Congratulations, you hired your first employee! Your business is growing fast, so you decided it was finally time to hire some help. Now that you are officially an “employer,” how have things changed?
Suddenly, you are required to pay Federal and State taxes based on employee wages. Depending on where your company is located, local taxes may apply as well. In addition to those taxes, there may also be local taxes to be withheld based on where the employee resides. Yes, we know it can get confusing, especially since that is only the beginning of payroll.
Worker’s compensation is next on the agenda. Worker’s compensation protects your employees if they get injured on the job. It is a requirement that employers carry worker’s compensation insurance. Therefore, if you hire an employee without having worker’s compensation, you could be fined by the state you are domiciled in. These fines can be hefty and may not be something you can have removed or reduced if you should try to procure a policy retroactively. The best and safe practice is to have a policy in place before an employee receives their first check.
Another part of worker’s compensation is the OSHA (Occupational Safety and Health Administration) recording and reporting, especially for industries that fall within OSHA guidelines as risky industries. OSHA logs are the recordings of worker’s compensation claims and the rules can be mind boggling. It can be extremely difficult to understand what you, as the employer, need to do in the event an injury does occur and how it should be recorded.
You, as the employer, are also required to make sure your employees are aware of their rights under worker’s compensation laws, and that they are covered by a policy. What are you required to show, or post on a wall, or give your employees to stay compliant with the law?
Along with carrying a worker’s compensation policy is the responsibility of the safety of your employees. The goal is to protect your employee no matter the job. Some jobs are riskier than others and as an employer it is your responsibility to recognize those possible safety hazards and to provide the equipment, policy, and procedure to keep your employees safe. The best practice is to understand the job your employee will be doing, from something as simple as sitting in front of a computer, operating an electrical line, cutting down a tree, or driving a truck across state lines, etc.and having a Safety Manual/Policy that will help protect against a worker’s compensation claim. Without proper handling of your employees safety, you can experience a worker’s compensation claim that could cost you a trained employee, money, and time. This is just one of the many areas, as an employer, you will need to think about and manage.
Now the ambiguous part; Human Resources. You have one employee and you’re unsure if you need to do all of this. The fact is, is that not being aware of human resources compliance can lead to employment litigation.
There are many HR-related questions to consider when you have employees. A few common examples are listed here:
- Do you need to post a labor poster?
- What classifies an employee as exempt versus non-exempt?
- Are my employees subject to overtime pay?
- What do you do when “John or Jane” lose a family member or loved one?
- Are you hiring legally? Are you aware of immigration compliance and completing I-9 forms?
This is where you need informed guidance. Some states have specific rules around paying an employee for unused paid time off or very specific sick leave policies that you must comply with regardless of whether you have one employee or thousands. Furthermore, when you want to terminate an employee, employees may be protected by law and a quick termination without consulting with an attorney or a human resources specialist can cost you thousands of dollars in wrongful discharge litigation expenses. Even though most states are an “at will state”, this does not prevent a former employee from contacting an attorney and filing a suit. Some of these just get settled because it is generally less expensive to settle rather than the time and energy spent to litigate a case.
What if an employee loses a family member and that “family member” is their significant other’s family member–does that mean that your employee gets bereavement? These are things to think about and start to build your employee handbook. How about social media at work? What should be your policy be around that? What about breaks and lunch time? As much as we like to think we hired the employee that is going to work for the company as if it were their own and put in the same time as you do, they might not. They do have a life and there’s a reason they decided to work for someone as opposed to start their own company. Handbooks are an important guide for the employee and you have to make sure everyone understands expectations. About 90% of employee / employer issues can be thwarted by having a good handbook in place. You can even have an attorney write one for you.
Of course, your employee will also want you to contribute to their medical insurance. Medical benefits are crucial for most employees (unless they are under 26 and still living with their parents, then maybe they can stay on their parents’ insurance). But do you really have the budget to support benefits as a startup? While it is not mandatory to offer insurance at your current company size, it will make employment at your company look much more attractive.
However, most carriers won’t underwrite the coverage without two or more participants. So what can you do? Send them to the ACA Exchange and someone from the government will help them choose the coverage that is best for them. It is best to stay out of it due to privacy concerns.
Next, employees might ask for a retirement plan. Nowadays, most providers do not want to offer retirement plans to companies just starting out. Your best bet would be to offer an inexpensive IRA. Although the contribution limit is less than that of the 401k, it is a very good idea if you cannot afford a 401k. It will also help you attract better talent.
Dealing with employees can be challenging, not just from a financial perspective, because now you have to manage everything that a new company offers its employees in order to be competitive in the marketplace. By partnering with a PEO, you streamline your transition into becoming an employer with excellent benefits right out of the gate.
Welcome to the world of having an employee. The good news is that when you hire your second employee, everything will be in place.
If you do need help, CLEAR Employer Services provides everything in one place.