Thinking about hiring your first employee? If so, you'll want to consider a few legal ramifications as well.
Many small business owners start out as sole proprietors with no extra help -- but then reach a point when they're ready to expand.
Hiring and managing your first employee can be a daunting task, especially if you've never been someone else's boss before. Here are our Top 7 legal tips to consider when it comes to hiring and managing your first employee:
- Talk to other business owners. Other business owners who have been in your shoes will likely have an abundance of insight and tips for you in hiring your first employee. In addition, it's always good to compare what others in your industry are doing.
- Get an EIN. Though not always required for sole proprietors, an Employer Identification Number (EIN) is required when you hire employees. This is essentially the identification number assigned to you by the IRS that is used on tax returns and other IRS documents.
- Know your state's overtime laws. If you're planning on having your employee work long hours, or just in general, you should know your state's laws on overtime. Usually, a higher rate of pay (time-and-a-half or even double the rate) is required when an employee works beyond a certain number of hours every day or week, according to labor laws. Overtime disputes are also among the most common types of employee lawsuits.
- Know your state's wage and break-time laws. You should also check your state's wage laws. Among others, you'll be required to pay your employee at least the state's minimum wage, which must equal or exceed the federal minimum wage. You'll also want to be very familiar with laws about paid and unpaid break times -- yet another issue that often leads to lawsuits.
- Perform a background check. Performing an employee background check is crucial. Make sure that you also call a list of references. This way, you may avoid all sorts of potential liability issues, such as negligent hiring.
- Complete an I-9 form. I-9 forms are required by federal law to verify an employee's eligibility. While they're not filed with the government, you'll have to keep them for three years after an employee's hire date and have them available for immigration officials upon request, as well.
- Consider workers' comp insurance. You may want to look into purchasing workers' compensation insurance to help protect your employee and his on-the-job injuries. Workers' comp insurance is also required in a large handful of states.
This is definitely not an exhaustive list of what you need to have checked off before you hire or start to manage your first employee. It's best to consult with an experienced employment law attorney who can help you sort out any and all the other legal issues and questions you may have.
Follow FindLaw for Consumers on Google+.