Congratulations, you’re hiring! This is excellent news for your business; it signifies growth, allows for increased production, and you can be proud of contributing to your local economic development. Before you jump into a LinkedIn hiring spree, take a pause to cover the fundamentals. Having employees is no easy task, and compliance is vital for long-term success. Human resources is well worth the investment. Shortcuts lead to steep fines and penalties, so focus on these 3 areas:
1) Proper Classification
During the on-boarding process it is crucial to determine the status of your workers. Are they independent contractors or true employees? The guidelines for classification are unfortunately vague and determined on a case-by-case basis. The IRS developed the Common Law Test, which you can find here: http://bit.ly/21A6O9V
You can do an easy gut check by asking yourself whether you or your workers have more control. For instance, do you provide training? Do you dictate their hours? If you manage their activity it is safe to assume the employee title.
There are financial benefits to having independent contractors, but be cautious, for misclassifying employees is costly. In California the penalty is up to $25,000 per misclassified worker (Labor Code 226.8). Employee lawsuits are on the rise and employees are usually victorious. Learn about the current lawsuit against Uber here: http://nyti.ms/1dKskS1
Remember that proper classification is ultimately up to federal and state authorities and it is your responsibility to comply with their standards.
2) Get Your Payroll Taxes Right
As soon as a company hires an employee, the employer is responsible for reporting employee and employer payroll taxes to the correct agencies. Processing payroll in-house is tedious and requires careful tax calculations. Each employee’s taxes are calculated individually based on his or her marital status and number of allowances. Employer taxes fluctuate based on the company’s specific State Unemployment Insurance Rate (the only controllable tax). Know the specifics before taking this on. It is beneficial to outsource this responsibility to a reputable payroll company to avoid penalties for miscalculations and missing quarterly and annual tax deadlines.
3) Workers Compensation Insurance
Unless you run a business in Texas, it is mandatory to pay workers compensation once you hire a single employee. This is true for part-timers and family members.
You can think of workers compensation as similar to car insurance in that everyone is legally required to have it, but some people don’t. When those without coverage get in an accident, the repercussions are devastating.
If an employee gets injured at work and the company is not insured, the business owner is liable for all damages. Do you need any more reason to go get it!?
The cost of workers compensation is based on the perceived riskiness of your business, claim history, and annual payroll costs. Since payroll is a factor in your workers compensation rate, it makes sense to bundle the two together to avoid overpayments. Workers compensation is an expense but it truly protects your business and employees.
Ginger Willinger is a Compliance Specialist and is certified in Payroll Fundamentals. She welcomes calls and emails at [email protected], 617-894-3546