scc recruiting employees bus 207, courtesy of sjh 1 recruiting and selecting employees for the small...

SCC Recruiting Employees Bus 207, courtesy of sjh

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Recruiting and Selecting Employees

For the Small Business


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Have any of you been involved in Recruiting or Selecting Employees?

o What was your first Problem?Who

Job description?PersonalityWages requiredSkills needed

HowReferralWalk onHow to recruit

Is Interviewing a

good predictor of future job

performance?


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Self- Employment has Advantages… and Disadvantages

• A disadvantage of being self-employed is you may not have anyone to help out.

• You ARE #1 in your business.• The problem is you might be the

only one.• If you ARE the business, you

undoubtedly have a lot of responsibilities, and very little time to “take a break”, let alone a vacation!


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Self-Employment: Limited CapacityHow does a self-employed person

spend their time?25 hours per week producing the

product or “billable hours.”10 hours marketing.5+ hours on administrative-

management activities.At $50 per billable hour, that is:

$1,250 per week, $5,416 per month, or $65,000 per year, before expenses AND before a vacation!

Is $50.00/hr a

reasonable

guess for your

budget?


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Limited Capacity and Life (of a sole proprietor)

• The business is reliant on you.• Without you, there isn’t any revenue

coming in.• If you get sick, you don’t have back-up.• If you go on vacation…it’s “un-paid.”• After 10, 15, or 20 years, when you

want to retire, what do you have to sell?

• Does the business retire with you?


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Advantages to Hiring Employees

• They can be trained to run the business in your absence.

• You are setting up an infrastructure that perhaps you can pass on or sell to someone.

• You can delegate the admin jobs (or the stuff you least enjoy).

• You can expand your business beyond the single-person capacity!


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Making the Decision to Expand or Not?

Like starting a business, the decision to expand and take on employees, should not be taken

lightly!

Ask yourself these questions:

1. Are you ready to expand?

2. Can you afford it? (do a proforma projection!)

3. Are you ready to take on more management responsibilities?

4. Are you ready to give up control?

5. Can you take on more risk?

What

happens if

you don’t

expand?


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The Rising Cost of Hiring an Employee

Before taking on an employee, consider the overall impact and cost to hire-

• The salary or wages• The state and federal payroll taxes• Mandatory insurances • Increased Insurance• Benefits• Changing the “environment” of the business to

ensure safety.


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Hiring New Employees: The Paperwork- Federal Requirements

Federal Law requires you, the employer to withhold, report and pay over to the federal government certain deduction from your employees’ wages-

You must report-

•Employee’s federal income tax- FIT (use tables)

•Employee’s contribution to Social Security-FICA 6.2%

•Employee’s Contribution to Medicare – Medicare 1.45%

•Federal Unemployment- FUTA 1.45%

An employer is required to file for a FEIN- (also called EIN) federal employee identification number Form SS-4

Hire a service!


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Federal Tax EIN Form SS-4

• Go on-line to www.irs.gov

• Click on business related topics- Employer ID Numbers

• Click on How to Apply for an EIN

• Fill out form and submit

• You will get a number on the spot

• Or Fill Out Form SS-4 and Mail

http://www.irs.gov/


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State Employment Tax Filing

• State laws require you to register with the EDD as soon as you pay wages over $100. Give the EDD your FEIN number (state calls it the EIN)

• You must report and pay or withhold the following to the state:

Unemployment Insurance- SUTA 3.4%

Employment Training Tax- ETT .1%

State Disability Insurance SDI 1.18%

California Personal Income Tax SIT (use tables)


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Be very cautious

trying to may

associates

INDIPENDENT

CONTRACTORS!

Employees Vs Non- Employees

• Six categories of workers– Common-law employees– Statutory employees– Statutory non-employees– Independent contractors– Individuals referred by a Temporary or

Staffing Agency– Leased Employees


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Common-Law Employee

• Under IRS Guidelines, individuals are considered “common-law” employees when they meet the common-law test. This test determines whether the employer exercises control over the employee in the following areas

COMMON-LAW TEST• Who performs the work• What will be done• How will it be done• Where will it be done• When will it be doneWorkers who meet the

common-law test are considered employees even if the relationship lasts for only 1 hour


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Statutory VS. Non Statutory Employees

• “Statutory” do not fit the example of “common-law” employees, but are still employees-

• Examples:– A driver who is an

employee’s agent or paid commission

– A full-time life insurance agent selling for one carrier

– Payments are NOT subject to FIT (federal income tax), but are subject to FICA, FUTU and SUTA.

• Statutory Non-Employees are compensated based on sales and other achievements, not by the hour.

• They include-• Direct Sellers, Licensed

Real Estate Agents• Payments are exempt

from employment taxes• Operate like an

Independent Contractor• Your obligation is to send

1099 at Year-end.


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Independent Contractor vs. Employee

• The use of an Independent Contractor or IC has undergone scrutiny in the past decade.

• The IRS and the EDD enforce a social policy that states people should be employees- (whenever possible)

• This policy is to protect employees not to punish employers.

• BEWARE of the differences between IC’s and Employees!


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Exempt VS. Non-Exempt

NON-ExemptEmployees covered by the

overtime provisions of federal/state laws are called Non-Exempt

Duties not titles determine exempt status!

Incorrect filing of status leads to penalties

EXEMPTTo have exempt status your

employee must fall into a certain “salaried” category

Examples include-ExecutivesAdministrativeProfessional Outside SalesNormally paid salary…NO

Overtime


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IC Checklist The IRS 20 point list…

No instructionsNo trainingServices to not have

to be delivered personally

Work NOT essential to firm

IC sets hoursNo on-going

relationship

IC’s have other work IC’s determine job

location IC’s pay business

expenses IC’s have own tools IC’s can make a profit

or a loss IC’s cannot be fired

“at will.”

IC = Independent

Contractor


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Independent Contractor vs.Employee…the risk

If the IC works and “acts” more like an employee, the government is going to “label” them an employee.

The real problems often come after the IC leaves the organization and tries to collect unemployment compensation.

Your organization could be liable for all back payroll expenses AND penalties.

Always consider your risk

bringing on Independent Contractors


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Necessary Documentation for IC’s

To minimize your risk, make sure you have the necessary documentation on your ICs.

• Copy of their business license and possibly their insurance

• Hold harmless agreement in the contract (with conflict of interest clause if needed)

• Signed form of IRS IC Checklist• Current & past contracts (hold for

7 years after the contract completion)


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What about “under-the-table?”

• It’s true many small business owners will pay people “under the table” for services rendered

• The government doesn’t have “stats” on this market.

• Remember, it is your business…and your risk!


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Alternatives to Hiring an Employee

• Source out work to other small businesses. This works well for certain administrative

jobs like-

payroll, bookkeeping, security, cleaning

• Use a Staffing Agency

This works well for part-time help or seasonal help & when you don’t want to deal with the paperwork.

• Take on Independent Contractors


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Options for Recruiting Quality Employees

Places or Postings Newspaper Ads Internet Sites Bulletin Boards-

internal & external Employment

Agencies Postings at

Universities or colleges

People, Organizations Referrals

Internal Recruiting Staffing Agencies “Head-hunters” College Campus Through referrals Government

Employment Agencies (EDD)


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Using a Staffing Agency

•The person sent to you is technically an employee of the staffing or temp agency.

•The Staffing Agency deals with payroll, checks and all taxes.

•You pay an ”hire amount” to the staffing agency and they pay the employee.

Temp to Perm


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Pro’s & Con’s of Using a Staffing Agency

ProsOften quicker than

recruiting yourselfStaffer is screened

through the AgencyNo employment

paperworkCan use for limited

time without hiring

Con’sHourly rate is much

higherLess control on who

they send youMany temp firms will

not have the person with the right technical background


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The Fine Art of Recruiting

Employers recruit job applicants through a number of sources. If an business is large enough they will have their own established recruiting division (staff), and a recruiting strategy and policy.

Recruiting sources are normally 1) Places 2) People


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EDD “Employment Development Department” Services

• More than just helping you file for unemployment or fill out an EIN number

• The EDD- has the largest on-line Job Bank, to post your vacancy or seek qualified candidates.

• The EDD can help you screen workers, and have offered OJTP programs


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Government One-Stop Shops

• You can save money by going locally and utilizing the government “one stop shops” provided by the WIB- Workforce Investment Board.

• The WIB is a one-stop including EDD, Solano Employment Connection and other non-profit assistance organization

• They provide services in recruiting, screening, training, labor market information, EEO compliance, payroll tax information, and downsizing services


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On-line Recruiting Services

A growing number of job seekers are using on-line recruiting services..

Advantages for the employer are they are less expensive, easy to post vacancies and they have wide-range of publicity

• Flipdog• Monster.com• Careerbuilder.com• Northbayhelpwanted.com


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Employment Legal Issues


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Fair Labor Standards Act

• Workers must be identified as non-exempt or exempt.

• Business that make less than $500,000 MAY HAVE EXEMPTIONS (VERIFY!).

• Non-exempt must be paid at least the minimum wage and receive over-time pay after 40 hours at 1.5 times (see state law).

• Equal Pay for Equal Work!


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Penalties for Abusing Wage Laws

• Ignorance is not an excuse.• Many small businesses have received stiff penalties and

fines for violating state wage laws and the FLSA.• Fines of $1,000 per employee if classification of exempt-

non-exempt is incorrect.• Exempt employee must be executive, administrative or

professional employee with min salary of $250 per week.


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More Employment Laws to Review

• Title VII of Civil Rights Act – companies with 15 or more employees: Prohibits discrimination.

• Equal Pay Act – Amended Title VII• American Disabilities Act – ADA –

prevents discrimination due to disabilities.

• National Labor Relations Act – Right to Form Unions.

• Age Discrimination in Employment Act - companies with 20 or more employees.

Now we know why

businesses limited their employees

to 19!


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…and more Employment Laws

• Family & Medical Leave Act – Companies with 50 + employees.

• Occupational Safety & Health ACT – OSHA – All Businesses.

• Workers Compensation – mandatory “insurance”.

• Immigration Reform & Control Act & Immigration Act – All Businesses.


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Immigration Law Acts and How that Impacts Your Hiring Procedures

• The immigration Acts of 1990s were enacted to prevent illegal aliens from working in the U.S.

• You are required to have new employees fill out an I-9 or Employment Eligibility Verification Form.

• The Company must retain the form at the business location.

• Fines are imposed if you do not have proper documentation.


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OSHA: Occupational Safety & Health Act

Law designed to reduce workplace hazards & improve health & safety programs for workers.

• OSHA does not apply if:– your self-employed– your business is a farm that employs your family– mining business (has other regulations)

www.osha.gov


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OSHA Posting & Reporting

• You must post a notice called Job Safety & Health Protection.”

• Many specific industries (restaurants) have other notices that must be posted.

• Keep records of safety if you have ten or more employees, for over 10 years.


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California Small Business Hot Topics- Impacting Employers

– Worker’s Comp Reform– Nearly 80% of all voters support the cost-cutting Reform Bill– Check out www.fixworkerscompnow.org

» Faster payment» Penalty provision for not paying» Voc Rehab replaced 1/1/04

– Unemployment Insurance Tax Hikes– The current system is bankrupt, proposed 74% increase on UI Tax

– Mandatory Health Care Proposition 72“Play or pay Health care Obligation”…in 2006 all businesses that

have over 200 employees will have to provide health benefits. 2007 all business over 20.

• Employer must pay or penalty applies• Employer must collect & transfer fees

–

http://www.fixworkerscompnow.org/


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More California Small Business Hot Topics- Impacting Employers

– Customer Harrassment AB76• An employer can be liable for harrassment if their employee

harasses a customer

– “Sue Your Boss” Bill SB 796- Also referred to as the “Bounty Hunter Law”

Employees can sue their bosses for varied statutory labor codes being violated, creating a multitude of lawsuits.

- Whistle Blower Protection (SB777)- Forbids employers from adopting policy or rule forbidding

employees from reporting alleged violations. Forbids employers from discharging or discriminating against employees who make a report.


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Other Considerations Before Starting the Hiring Process

• What do I really need the employee to do? Do a job analysis and then establish a Preliminary Job Description.

• Establish the future-employee’s “wage rates.” Are you competitive? Will this employee get benefits or be an “exempt” employee?

• Develop a typical work schedule.• Revise the Organizational Chart.


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Class Assignment (Optional) for next week, November 6th, 2004

1. What should you do before you “hire” an employee for your business. Where and how will you recruit?

2. What obligations or responsibilities do you have as an employer in the state of California?

scc recruiting employees bus 207, courtesy of sjh 1 recruiting and selecting employees for the small...

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