Congratulations, your startup has reached the point that you've begun to think about hiring employees! The only problem is you have never had to hire someone, and you are not sure how to proceed. Luckily, we are sharing the Top 10 Mistakes that Startups make when hiring so you can avoid them.
1. Misclassifying Workers—Independent Contractor, Employee or Freelancer?
Businesses often have a blend of workers. Make sure to know which classification workers fall under. Employees can be hired for either a fixed or indefinite term while independent contractors are hired for services on a specific project and generally service their multiple clients/businesses.
It is helpful to decide ahead of time what the right hiring path is for a startup's business and what type of worker best suits its business needs and to make sure the hiring contract reflects that classification of worker. Is the project short-term or is this a permanent role the startup is trying to fill? What is the type of service and industry the startup is in? These answers will help with the decision-making process.
2. Missing IRS and Other Reporting Requirements
Depending on the type of employee you “hire” you will need to file tax reporting documents. You may also need to begin paying for Unemployment Insurance and Worker’s Comp. To determine which requirements, you’ll need to complete you should discuss with your bookkeeper and/or Tax Professional to properly cover you.
3. Making Mistakes with the Employment Contract
When hiring new employees, remember that the employment contract is very important. A startup should make sure that it includes at least the minimum standards for notice, benefits, and vacation. It should focus on the termination clause and specify employment and post-employment rights and obligations. The startup should ensure that its new employees agree to the terms of employment and sign before their first day or all its hard work in creating a great employment agreement means nothing.
4. Messing Up Recruitment
When hiring, remember that all stages of the employment relationship are covered by "employment" in the human rights legislation, including the recruitment stage. The hiring process cannot be discriminatory (i.e., differential treatment based on disability, race, or gender, etc.). Always include an equal employment opportunity statement in the job post and offer accessibility to those who need it.
5. Imprecise Remote Work Rules
For those employees that work remotely, ensure that you have a good policy in place that includes eligibility to work remotely, requirements around responsiveness and communications, digital security, productivity, unauthorized overtime, and confidentiality. Protect the business' digital assets during employment to make sure they are safeguarded upon termination.
6. Being Cynical About Disability Issues
Disability issues are the busiest area of employment law for lawyers. Always give employees the benefit of the doubt, even if something about their doctors' notes and communications to you smells bad. Workplace stress and its medical symptoms are real and can be expensive for an employer if the business get it wrong. Employers are not without rights and recourse, but it's tricky and a do-it-yourself approach is inadvisable.
7. Failing to Manage Performance Before Blow-Ups
Communication is key with employees. Always provide constructive criticism along the way and make sure to document it. This helps keep emotions in check along the way and ensures that both the employer and the employee are on the same page. It is very hard to fire for cause and you can't do so without written records of sharing performance concerns. Mere incompetence may not enough.
8. Giving Away a Startup's Ideas
Business owners are generally very passionate about what they do. Don't let your startup's hard work leave with its terminated employee. Have employees sign confidentiality, noncompete and non-solicitation agreements that will limit their ability to solicit the startup's clients and/or compete for those same clients in the same area.
9. Not Protecting Its Ideas
A startup should identify what its intellectual property is and pay a lawyer to protect it.
10. Mishandling the Termination of Friends and Family
Hiring friends and family can be great for a business. They generally have an employer's best interests in mind and the employer already knows that it likes them. When the relationship ends, however, things can go badly. Make sure you protect the business upfront when the relationship is still good. Always have an employment contract in place. Prepare a termination letter and release ahead of time and do not conduct the termination meeting alone. It is also good to always provide the discharged employee with time to consider the termination package received.
As you can see having your tax professional, attorney, and HR Consultant (me 😉) in the loop as you begin to grow your business benefits you in the long run. The best piece of advice that's not on list is "Remember you do not have to go this ALONE". Reach out to your network and work with them to grow your business in a manner that protects you and sets you up for continued success.
Some of these tips have been adapted from this article on SHRM.org