You’re running your small business. One day you drop into your chair to catch your breath, and you realize you need help. Maybe you have employees, but they’re working as hard as you are. You need a new hire.
What’s the paperwork process when you hire someone?
The first thing you need to sort out is this: Are you hiring an employee or an independent contractor. This will determine your tax situation and your paperwork because the IRS treats the two types differently.
A contractor does the work you want, but you don’t tell them how to do it. Often, the contractor works independently, and then brings or sends you the result/product. How they arrive at that result is up to them.
With an employee, you have a lot more direct control over their work, and the means they use to get the job done. An employee expects you to provide tools and materials, as well as benefits like insurance, vacation time, a pension plan and sick days.
The difference is important because a contractor is responsible for paying their own taxes and keeping their own records, whereas an employee has their taxes deducted. Contractors receive a 1099 form, employees a W-2. Whatever you decide, document it. 1099 vs W2, Does your small business have employees or contractors? the IRS has questions later, at least you’ll be able to show them something that details your thought process.
Once you know what kind of hire you’re making, you can work up a new hire checklist of the paperwork you need. Below you’ll find a starter list for contractors, and a list for employees.
Independent Contractor New Hire Checklist
- Scope of work: You’re hiring this person for a project, not forever, so figure out the scope of the work you’re expecting them to do. Clear expectations on both sides will make the whole process smoother. You’ll know what you want, and they’ll know what you expect them to do.
- Duration: Is this a two-week project, a six-month project? Estimates can be tricky, but get a ballpark figure.
- Payment: How will you pay them? Via check, direct deposit or PayPal? How often? Again, sort these details out early. Don’t let money become a problem.
- Non-Disclosure Agreement: This is a sensible precaution to protect your business. Just be sure to define what you consider “confidential.”
- Non-Compete Clause: This simple addition means your contractor won’t go out and start their own business using your contacts and proprietary information.
- Insurance: Does your insurance cover independent contractors? Time to call your agent and find out.
- Indemnity: If a client sues you for mistakes your independent contractor made, are you liable? An indemnity clause will help you recover money lost to settlements and legal fees.
- Warranty: Does your contractor make a promise or guarantee regarding the work they do for you?
W-2 Employee New Hire Checklist
- Letter of Employment: You might want to request a Letter of Employment from their current job so you have an idea of their salary and the hours they are used to working.
- Employee Agreement: A document that defines the employee’s duties and your expectations. It’s also useful to list reasons why they could be fired. Establish clear ground rules of what is appropriate at your business. The agreement may include these sections:
- Non-Disclosure Agreement
- Non-Compete Clause
- Work for Hire: Verbiage that defines who owns the work the employee produces. In most cases, the business owns the things an employee makes, but it needs to be clear.
- Compensation: How much are they paid, and how often? Are there bonuses?
- Benefits: The big one these days is health insurance, but your company may offer other benefits the employee needs to know about.
- Dispute Resolution: If there’s a problem, how is it resolved? What’s the process?
- Digital Assets: What will your new employee have access to, and what do they have permission to change? Access to your company logo isn’t the same as access to your website, or your client database, or your financials. What do they need to do their job?
- Details: Do you add their picture and biography to the company website? Do they need an email address, business cards, or a company credit card?
- The Human Side: Have you introduced them to their co-workers? Have you established how you’d like them to communicate with you, whether by text, email, or telephone? You’re not just hiring an asset, you’re hiring a human being.
Does hiring someone mean paperwork? Yes. Nevertheless, when you reach the point where you know you need help, the paperwork will be a whole lot easier than doing everything yourself. Use these checklists to get started, and then customize them for your individual business.