How to Hire Your First Employee

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1

Federal and State Tax Compliance

Hiring your first employee can be a very exciting time. You will finally have time to do all those little nagging administrative things you have been meaning to do you while the employee minds the shop, talks to customers, or works on a new product. However, this can be the beginning of a very challenging time in your business's development. If you are thinking that a new hire will entirely free you up to do other tasks, think again. Hiring new employees brings with it added administrative burdens mandated by federal and state law. For starters, you will need to have each new employee provide you with a Form I-9 indicating that they are eligible to work in the U.S. This form should be maintained in the new hire's personnel or payroll records. Next, you will need to withhold social security, medicare, and taxes and remit them to the IRS at the appropriate time. When you remit depends on a number of factors. Check with your accountant or attorney for the details.

2

Federal Labor Standards Compliance

You will need to comply with the Fair Labor Standards Act (FLSA) requiring the payment of minimum wages and overtime or classify the employee as exempt under one of the handful of FLSA exemptions. Whether a new employee may be classified as exempt from FLSA requirements will depend on the nature of your work and the activities to be carried out by the new employee. The new employee may be salaried or a wage-earner but in either case will have to receive the federally and state mandated minimum wage but may not need to be paid overtime if they are exempt.

3

Trade Secret Protection

You will want to consider having the new employee sign a confidentiality and restrictive covenant agreement along with that I-9. Failure to have a new employee sign a confidentiality agreement at the outset of employement may trigger the requirement for payment of additional "consideration," or some form of money or equity, if you want to obtain such an agreement later. While you may believe that you do not need a confidentiality agreement, think again. If you have customers, you have an asset that may walk out the door if your employee decides to leave and solicit those customers.

4

Training and Performance Review

You have to make sure that you have adequately trained the new employee to be successful in the new position and implemented a bi-annual performance review process. Performance management, while quite an undertaking, will assist you in guiding the new hire to excellent performance and to good relations with the boss - you. In the event things aren't working out or you need to let go of the employee because the business is not doing well, a performance management program will insure that you have all the personnel records you need to support your decision. And when a dispute does arise, which it will either with this employee or with the next one, consider obtaining a general release from the outgoing employee after consulting with your attorney. This will avoid unnecessary and costly disputes and keep your relationship amicable. Hiring your first employee is a big step and one you should not take lightly. Consider speaking with your legal counsel before you decide to hire.

Additional Resources

Download Form I-9

IRS Small Business Resources

FLSA Exemptions

Washington Minimum Wage

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