BUS 207 Session #1 Spring 2006 copyright, sjh.

Recruiting and Selecting Employees

For the Small Business

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!

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:

$1250 per week, $5416 per month, or $65,000 per year, before expenses AND before a vacation!

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 a 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?

Advantages to Hiring EmployeesThey 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 don’t enjoy).

You can expand your business past the single-person capacity!

Making the Decision: 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 Pro-forma 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?

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.

Employment Legal IssuesBefore You Recruit Understand the Legal Guidelines

Fair Labor Standards Act Workers must be identified as

non-exempt or exempt. Business that make less than

$500,000 MAY HAVE EXEMPTIONS ( BUT CHECK!!!)

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

Equal Pay for Equal Work!

Stiff 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 FSLA.

• 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.

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

Union• Age Discrimination in Employment Act -

companies with 20 or more employees

And MORE Employment Laws• Family & Medical Leave Act-

Companies with 50+ employees.

• Occupational Safety & Health ACT- OSHA- ALL Businesses

• Worker’s Compensation- mandatory “insurance”

• Immigration Reform & Control Act & Immigration Act- All businesses

Immigration Law Acts and How that Impacts Your Hiring Procedures

The Immigration Acts of 1990s were enacted to prevent illegal aliens form 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 retained the form at the business location.

Fines are imposed if you do not have proper documentation.

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)

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.

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

• Take on Independent Contractors

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)

Using a Staffing Agency• The person who they send

to you is technically an employee of the Staffing Agency.

• The Staffing Agency deals with payroll, checks, tax forms.

• You pay a hire amount to the Staffing Agency and they pay the employee.

Pro’s and Con’s of Hiring Staffing Agency Employees

Proso Often quicker than

recruiting yourselfo Staffer is screened

through Staff Agencyo No employment

paperwork (payroll, taxes, etc.)

o Use for a limited period without “hiring.”

Con’so Hourly rate is significantly

higher than yours.o Less control on who they

send to you.o Many temporary firms will

not have the employee that has technical experience you may need.

Independent Contractor vs. Employee

The use of an Independent Contractor or IC has been a critical issue in the last 2 decades.

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

The policy is to protect employees (not to punish small businesses).

BE AWARE of the differences between an IC and an Employee.

The IRS has developed “Twenty Common Law Factors” TEST to determine the status

IC ChecklistNo instructionsNo TrainingServices do not have

to be rendered 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 profit

or loss IC’s cannot be fired at

will

Independent Contractor vs. Employee…the risk

• If the Independent Contractor works and acts more like an employee…the government is going to say they are an employee.

• The RISK often comes after the IC leaves and tries to collect unemployment compensation.

• You would pay ALL back payroll taxes & other penalties.

• The lesson here is to make sure you have the necessary documentation that shows they are a true Independent Contractor

IC Documentation Files Copy of their own

business license.Hold harmless (and

possibly) conflict of interest agreement.

Form with Twenty Factor Checklist that they have signed

Current and past contacts

What about “under-the-table?” It’s true, many small

business owners will pay people “under-the-table” for services rendered.

Funny thing is the government doesn’t have statistics.

Remember. it's your business, so it is your risk!

EDD Services• The EDD does more than help you file for

unemployment insurance or fill out an EIN.• The EDD has the largest on-line Job Bank,

where you can post your vacancy or look for qualified candidates: caljobs.org

• The EDD can help you find qualified workers and in the past have offered on the Job Training Programs (where they may pay half of the salary)

Using Government “One-Stop” Shops: Workforce Investment Board

• Few Small Business are aware of or take advantage of the local services that are available to them through the Workforce Investment Board (WIB).

• The WIB is the one-stop government agency that includes the Employment Development Department, and locally the SEC- Solano Employment Connections

More “One-Stop” EDD ServicesWorker Skills -Training for Small &

Larger BusinessesLabor Market Information: wage

information, employee issues, ADA and EEO compliance plans

Payroll Tax InformationCalifornia Tax InformationDownsizing assistanceJob Service Information including

recruiting