Your first hire is a scary moment in your company’s life. However, if you prepare properly, you can remove a lot of risk.
What is a First Hire?
It isn’t a dumb question. A first hire is anytime you go from 0 employees to more than 0 employees. These employees can be part-time or full-time. They can be exempt or nonexempt. They can even be owners in the company if the company is a corporation.
Contractor versus Employee
Many companies try to avoid having employees by classifying everyone as a contractor. The differences are important. The Department of Labor and IRS looks solely to their criteria and disregards your labels. If you misclassify a worker, the fines are typically higher than the savings. Therefore, you should be crystal clear on your classifications.
Exempt Employees
The next step is determining if your first hire is an exempt employee or not. Exempt employees are exempt from overtime pay. For example, certain managers and outside sales representatives are exempt. These employees are easier. Therefore, your process is easier. You should look at the Department of Labor’s website for accurate, up-to-date, guidance on this.
Offer Letter
You need to write up a simple offer letter. Most employees, in North Carolina, do not sign an employment contract. They are at-will employees. In other words, companies can fire these employees at any time for any nondiscriminatory reason. Ideally, your employees will be at-will as well. If you want at-will employees, you start your onboarding process with a simple offer letter. It should state the job position, starting compensation, supervisor, deadline to accept, what documents the employee will be required to sign, and any other contingencies. Basically, your offer letter states your employee expectations.
Employee Handbook
If you have employees, you need an employee handbook. This document addresses all the broad policies of a company. Topics include payments, uniform, benefits, and other policies and procedures. You should have one handbook that covers all employees in the company. For aspects specific to certain employees or groups, you have separate policies.
Equipment Policy
If your employees use company equipment, you need a company equipment policy. This policy provides cover to fire an employee in case that employee harms or misuses your equipment. However, it won’t protect you from damage or harm caused by your employees. You will still need insurance for that.
Restrictive Covenants
Restrictive covenants are policies that prevent employees from doing something they are otherwise legally permitted to do. For example, a non-compete prevents your employees from competing with your company during and a certain amount of time after employment. Nondisclosure, non-solicitation, and non-compete agreements are all very useful if used right. For the most part, they must be entered into prior to starting employment to be valid. We have a blog on the standard for non-competes for employees.
Bonus Plan
If you want to have a bonus plan, you need to set this up prior to your first hire. This gives you time to think about how your bonuses will be given.
Benefits
Any benefits you will have should be thought out and setup prior to your first hire. Some benefits can take time to setup, so be sure to give yourself enough time to complete the process before onboarding an employee.
Employee Stock Option Program
Employee Stock Options are a tool to allow your employees to own part of your company. They’re used as an incentive. Employees who own a part of the company tend to care more about the overall success. These can also take a large amount of time to setup, so you should get started ASAP.
Payroll Company
Although not a legal requirement, I highly recommend using a payroll company. You do not need one of the over-the-top companies that offer a full outsourced HR department. However, even the cheap, online only, payroll companies provide a valuable resource. They will handle your monthly withholdings and compilation of tax and other human resource documents. Some of these more affordable companies will even handle your unemployment and workers compensation insurances for you.
Workers Compensation Insurance
The requirements for workers compensation insurance vary based on what state you’re in and what industry you’re in. In North Carolina, the default is that you’re required to have workers compensation insurance once you have 3 full-time employees unless you’re in a high-risk industry. If you don’t have this insurance, you will be fully responsible for any and all on-the-job injuries. If you’re risk-adverse, you should get this insurance regardless.
Insurance
Under North Carolina law, you’re required to have unemployment insurance when you hire your first full-time employee. Typically, one of your other professionals or payroll company will set this up for you.
Routines
It is advisable to have your common routines in place before your first hire comes on board. This way, your employee can start and immediately get going on what you need them to do instead of having to ask a million questions. No task is too small to think through prior to hiring your employee.
Other Insurances
If your employees require specific insurances like professional liability insurance or errors and omissions insurance, you should get these setup prior to hiring your first employee as well.
If you’d like help getting your company ready for your first hire, please feel free to contact us using the form below. Additionally, we can be reached by email at info@lawplusplus.com or by calling 919-912-9640.