Hiring at a a start-up is probably the hardest task of anything we’ve talked about. It may be harder than deciding how much equity to give up to investors, or deciding on product features. There are two factors here – one is hiring the right people, and the second is hiring them legally, with the right documentation, taxes, and paperwork. Let’s address the second issue this week, and the other issues in a future column.
It would be nice to just “hire” someone smart and have them start working. Don’t do that. It is wrong, and you will be in a huge amount of trouble. Before you hire anyone, talk with an attorney or personnel consultant. In addition to tax forms like an I9 form (a US Government form that must be signed by any employee), you want to make sure you have an employee handbook and an employment agreement. If you’re running a business that has secrets such as technologies, methods, or other confidential information, you would want to make sure you have the right agreements in place. Your attorney, consultant or experienced HR professional can help you get set. On the Wicked Start roadmap we have example employee handbooks, legal handbooks, and additional information. But having all of these looked at by a pro before you make a hire is critical to your future legal compliance.
There are items you may not consider relevant at a small company, but they can come back to bite you. One start-up I worked for hired a young woman, and she promptly seduced her manager, then sued the firm for sexual harassment. (A background check after the fact found that this was not the first time she had done this.) Suddenly, everyone at the company was going for sexual harassment training with an expensive firm. Something that could have been avoided if the company had a policy in place when employees started.
Lots of start-ups are tempted to bring in people as contractors instead of employees. This can make sense since you save on taxes and other legal issues. However, there are reasons that people are considered consultants or employees. There are several tests the IRS applies to determine if someone is an employee or a consultant.
A basic test is “behavioral” – does the employer dictate when, where and how the work is done? If you dictate what work needs to be done, but only look at the end result, you likely have a consultant. If you’re dictating every step of the way, you’re probably managing an employee. If you’re not sure, ask a lawyer or professional for help.