Three Common Employment Mistakes Smart Business Owners and Entrepreneurs Can Avoid
1. Not Understanding Laws Surrounding Contractors and Employees. For many startups, when the work becomes too much for the founder, they don’t have the cashflow for a full-time employee. Instead, they hire a contractor on an as-needed basis.
There is a huge body of law between the IRS and the Department of Labor defining an employee. It isn’t dependent on the number of hours, but on the level of control you exert over your worker. If you hand someone an assignment, a price and a due date, they are probably a contractor. If you require them to work specific hours, wear a uniform or follow your dress code, complete tasks in a certain sequence or use your tools/supplies in your office, they are probably an employee. For employees, you have to withhold payroll taxes and hold them in trust for the government. If you misclassify, the penalty is double the amount you didn’t withhold, and you can be personally liable - even if you have a corporation or LLC.
2. Not Having Workers Comp Insurance. Workers Comp is required upon hiring your third employee – full or part-time and including the owners. Even if you are not required to carry Workers Comp, you are responsible for paying for on-the-job injuries. Also, make sure you timely report these injuries, even if you don’t make a claim. Something that seems minor that you’d rather pay out of pocket without making a claim can sometimes turn into “a thing.”
3. Not Documenting Employee Issues in Real Time. We often get calls from clients when they have reached the end of their rope with an employee. They want to fire the employee for being late, having a bad attitude, consistently not following the rules. Often, the employer hasn’t kept records or documented these repeated infractions, and it is more difficult to fire the bad employee. Also make sure you are keeping your personnel files locked or otherwise secured.