HOW TO HIRE PEOPLE CHECKLIST
If your company is going to go anywhere, it needs help. There's no way around this. Here's how to get hire personnel and get people onboard. A lawyer will help with this stuff.
Short-form Checklist
____ 1. Get an Employer Identification Number
____ 2. Figure out if the worker is going to be an employee or an independent contractor
____ 3A. If the worker is an independent contractor follow these steps
____ i. Sign an independent contractor agreement with the contractor
____ ii. Decide if you need to make a filing with the IRS
____ iii. Have the contractor fill out a W-9 form
____ iv. Fill out a 1099-MISC
____ v. Have worker complete task(s)
____ 3B. IF THE WORKER IS AN EMPLOYEE FOLLOW THESE STEPS
____ i. Sign an Employment Agreement
____ ii. Set up a system whereby you withhold taxes
____ iii. Verify that the employee is eligible to work
____ iv. Report to your state's new hiring program
____ v. Obtain insurance
____ vi. Post required notices
____ vii. File your taxes
____ viii. Have worker complete task(s)
____ Bonus Point
Long-form Checklist
____ 1. GET AN EMPLOYER IDENTIFICATION NUMBER
The company should already have this. I've mentioned this before when discussing incorporation. An employer identification number (EIN) is like a social security number for the company. You need to file Form SS-4 with the IRS: http://www.irs.gov/pub/irs-pdf/fss4.pdf You can do this online.
____ 2. FIGURE OUT IF THE WORKER IS GOING TO BE AN EMPLOYEE OR AN INDEPENDENT CONTRACTOR
An employee is someone who performs services for you and you control how and when it will be done.
An independent contractor is someone who operates their trade, practice, profession and offers their services to the general public.
Why does this matter?
Taxes.
Employers have to pay certain types of taxes for employees that they don't have to for independent contractors. It is therefore economically advantageous for employers to hire a contractor to perform services rather than an employee. But just because you say a worker is an employee or a contractor does not make it so. It doesn't work that way. The IRS doesn't just follow whatever you decide to say.
So here's the deal:
The more control you have over the individual concerning matters of behavior, timing, manner, etc. the more likely that the person will be considered an employee under the eyes of the IRS.
So this is a subjective thing. These are the factors you need to look at:
____ i. Look at who has behavioral control
Does the startup company control how the individual conducts business, when, how and in what matter the work needs to be accomplished? Does the company get to decide the hours the worker performs tasks? Has the company given training instructions, etc. to the individual?
If yes to many of these questions, then the individual is more likely than not an employee.
____ ii. Look at financial control
Does the startup company control how the individual gets paid? Does the company direct the financial and business aspects of the worker such as reimbursements, investments in the worker's tools, etc?
Here again, the more the company controls these aspects, the more likely the worker is an employee.
____ iii. Look at the relationship
What kinds of agreements are between the company and the worker? How permanent does the relationship seem? What kinds of benefits are provided to the worker? Note that just because you write in an agreement that the worker is an independent contractor does not make that person an independent contractor. You have to look at the totality of the circumstances.
Once you determine the employee or contractor classification of the worker, do the following:
____ 3A. IF THE WORKER IS AN INDEPENDENT CONTRACTOR FOLLOW THESE STEPS
____ i. Sign an independent conractor agreement with the contractor
Include the following:
____ a. What the contractor is going to do
____ b. How much the contractor is going to be paid
____ c. How the contractor will be paid
____ d. Length of the contract
____ e. Non-disclosure terms
____ f. Rights and responsibilities including that the contractor is responsible for insurance liability and paying all local, state, and federal taxes
____ g. How either party can terminate the agreement
____ h. Statement that the contractor has all proper licenses
____ i. Statement that defines the relationship as a contractor relationship and that the contractor is not entitled to any employee benefits
____ j. Statement as to who will provide the materials (usually contractor)
____ k. Statement as to who will pay expenses (usually contractor)
____ l. Who has intellectual property rights
____ ii. Decide if you need to make a filing with the IRS
The startup company will have to make reportings to the IRS if a certain amount of money for compensation is changing hands. The IRS likes to know if money for compensation is dished out.
Generally, a company has to make a reporting to the IRS if it pays a contractor, partnership, or LLC more than $600 during the year in business related payments.
____ iii. Have the contractor fill out a W-9 Form
If you've determined that filings are necessary, then the company needs to request a W-9 from the independent contractor. The purpose of this form is to tell the startup the correct name and tax identification number, etc. of the contractor.
____ iv. Fill out a 1099-MISC
This is the most common type of 1099. Fill it out. Give one copy to the contractor. File one copy with the IRS.
____ v. Have the worker complete task(s)
This is self-explanatory.
____ 3B. IF THE WORKER IS AN EMPLOYEE FOLLOW THESE STEPS
____ i. Sign an employment agreement
Include the following:
____ a. Information about the employee's responsibilities job
____ b. Duration of the assignment
____ c. How much the employee will be paid
____ d. How the employee will be paid
____ e. Statement about what if any benefits the employee will receive
____ f. Statement that the employment is at-will
____ g. Confidentiality agreement; protection of company trade secrets
____ h. Non-compete agreement
____ i. Grounds for termination
____ j. Statement that the company owns the work product of the employee (i.e. invention assignment agreement.)
____ ii. Set up a system whereby you withhold taxes
____ a. ON OR BEFORE THE START OF EMPLOYMENT HAVE THE EMPLOYEE FILL OUT AND GIVE THE STARTUP A W-4
You can find the form here: https://www.irs.gov/pub/irs-pdf/fw4.pdf
This tells the employer how much taxes the employer should withhold on behalf of the employee.
____ b. THE COMPANY MUST SUBMIT THE W-4 FORM TO THE IRS
____ c. THE COMPANY MUST LATER ALSO SUBMIT A W-2
This is a statement to the IRS and to the employee as to how much pay was withheld for each employee.
____ d. MAKE ANY NECESSARY FILINGS WITH THE STATE TAXING AUTHORITY
This will vary from state to state.
____ iii. Verify that the employee is eligible to work
The startup needs to make sure that the employee may be hired to work in the U.S. The way this is done is by using Form I-9 to electronically verify the worker's eligibility. https://www.uscis.gov/e-verify
____ iv. Report to your state's new hiring program
This obviously varies state to state.
____ v. Obtain insurance
This includes disability, worker's compensation, unemployment insurance. Some states require this stuff. Others like Texas don't require some of these.
____ vi. Post required notices
These are those posters you see in employee work rooms and such. Which ones you use depend on your location, business-type, etc. Use this site as a guide: https://www.dol.gov/whd/resources/posters.htm
____ vii. File your taxes
File your taxes quarterly by filing Form 941. Form 941 is used for two purposes: reporting to the IRS on a quarterly basis how much taxes are being withheld and to pay the employer's share of social security/medicare taxes.
____ viii. Have worker complete task(s)
____ BONUS POINT: PAPER-TRAIL THE SHIT OUT OF EVERY STEP YOU MAKE
Legal disputes slow you down. Employment matters are one of those things that seem like they're not a big deal until they are a big deal. They are ripe for litigation. Avoid these problems and behave with caution.