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Recruiting and Selecting Employees


Recruiting and Selecting Employees For the Small Business Have any of you been involved in Recruiting or Selecting Employees? What was your first Problem? – PowerPoint PPT presentation

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Title: Recruiting and Selecting Employees

Recruiting and Selecting Employees
  • For the Small Business

Have any of you been involved in Recruiting or
Selecting Employees?
  • What was your first Problem?
  • Who
  • Job description?
  • Personality
  • Wages required
  • Skills needed
  • How
  • Referral
  • Walk on
  • How to recruit

Is Interviewing a good predictor of future job
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 Capacity
  • How 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
  • At 50 per billable hour, that is
  • 1,250 per week, 5,416 per month, or 65,000
    per year, before expenses AND before a vacation!

Is 50.00/hr a reasonable guess for your budget?
Limited Capacity and Life (of a sole proprietor)
  • The business is reliant on you.
  • Without you, there isnt any revenue coming in.
  • If you get sick, you dont have back-up.
  • If you go on vacationits 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 Employees
  • They can be trained to run the business in your
  • 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 least enjoy).
  • You can expand your business beyond the
    single-person capacity!

Making the Decision to Expand or Not?
  • Like starting a business, the decision to expand
    and take on employees, should not be taken
  • Ask yourself these questions
  • Are you ready to expand?
  • Can you afford it? (do a proforma projection!)
  • Are you ready to take on more management
  • Are you ready to give up control?
  • Can you take on more risk?

What happens if you dont expand?
The Rising Cost of Hiring an Employee
  • Before taking on an employee, consider the
    overall impact and cost to hire-
  • The salary or wages
  • The state and federal payroll taxes
  • Mandatory insurances
  • Increased Insurance
  • Benefits
  • Changing the environment of the business to
    ensure safety.

Hiring New Employees The Paperwork- Federal
  • Federal Law requires you, the employer to
    withhold, report and pay over to the federal
    government certain deduction from your employees
  • You must report-
  • Employees federal income tax- FIT (use tables)
  • Employees contribution to Social Security-FICA
  • Employees Contribution to Medicare Medicare
  • Federal Unemployment- FUTA 1.45
  • An employer is required to file for a FEIN-
    (also called EIN) federal employee identification
    number Form SS-4

Hire a service!
Federal Tax EIN Form SS-4
  • Go on-line to
  • Click on business related topics- Employer ID
  • Click on How to Apply for an EIN
  • Fill out form and submit
  • You will get a number on the spot
  • Or Fill Out Form SS-4 and Mail

State Employment Tax Filing
  • State laws require you to register with the EDD
    as soon as you pay wages over 100. Give the EDD
    your FEIN number (state calls it the EIN)
  • You must report and pay or withhold the following
    to the state
  • Unemployment Insurance- SUTA 3.4
  • Employment Training Tax- ETT .1
  • State Disability Insurance SDI 1.18
  • California Personal Income Tax SIT (use tables)

Employees Vs Non- Employees
Be very cautious trying to may associates
  • Six categories of workers
  • Common-law employees
  • Statutory employees
  • Statutory non-employees
  • Independent contractors
  • Individuals referred by a Temporary or Staffing
  • Leased Employees

Common-Law Employee
  • Under IRS Guidelines, individuals are considered
    common-law employees when they meet the
    common-law test. This test determines whether the
    employer exercises control over the employee in
    the following areas
  • Who performs the work
  • What will be done
  • How will it be done
  • Where will it be done
  • When will it be done
  • Workers who meet the common-law test are
    considered employees even if the relationship
    lasts for only 1 hour

Statutory VS. Non Statutory Employees
  • Statutory do not fit the example of
    common-law employees, but are still employees-
  • Examples
  • A driver who is an employees agent or paid
  • A full-time life insurance agent selling for one
  • Payments are NOT subject to FIT (federal income
    tax), but are subject to FICA, FUTU and SUTA.
  • Statutory Non-Employees are compensated based on
    sales and other achievements, not by the hour.
  • They include-
  • Direct Sellers, Licensed Real Estate Agents
  • Payments are exempt from employment taxes
  • Operate like an Independent Contractor
  • Your obligation is to send 1099 at Year-end.

Independent Contractor vs. Employee
  • The use of an Independent Contractor or IC has
    undergone scrutiny in the past decade.
  • The IRS and the EDD enforce a social policy that
    states people should be employees- (whenever
  • This policy is to protect employees not to punish
  • BEWARE of the differences between ICs and

Exempt VS. Non-Exempt
  • NON-Exempt
  • Employees covered by the overtime provisions of
    federal/state laws are called Non-Exempt
  • Duties not titles determine exempt status!
  • Incorrect filing of status leads to penalties
  • To have exempt status your employee must fall
    into a certain salaried category
  • Examples include-
  • Executives
  • Administrative
  • Professional Outside Sales
  • Normally paid salaryNO Overtime

IC Checklist The IRS 20 point list
IC Independent Contractor
  • No instructions
  • No training
  • Services to not have to be delivered personally
  • Work NOT essential to firm
  • IC sets hours
  • No on-going relationship
  • ICs have other work
  • ICs determine job location
  • ICs pay business expenses
  • ICs have own tools
  • ICs can make a profit or a loss
  • ICs cannot be fired at will.

Independent Contractor vs.Employeethe risk
If the IC works and acts more like an employee,
the government is going to label them an
employee. The real problems often come after the
IC leaves the organization and tries to collect
unemployment compensation. Your organization
could be liable for all back payroll expenses AND
Always consider your risk bringing on Independent
Necessary Documentation for ICs
  • To minimize your risk, make sure you have the
    necessary documentation on your ICs.
  • Copy of their business license and possibly their
  • Hold harmless agreement in the contract (with
    conflict of interest clause if needed)
  • Signed form of IRS IC Checklist
  • Current past contracts (hold for 7 years after
    the contract completion)

What about under-the-table?
  • Its true many small business owners will pay
    people under the table for services rendered
  • The government doesnt have stats on this
  • Remember, it is your businessand your risk!

Alternatives to Hiring an Employee
  • Source out work to other small businesses.
  • This works well for certain administrative jobs
  • payroll, bookkeeping, security, cleaning
  • Use a Staffing Agency
  • This works well for part-time help or seasonal
    help when you dont want to deal with the
  • 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
Temp to Perm
  • The person sent to you is technically an employee
    of the staffing or temp agency.
  • The Staffing Agency deals with payroll, checks
    and all taxes.
  • You pay an hire amount to the staffing agency
    and they pay the employee.

Pros Cons of Using a Staffing Agency
  • Pros
  • Often quicker than recruiting yourself
  • Staffer is screened through the Agency
  • No employment paperwork
  • Can use for limited time without hiring
  • Cons
  • Hourly rate is much higher
  • Less control on who they send you
  • Many temp firms will not have the person with the
    right technical background

The Fine Art of Recruiting
  • Employers recruit job applicants through a number
    of sources. If an business is large enough they
    will have their own established recruiting
    division (staff), and a recruiting strategy and
  • Recruiting sources are normally 1) Places 2)

EDD Employment Development Department Services
  • More than just helping you file for unemployment
    or fill out an EIN number
  • The EDD- has the largest on-line Job Bank, to
    post your vacancy or seek qualified candidates.
  • The EDD can help you screen workers, and have
    offered OJTP programs

Government One-Stop Shops
  • You can save money by going locally and utilizing
    the government one stop shops provided by the
    WIB- Workforce Investment Board.
  • The WIB is a one-stop including EDD, Solano
    Employment Connection and other non-profit
    assistance organization
  • They provide services in recruiting, screening,
    training, labor market information, EEO
    compliance, payroll tax information, and
    downsizing services

On-line Recruiting Services
  • A growing number of job seekers are using on-line
    recruiting services..
  • Advantages for the employer are they are less
    expensive, easy to post vacancies and they have
    wide-range of publicity
  • Flipdog

Employment Legal Issues
Fair Labor Standards Act
  • Workers must be identified as non-exempt or
  • Business that make less than 500,000 MAY HAVE
  • Non-exempt must be paid at least the minimum wage
    and receive over-time pay after 40 hours at 1.5
    times (see state law).
  • Equal Pay for Equal Work!

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 FLSA.
  • 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
  • Age Discrimination in Employment Act - companies
    with 20 or more employees.

Now we know why businesses limited their
employees to 19!
and more Employment Laws
  • Family Medical Leave Act Companies with 50
  • Occupational Safety Health ACT OSHA All
  • Workers 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 from working in the U.S.
  • You are required to have new employees fill out
    an I-9 or Employment Eligibility Verification
  • The Company must retain the form at the business
  • Fines are imposed if you do not have proper

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
  • 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.

California Small Business Hot Topics- Impacting
  • Workers Comp Reform
  • Nearly 80 of all voters support the cost-cutting
    Reform Bill
  • Check out
  • Faster payment
  • Penalty provision for not paying
  • Voc Rehab replaced 1/1/04
  • Unemployment Insurance Tax Hikes
  • The current system is bankrupt, proposed 74
    increase on UI Tax
  • Mandatory Health Care Proposition 72
  • Play or pay Health care Obligationin 2006 all
    businesses that have over 200 employees will have
    to provide health benefits. 2007 all business
    over 20.
  • Employer must pay or penalty applies
  • Employer must collect transfer fees

More California Small Business Hot Topics-
Impacting Employers
  • Customer Harrassment AB76
  • An employer can be liable for harrassment if
    their employee harasses a customer
  • Sue Your Boss Bill SB 796- Also referred to as
    the Bounty Hunter Law
  • Employees can sue their bosses for varied
    statutory labor codes being violated, creating a
    multitude of lawsuits.
  • Whistle Blower Protection (SB777)
  • Forbids employers from adopting policy or rule
    forbidding employees from reporting alleged
    violations. Forbids employers from discharging or
    discriminating against employees who make a

Other Considerations Before Starting the Hiring
  • What do I really need the employee to do? Do a
    job analysis and then establish a Preliminary Job
  • Establish the future-employees wage rates. Are
    you competitive? Will this employee get benefits
    or be an exempt employee?
  • Develop a typical work schedule.
  • Revise the Organizational Chart.

Class Assignment (Optional) for next week,
November 6th, 2004
  1. What should you do before you hire an employee
    for your business. Where and how will you
  2. What obligations or responsibilities do you have
    as an employer in the state of California?
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