Q. Dear Zenagos,
I run a truck repair business, and I have more work than I can do myself. I’m hiring employees for the first time. What should I watch out for?
Congratulations! If you need to hire employees, then you must be doing quite a few things well. Most small business owners never get to that point. In fact, the U.S. Small Business Administration (2023) reports that 81.7% of the more than 33 million small businesses in the US have no employees (other than the owner of the business). When you are hiring for the first time, here are some of the things you should consider.
How much do you know about employees?
Most people use the word “employee” generally to refer to people who work on behalf of a company. However, the definition of “employee” is very specific, whether it is local, state, or federal. You need to decide whether you are going to hire independent contractors (who make most of their own decisions about how to perform their work and who are reported to the IRS using form 1099), part-time employees (who work fewer than 32 hours per week, will follow your instructions about how to perform their work, and are reported to the IRS using form W2), or full-time employees (who work an average of 32-40 hours per week).
If you don’t know much about employees, then you should build a relationship with a local attorney who specializes in small businesses. Ideally, get a recommendation from a friend who owns a small business and has worked with the attorney for a while. Your local chamber of commerce may also be a good resource. Attorneys are expensive, but they are a lot less expensive than lawsuits, and they will point you toward resources that will help you make decisions about what kind of hiring to do and how to stay out of trouble.
Do you need employment agreements?
Your small business attorney will know the laws that apply to your situation and can advise you what kind of paperwork (if any) to use with your employees. You may wish to have employees sign agreements that protect your company’s intellectual property (confidentiality and/or non-disclosure), that prevent employees from leaving and hiring away other employees (non-solicit), and even that may prevent employees from leaving to work for direct competitors (non-compete).
What are employer taxes?
When you first start hiring employees, you may be stunned at the new set of responsibilities you assume as an employer. You are probably aware that employers withhold various taxes from their employees’ paychecks (such as social security and medicare). However, you may not know that employers also pay an additional share of these taxes. You can get help preparing payroll checks by hiring a payroll service (such as ADP or Paychex) or using an accounting software with built-in payroll capabilities (such as Quickbooks or Xero). It is also smart to develop a relationship with an accountant who specializes in small businesses and can help you understand the costs involved in managing employees, so you know what to expect.
Create a clear job description
Employees will look carefully at your job posting, so it pays to make a clear and appealing job description. Look at postings for similar jobs offered by other employers, and decide what you need to put in yours. Also look at our recent blog post about job postings. The clearer you are about what you want, the more likely you will be to attract the right kind of candidate.
Plan out your hiring process
Think about each step in your hiring process, and write a checklist for what you will do. It is fairest to treat each candidate the same way, and it will help you keep track of what you have said about the job to each person. Candidates often ask about the steps in the hiring process, so be prepared to tell them what the steps are, how you will decide, and when you are likely to make a decision. Be careful not to make promises, since you may have to change your mind, depending on candidate availability.
Vet your list of questions
Once you have written up your interview questions, have your attorney check them to make sure they are legal. Some questions are illegal in some areas. For example, in some states, it is illegal to ask a candidate about salary history. You may also be subject to local rules about credit checks and background checks. Make sure that everything you intend to do has been vetted by your lawyer.
Try including a practicum
An important way of making sure that a candidate can perform the desired work up to your standards is to test their skills during the interview process. Check out our blog post about using a practicum.
Remember that you are selling yourself and your company
You want your employees to be excited to work with you, so don’t just grill them about their experience. Make sure that they understand what the benefits are of working at your company. What skills will they learn that will increase their employability and market value? What input will they have into the way their work is completed? Employees care about salary and benefits, but they also care about whether their work will be appreciated and whether they have a say in how it is done.
Know that you will make mistakes
No matter how great your hiring process is, you will make some mistakes. Hiring is difficult, and you won’t really know who you are working with for weeks or even months. So, give yourself some grace, and don’t expect that you will be perfect.
Make a quick decision: train or separate?
When you do make a hiring mistake, what is most important is that you make a decision quickly about how to proceed. If you feel that the employee wants to and can improve, then explain what improvement is needed and invest your time and energy in training and support to get the employee up to your performance standards. When you put an employee on a Performance Improvement Plan like this, it is important that you document each conversation, keeping track of what you said in each meeting, in case you need that information later.
If you feel that the employee does not want to or cannot improve, then you need to begin the separation (or “firing”) process. A consultation with an attorney is also wise before you fire an employee for the first time. It is normal to be apprehensive about firing someone, but you shouldn’t avoid doing it. The sooner you separate and move on, the sooner both parties can find an employment relationship that works.
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U.S. Small Business Administration – Office of Advocacy. (2023). Frequently asked questions about small business (report). U.S. Small Business Administration. Retrieved on September 28, 2023, from https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf