment.
Mistakes When Hiring Employees
Employers sometimes make the mistake of hiring blindly for their business, and they end up feeling the negative effects of their decisions afterward. There are some common actions you should avoid to make sure you’re not bringing ineffective people to your team.
Hiring Everyone Full-Time
Just because you need the help of an employee does not mean you’ll need 40 hours weekly. You will soon be spending much more on overhead costs as full-time employees are the most expensive.
Think carefully about exactly how much work you need their help with and understand different hiring options that could suit you best. Maybe you need an employee part-time or you just need them for a few months.
Not Enough Due Diligence
Don’t be so quick to hire an employee without doing your homework. They could interview well, but their work performance could be fair at best.
Conduct a sufficient interview by asking the right questions to the candidate. Too often employers ask questions to get a feel for the candidate’s personality, but not enough questions that highlight their possible troubleshooting skills and knowledge. Asking them about what they put on the resume won’t help much.
Try to ask more questions testing their knowledge in the field. Explain some scenarios and ask them how they would handle it. Ask them questions that display what kind of learner they are. These all hold much more value to see what type of employee they are, but learning about their personality helps too.
Check with their references, conduct background checks, and run credit reports. Take the time to vet your candidates to build a high-performance team.
You must tell all candidates that your company will conduct a background check for consideration of employment. Criminal background checks can be completed through the Bureau of Criminal Identification and Information in Louisiana. On their website, employers can conduct an online search through Louisiana State Police.
You will need an authorization form from the employee and you will need to fill out a general disclosure form to complete the search. Keep in mind that background checks are governed by federal and state laws.
Hiring Friends and Family
In most cases, this scenario doesn’t work out. Some people cannot draw a line between personal relationships and business.
If you do have friends and family on the payroll, make sure they have an understanding. They need to have respect for you and the business to receive the career opportunity.
How to Hire Great People
Payroll
Businesses need to pay employees properly to avoid any unnecessary trouble. Even if the employees or contractors don’t bring up to you, the IRS could if you get audited. And during an audit, the IRS will look at payments to independent contractors and check to see if any of those contractors should have been classified as employees.
In addition to saving on taxes, employers can save on workers’ compensation premiums by employing independent contractors as opposed to employees. The IRS knows this obviously, so hence why they look over payroll during audits.
Employers save on taxes because the tax liability falls on the employed., rather than split that obligation. Many workers that are not too privy to taxes think that it’s better because they have a bigger paycheck. However, they fail to realize that their tax responsibility has also grown.
As said before, the key here is to understand that the IRS has the ultimate say of how to classify a worker. And if you are found to be incorrectly classifying employers, the worker could attempt to get you to pay their back taxes.
If you’re not sure how you should be paying your employees, you should consult with an attorney, an accountant, your payroll person, or even fill out an SS-8 form with the IRS.
Benefits
Employers offer different types of benefits to employees from insurances to paid vacations. It is a bigger expense as this is for employees only, but some benefits you are required to offer your employees.
Insurances
There are several insurances a business can offer to employees as a benefit. The usual are health insurance and worker’s compensation insurance, but dental, vision, disability, and life insurance are offered by employers as well.
Health Insurance
Health insurance for employees has higher premiums than workers’ compensation insurance. Coverage is much larger and includes health and physical issues that occur outside the scope of employment.
Health insurance deductibles run on a calendar year basis. If recovery from an injury runs into the next year, the injured employee may have to pay the deductible.
A couple of years ago, there was an Association Health Plan (AHP) rule put in place for small businesses to have a better opportunity to obtain health insurance coverage. The final rule modifies the term ‘employer’ regarding the entities that could sponsor group health coverage.
Before AHP’s final rule, an employer had to:
- Be a previously existing association
- Be created for purposes other than health insurance
- Offer eligibility in AHP to only members with one or more of associations with one or more employees in addition to a business owner and their spouse
- Have a commonality of interest among its members (benefits are tied by a common economic or representational interest)
The final rule modified the definition of “employer” by clarifying the commonality of interest test:
- An association may be considered an employer and offer an AHP if members operate in a common geographic area and/or operate in the same industry
- Dual classification of “working owners” as employers and employees are permitted
The main benefit of the change is that small businesses can escape the small group market restrictions such as benefit requirements, rating restrictions, or plan options. Small businesses can reap the benefits of a large group market, including greater stability through bigger pools, more flexible benefit designs, and lower premiums.
Small employers need to be aware of non-discrimination rules. Varying premiums for individuals based on health status has been banned, and this rule applies to AHPs also. Large groups permit differing premiums based on health status provided that the group consists of similarly situated individuals.
Worker’s Compensation Insurance
If an employee gets injured while working, worker’s compensation insurance covers the medical benefits. Workers can put in a claim if injured, and their medical bills are covered. The business will usually receive a bill for the deductible from the insurance company.
The important thing to remember about worker’s compensation is that it provides coverage until the employee reaches a maximum, and the deductible is on a per claims basis. Regardless of how long it takes the employee to recover, the employer will generally only be responsible for one deductible.
Dental and Vision Insurance
When enrolling in health insurance, some employers also offer the opportunity to receive dental and vision insurance. Just like health insurance, the deductibles run on a calendar year basis.
Dental insurance normally covers the necessary dental visits like exams, x-rays, or fillings and usually does not cover cosmetic procedures. Vision insurance usually works the same but both have relatively lower deductibles than health insurance.
Disability Insurance
If an employee has a disability that causes them to become incapable of working, they can receive a portion of their income still. Employers can offer employees short-term disability or long-term disability.
Short-term disability offers coverage with a maximum of 1 year. There is an elimination period the employee will go through before receiving income benefits, which is usually 2 weeks.
Employees out of work for more than 1 year will receive long-term disability. They will still receive a partial income benefit like short-term disability, but for a set number of years based on the coverage plan. Long-term disability typically is not an employer-paid benefit, meaning employees will be given the option to buy at their own expense.
Life Insurance
There are some term life insurance policies that employers can offer their employees. It’s a simple coverage plan that is an amount determined by the employer, which is normally a year’s salary.
Paid Time Off
Employers tend to offer employees paid time off in various forms:
- Sick Leave
- Vacation
- Holiday Pay
- Paid Medical Leave
How much paid time off that’s available is at the discretion of the employer, but employees tend to accrue their time. Some employers may not offer as much time as others.
Retirement
Companies offer 401(k) (or even 403(b)) accounts for employees to save for retirement. The employer and employee typically make contributions to the account.
These benefits aren’t the only ones that businesses offer but they’re the most common. Based on what your company can financially handle, check with an advisor on what benefits your company can offer employees.
Terminating Employees
Everyone you hire will not always work out. Also, your employees could eventually move on to other opportunities. There are proper procedures to terminate an employee whether the decision has been made to terminate them or they are voluntarily resigning.
Notifying Human Resources
As soon as a decision has been made to terminate an employee, or they share their intention to leave the company, notify the payroll manager or human resources office. If the employee is voluntarily resigning, make sure they write a resignation letter that states why they are leaving and their intended last day of employment.
The Louisiana Workforce Commission has a form that terminated employees can fill out and submit for unemployment insurance purposes.
Permissions and Access Termination
Notify your network administrator or the appropriate person of the date and time on which to terminate the employee’s access to the databases used when working. Make arrangements for how these accounts will be re-routed to the organization so that any data will not be lost.
Effective on the employee’s termination date, you will also have to terminate the employee’s access to the building. Depending on your access methods, you will need to disable the employee’s entry code, disable a swipe card, or simply collect their keys. It is in the best interest of the company and the employee to no longer access company property.
Return of Property
Exiting employees should be required to turn in all company equipment, tools, and materials. It could be anything from company cell phones to computers or laptops to credit cards. It’s important to consider what procedure should be in place to retrieve materials back from the employee keeping their dignity intact.
All login information for the employee should be provided to management upon termination. If any of that information is on any personal device of the employee’s then access should be locked to remove access to external databases or any remote access software.
Any contacts or clients the employee communicated with will need to know they can no longer be reached. Set up an automatic email reply informing them and re-route voicemails to another appropriate employee.
Benefits and Compensation Status
Benefits
Businesses that offer vacation time to employees usually pay up to 30 days of unused, accrued vacation time. However, this is normally paid out when employees voluntarily resign with minimum 14-day notice.
For employees that used vacation time they have not yet accrued, employers can deduct that from their final paycheck. Sometimes employers pay out unused sick time if they accrued also.
Human resources are required to send the terminated employee a letter outlining the status of their other benefits separate from paid time off. Depending on your benefits, the status letter should information on:
- Health, dental, and/or vision insurances
- Life insurance
- Expense account plans (i.e.: health saving accounts (HSAs))
- Retirement plans
In the United States, organizations must comply with the Consolidated Omnibus Budget Reconciliation Act of 1980 (COBRA) and extend to eligible employees and their enrolled dependents the right to continue health care plan coverage for a specified period. The coverage will be at the expense of the former employee at full cost.
Coordinate the preparation of the COBRA notice, or a state equivalent, with the insurance provider. Confirm the provider offers coverage through the end of the month of termination. Confirm that the provider allows employees to be continued under group plan if they decide to continue coverage under the COBRA act.
Employees need information regarding rollover of any 401(k) plans and the provider must be informed of the employee’s termination. Life insurance premium payments will be discontinued and those providers are also notified of the employee’s termination.
Compensation
Any unpaid payroll advances will be deducted from the final paycheck. Payroll will also determine if any other deductions are necessary such as unpaid loans, wage overpayments, or lost or stolen company property. They will also have to determine if those deductions are allowed by law. Any automatic deposits will be discontinued.
Payroll will also have to determine what wages are owed to you. Any unpaid expenses (that may be turned in on an expense report), unpaid commission, or any unpaid bonuses will be included on the final paycheck.
Confidentiality and Non-Compete Agreements
Any confidentiality agreement or non-compete agreement that the employee signed when commencing employment should be reviewed to make sure the employee understands what is expected.
Even if the employee never signed such a document, most employee handbooks have a clause or code of conduct paragraph about not sharing company confidential information or trade secrets. Review this and let the employee know that any breach of confidentiality will be addressed.
Confidentiality agreements and Non-Competes are just two types of business contracts you may need.
Exit Interviews
Conducting exit interviews are encouraged because they help the HR department get a better understanding of the work environment. The HR department should schedule an interview upon notification of the employee’s termination.
If the separation is involuntary, you should discuss appropriate details regarding termination like effective date, business reasons for termination, pay, and benefits after termination, or unemployment benefits eligibility. Exiting employees who plan to seek employment, must sign a form giving the company permission to provide reference information when potential employers call.
Give the employee an address update form to fill out if they move. This goes especially for large companies, or those with high turnover because W-2s will come back as non-deliverable if the address has changed. As a backup, verify that the employee’s emergency contact information is up-to-date and that you can contact that person to locate to make sure they get their W-2s to them.
These are simple but important tasks to remember when an employee is exiting. If you follow these guidelines, the difficult process of releasing an employee should go as smoothly as possible in the future.
Setting Wages and Salaries
You cannot successfully run your business without good employees. And you cannot find good employees without offering them competitive pay. Employee compensation is more than an expense—it is an investment that, when made in the right individuals, appreciates over time.
The competition for workplace talent has never been more fierce. As companies compete for employees in a world reshaped by telecommuting and a surplus of vacancies, many are increasing wages. But they may need to look beyond pay to attract—and retain—top talent.
What You Are Required to Pay Employees
The floor for employee pay is established by federal and state law. Workers covered by the Fair Labor Standards Act (FLSA) must be paid a minimum wage of $7.25 per hour. The FLSA covers more than 140 million American workers. While there are some FLSA worker exemptions, including for tipped workers and certain farm and seasonal workers, most businesses should expect to pay workers at least the federal minimum wage.
Twenty-nine states and Washington D.C. have minimum wages that exceed $7.25 per hour. If you employ workers in these states, you must follow state minimum wage laws. The structure of the amount employees must be paid varies from state to state. Check with your state government or a local employment attorney to make sure you are in full compliance.
How Much You Can Afford to Pay Employees
Establishing a ceiling for employee pay often involves a multifactored approach that takes into account company budget, industry-wide rates, and the value of a specific role.
Type of Role
For an employee in a sales or business development role, a sliding-scale approach might make sense based on how much revenue the employee generates. For positions that do not directly make money for the company, consider the job responsibilities and the value they provide. One way to do this is to think about the resulting costs—direct and indirect—of not having an employee do that job. For example, you may be able to save money by doing the accounting yourself, but if you make a mistake and get audited, that savings can quickly melt away in tax attorney fees.
In-House versus Outsourced
You may not need to hire a full-time employee for some roles. Instead of a full-time accountant, IT person, or developer, it might be more economical to outsource the function, at least in the short term. Keep in mind that you do not have to offer benefits to a contractor, which means you may be able to offer a more competitive pay rate that is still less expensive for your business overall than an employee compensation package.
Establish a Pay Range
Regardless of the position, if you decide to make it an in-house role, try coming up with a salary range rather than a set salary. The range can take into account factors such as the role and its value to your company, the worker’s educational attainment and years of experience, the industry, business size, and job location. Use resources such as Payscale and Glassdoor to assess the competition and establish a minimum and maximum pay range.
Factor in Benefits and Perks
Monetary compensation is the number that typically jumps off the page to prospects, but a well-rounded benefits package that includes health coverage, retirement savings, paid time off, and parental leave can be just as important. Perks such as remote work, flex time, game rooms, and free food can also be attractive, but do not overestimate them or substitute perks for more substantive benefits.
There is a growing expectation among younger workers that their employer’s mission aligns with their own mission and values. Although the term “workplace culture” is a bit vague, fostering a workplace that makes employees feel that they belong, are heard, and are supported by leadership is important to many young professionals who want employers that share their values and priorities in their professional and personal lives.
Changing Salary and Work Expectations
The world of work has changed dramatically in the last couple of years. COVID-19 upended the labor market in significant ways. Even as the pandemic subsides, businesses are struggling to fill vacancies. Many employees do not want to return to the office after being allowed to work from home. Others are hesitant to return to work, period.
Companies have responded by offering higher pay, but money may not be a silver bullet, especially among Millennial and Gen Z workers. More talented workers are leveraging their skills to demand permanent remote work. However, this poses a new challenge for employers because the most coveted workers can now compete globally, not just locally. According to Harvard Business Review, these new work realities are forcing companies to take a more holistic approach to talent management.
