Published September 2007

Becoming an Employer

By Fred S. Steingold (page 28)

These hiring and employee relations tips can help, whether you are adding staff for the first time, or striving to improve your leadership.

Many small businesses can survive for years without employees. In some cases, the owners do all the work. In other cases, they use independent contractors. Then one day the owners decide they need employees if their business is to thrive and grow.

So when that day comes, what steps should you take to do it right? Here are some of the basics. These tips also can help you if you’ve already started hiring workers, and want to make sure you’re not missing anything.

Get an employer ID

The IRS and many state tax departments use an employer identification number to track employment taxes. If you don’t already have a number, go to the IRS web site, www.irs.gov, and look for Form SS-4. The instructions are there, too. You can fill in and submit the form online. Or, if you prefer, you can submit it by mail or fax. Technically, if you’re a sole proprietor, you can use your Social Security number instead of an Employer ID Number. It’s usually better to get a separate number for your business.

Write job descriptions

Focus on qualifications: the skills, education, experience, and licensing needed for the job. Then turn to the essential job functions — the core of the job. Don’t try to exclude someone just because the person can’t perform some marginal job duty. (To do so would violation the Americans with Disabilities Act.) It’s all right to identify some non-essential duties — things that are desirable but not strictly required.

Create a job application

A standard form makes it simple to compare applicants. Cover the applicant’s educational and employment history. Avoid unlawful questions. Some examples:

• How old are you? (But if you need to find out if the applicant is legally old enough to work, you can ask, Are you 18 years or older?)

• Have you ever been arrested? (But you can ask, Have you ever been convicted of a crime?)

• Do you rent or own? (But you can ask, How long have you lived in this city?)

Interview applicants

Write down your questions so you can ask everyone the same things. Stick to the applicant’s skills and work history, and to your work rules. Avoid personal inquiries. Let’s say you’re worried that an applicant may have young kids and may spend lots of time talking to them on the phone. Don’t ask: Do you have children? or, Who watches the kids when you’re at work? But you can safely say: We don’t allow personal calls during work hours. Do you have a problem with that?

Do a background check

At the very least, you’ll want to contact former employers. If the job requires handling money, you’ll probably want to do a credit check. An applicant with financial problems may have sticky fingers. And if the applicant will be going into customers’ homes, it’s smart to check for a criminal history.

Make a job offer

Use a simple letter that states the job title, the salary, and the starting date. Have the new employee acknowledge that the employment is at-will. This means you can fire the employee for any reason or for no reason.

Complete official paperwork

Fill out Form I-9 for each new employee. This helps the government make sure it’s legal for the employee to work in this country. Have each new employee complete a Form W-4. You need this information to know how much income tax to withhold.

Fill out a New Hire Reporting Form and send it to the appropriate agency in your state. Your state’s Department of Labor can give you details.

Handle payroll taxes

Uncle Sam relies on you to withhold income tax from each employee’s paycheck. You also need to deduct the employee’s share of the Social Security and Medicare taxes. Then, periodically, you pay these taxes to the IRS, along with the employer’s share of Social Security and Medicare. For details, see Circular E, Employer’s Tax Guide, at www.irs.gov. States and cities have similar requirements for withholding income tax.

Secure workers comp insurance

This insurance covers workers who are injured on the job or get a work-related illness. The insurance company pays certain medical and wage benefits whether or not your business was at fault. The employee can’t sue your business for pain and suffering, unless there was intentional misconduct. You can buy this insurance through a state fund or a private insurance. It depends on where you’re located.

Meet your unemployment obligations

The IRS collects a federal unemployment tax. So do the state governments. Check with your state unemployment office for details.

Post workplace notices

A number of federal laws require you to display a poster in the workplace. A poster tells employees of their rights, for example, under the Family and Medical Leave Act. Several publishers offer a complete federal poster for a nominal cost. Enter “federal job posters” in a search engine to learn the names of these companies. Posters for each state are also available.

By learning to follow the rules and to do things right, you’ll set yourself on the path to becoming a good employer.