At some point in your business or nonprofit's growth you will probably need to hire employees.
Finding the right person is always the biggest challenge, but once that's done, the complexity begins.
The rules and regulations that relate to employing people are complex. It is imperative to understand them.
So you just need a little help........
Consider the case of Joan who owned a small mail order business which she ran out of her home. She needed someone to pack shipments, manage the inventory, and run to the post office. She found a reliable young woman, Sally, who was available to work 40 hours a week, and who wanted only $15 per hour. Joan hired her and paid her cash for the hours she worked.
When Sally was injured on the job Joan had to let her go so that she could hire someone else.
Sally really needed the money, so she applied for Unemployment Compensation. She also felt that it was only right that her medical costs be covered by Joan's insurance. That's when things got messy for Joan......
An audit ensued. Joan was found to be in violation of employment law because she had not withheld taxes from Sally's pay, nor had she contributed to her Social Security and Medicare. In addition, Joan had not taken out a Worker's Compensation policy to cover Sally, a violation of State law. The fees and penalties imposed on Joan caused her not only to lose her business, but to declare personal bankruptcy.
This is not an unusual scenario - it happens all the time. Don't let it happen to you!
WHAT YOU NEED TO KNOW ABOUT EMPLOYING PEOPLE:
EMPLOYEES COST A LOT MORE THAN JUST THEIR PAY
If you hire someone as an employee you must contribute to their Social Security and Medicare, deduct taxes and social security and medicare payments from their pay, provide them with a W-2, most likely pay them overtime if they work more than 40 hours in a week, pay unemployment compensation taxes and worker's compensation insurance. That's expensive. It can easily be10% to 20% of their pay. You have to add that to their salary to figure out what they will really cost you.
YOU HAVE TO PAY EMPLOYEES OVERTIME
Unless your employee earns more than $913 per week and is a manager, you have to pay 1 1/2 times their hourly rate for hours over 40 per week.
YOU HAVE TO PAY AT LEAST MINIMUM WAGE
Every state has a minimum wage. In Connecticut it is $10.10 per hour, (as of March 2018). You can't pay anyone less than that ( with certain exceptions which apply to very few situations).
So, what all this means is that anyone you hire will earn at least $10.10 per hour, $15.15 per hour if they work more than 40 hours in any week, plus 10% to 20% more for the cost of employing them.
EMPLOYEES ARE NOT INDEPENDENT CONTRACTORS
You might be tempted to hire someone as an "independent contractor", meaning that they work for themselves and you pay them the way you would any vendor.
Again, there are strict rules which the Department of Labor enforces to determine if someone is an independent contractor: they must set their own schedule, use their own tools and supplies, pay their own employment taxes, carry their own insurance, - essentially, they are independent of you and your business.
Some people, like your accountant or lawyer are clearly independent contractors. Others may be, but don't be tempted to hire someone as an employee and call them an independent contractor in order to avoid the complexities and costs of having a real employee. If audited, and assume you will be at some point, you will not only pay fines, but back taxes and other costs, plus interest.
In any event, if you have a real independent contractor whom you paid more that $600 in a calendar year, and who is not incorporated or has an LLC, you must send them a 1099 reporting your payments to them, and you must also report it to the IRS.
YOU NEED WORKER'S COMPENSATION INSURANCE
The State of Connecticut requires that every employer have Worker's Compensation Insurance which they have obtained from a commercial insurance company. Even independent contractors are eligible to be paid from this insurance if they are injured on your property or in the course of doing your work. Contact your insurance broker to get this coverage.
YOU MUST PAY UNEMPLOYMENT COMPENSATION TAX
The State of Connecticut requires that all employers pay an employment tax for unemployment compensation. Funds for the payment of unemployment benefits are provided by employers through a quarterly payroll tax, or by a monthly billing reimbursement available to qualified non-profit organizations. Once you employ one employee, you must register with the State as an employer. You can register your business via the internet,or you can register by completing the appropriate forms which can be obtained by calling the Employer Status Unit at (860) 263-6550 or drawing the forms down from the Connecticut Department of Labor Website.
YOU SHOULD CARRY LIABILITY INSURANCE
You should carry liability insurance as part of your business insurance coverage. This is particularly important if your employees act on your behalf in any capacity. Again, talk to your insurance broker about this.
YOU MAY NEED TO PROVIDE EMPLOYEE BENEFITS
In the State of Connecticut, if you employ fewer than 50 people you do not need to provide health insurance, sick pay, holiday pay or vacation pay to employees. These benefits are completely discretionary on your part. However, depending on the skills you need and the competitive job marketplace, you may want to consider some or all of these benefits. If you do, make sure you structure them so that employees have to have worked for you for a period of time before they become effective. This way you won't have a new employee getting sick for a week, taking a week's vacation and then quitting before they've worked any time at all!
YOU WILL BE SUBJECT TO EQUAL EMPLOYMENT OPPORTUNITY REGULATIONS
Under Federal law, if you have 15 or more employees you may not discriminate with respect to race, color, sex, religion, national origin, age, disability, or genetic information in your hiring and employment decisions, and you must make accommodations in the workplace for a disabled worker. You must maintain an atmosphere in the workplace free from prejudice,harassment, and discrimination.
In the State of Connecticut, if you have 3 employees or more you must abide by these requirements.
It's just good practice to abide by them anyway, - no matter how many employees you have.
WE'RE HERE TO HELP
There is a lot to think about when you become an employer for the first time. Contact us if you would like help by clicking HERE.