No matter the stage your company is in, your primary goal always remains the same: revenue growth. To accomplish this, early-stage companies often focus on product development, validation, market research and customer acquisition. But as your business takes shape, an important part of your growth strategy is your team. Talent is everything.
But when it comes time to grow your team, are you prepared? There’s a lot more to it than simply hiring employees. You’ll likely be faced with this task at least once, and if you’re like most early-stage companies, you’ll face it often. What are the steps to take to ensure that you not only hire the right person, but do so legally?
I talked to our vice president of human resources here at CI, Suzanne Kaswan, and got the skinny on all you need to know.
Step 1: Take stock of state and federal hiring regulations
Employing someone legally requires a lot of work. There are regulations, forms and standards that you’ll need to know about and understand. The Small Business Administration (SBA) put together a nice list of steps to take when hiring to ensure proper compliance. You should keep it handy, especially if you’re making your first hire.
Have new hires fill out these forms either prior to or on their first day.
Step 2: Write a killer job description
After evaluating your needs, the first step to finding the perfect employee is mastering the job description. This is going to be your first point of contact with potential candidates, so you’ll want to make sure it’s clear and accurate. You may be tempted, but don’t make any false promises in your job descriptions. If someone joins your team with an expectation that you can’t deliver on, you’ll be searching for someone new before you know it. HYRELL has some more great tips on writing job descriptions that are well worth a look.
Step 3: Determine salary and benefits
Right out of the gate, it’s important to note that you must provide some benefits to all fulltime employees. These are covered by the SBA and include social security taxes, unemployment insurance, workers’ compensation, disability insurance, leave benefits and family and medical leave.
You can provide other optional benefits including healthcare, retirement plans and pensions, and employee incentive programs at your own company’s discretion. Many employees value a strong benefits package as much or more than salary, so it’s important to consider what you’re offering if you’re hoping to attract top talent.
When deciding salary, you should do some research to determine the market rate for pay in the position you are hiring for as well as a number of other factors. This is a good overview of the steps to take when executing that research.
You should also determine how valuable the new hire will be to your company. If successful, how much will this person bring into your business? This number may be obvious for some positions (like sales people), but if the position doesn’t lend itself to bringing in revenue directly, think about how much time or money they may save you. Will they be doing tasks that allow you or someone else on the team to focus on revenue-generating tasks? Will they save you a lot of headaches? Apply a dollar value to the position and set a max salary cap.
On the flip side, you’ll also want to want to set a salary floor – the lowest you’ll pay someone in the position. This is when you want to factor in the market rate. You can expect to pay your new hire somewhere between market value and your max perceived value – the two dollar amounts you will have determined.
These are tools to help you determine the market rate of the position you’re hiring for.
Step 4: Properly classify the position
Once you have the position defined in terms of description, salary and benefits level, you must also be sure that you’re making the proper legal distinctions. There will be two things to decide:
- Exempt or nonexempt?
This is a determination of whether or not your new hire will be eligible for overtime pay. Exempt employees are not eligible for overtime pay while nonexempt employees are. The Fair Labor Standards Act (FLSA) governs this distinction and it’s important to review the criteria before hiring. Employees that are classified as exempt are generally those who work in administrative, executive or professional positions because the work they do involves duties related to the company’s management. The criteria do vary, however, so it’s important to review the guidelines and seek professional advice if you’re unsure of how to classify your new hire.
- Independent contractor or employee?
While many businesses rely on independent contractors because of the savings in labor costs, reduced liability, and flexibility in hiring and firing, it’s important to understand the differences in classification between an independent contractor and an employee.
An independent contractor:
- Operates under a business name
- Has his/her own employees
- Maintains a separate business checking account
- Advertises his/her business’ services
- Invoices for work completed
- Has more than one client
- Has own tools and sets own hours
- Keeps business records
- Performs duties dictated or controlled by others
- Is given training for work to be done
- Works for only one employer
Misclassifying your new hire as an independent contractor could cost you in payment of back taxes, owed wages and benefits and could even result in legal action.
Step 5: Set expectations for your employees
Once your new employees are hired, it’s important to have documented rules, procedures and expectations. While it isn’t required by law, an employee handbook is strongly recommended for a few reasons:
- It will serve as a reference guide for employees
- It will serve as a management tool for supervisors
- It will serve as protection should any legal issues arise
Ann Kontner of SJ Steptoe & Johnson gives a nice overview of what should go into a handbook in this blog post. As an employer, you have some legal obligations regarding meals and breaks, so you’ll certainly want to include that, but other items may include standards of conduct, an “at-will” disclaimer, an equal opportunity employment opportunity statement, an anti-harassment policy, a benefits overview, a computer use policy, etc.
- Workplace Poster Requirements for Small Businesses (Federal)
- Workplace Poster Requirements (Connecticut)
These are links to posters that you’re required to post in your workplace. You can contact the Connecticut Department of Labor at 860.263.6790 to request that a packet of all required State of Connecticut postings be mailed to you.
If this sounds like a lot, well, you’re right. Managing the human resources function of a growing business can be challenging, especially as your hiring becomes more frequent. Some early-stage companies choose to outsource human resources, and there is certainly some benefit to that. Others feel that bringing on a full-time human resources staff member (or team) is more beneficial, as it’s important for human resources to build a rapport with employees. There are pros and cons to either decision and each situation is unique.
What are the biggest human resources challenges that you’ve run into? Let us know in the comments.