Hiring at LLCs and Small Businesses — The Dos and Don'ts

If you have recently started a business or formed an LLC, the odds are good that you’re looking to hire. This is an exciting time to expand your company and get much-needed help, but it can also be stressful to find the right employees. Here are some dos and don'ts that you should consider as you start this important process.

Independent Contractors vs. Employees

There are basically two types of help that you can hire for your business: independent contractors and employees.

Employees

Employees are an important asset to your business, and they need to have the skills for the job you require and the legal qualifications to be eligible to work. For example, in California, there are specific age restrictions on working hours for school-age employees:

• 12- and 13-year-olds can work when school is on break
• 14- and 15-year-olds can work three hours after school
• 16- and 17-year-olds can work four hours after school and eight hours on non-school days
• All employees need to be U.S. citizens or have a green card to legally work in this country

DO: File for your EIN (Employer Identification Number) before you start the hiring process. You're going to need this important IRS identification number to open a bank account separate from your personal one, and you'll also need this number for your employee's W-2 forms for tax purposes. Additionally, you'll need to withhold federal and state income taxes and FICA taxes (Social Security and Medicare) from their paychecks.

DON'T: Start hiring employees before you do your homework. When you hire full-time employees, you'll need to pay for unemployment insurance, worker's compensation, health insurance, vacation time and other benefits.

Independent Contractors

Independent contractors (also called 1099 contractors) are professionals you hire on contract who are not employees. This is becoming an increasingly popular option as many businesses are outsourcing jobs to save money and find the best help beyond their location.

For example, small businesses are hiring virtual assistants, freelance writers, web designers and IT specialists offsite to cut costs. This means that they don't have expensive benefits to pay or structured salaries to commit to. Many times these independent contractors have multiple clients and charge based on services used. They are also responsible for paying their own taxes to the IRS, which are reported on a 1099 form.

DO: Consider this option when looking for specialized help. There are countless job websites that list available workers based on location, rate or client reviews.

DON'T: Forget that the old saying, "You get what you pay for" is still true much of the time. Look for contractors who offer the best match for your needs, not just the cheapest rate.

Of course, many times the decision to hire an employee or independent contractor is based on the job at hand or the type of business you're in. If you run a restaurant and need to hire a server, you're going to hire an employee. If you own a website design company and need help with your bookkeeping, it may be in your best interest to get help from an independent contractor.

Other Important Dos and Don'ts for Small Business Hiring

DO: Look for applicants who will contribute the most to your company (not just those with extensive experience or the longest resumes). Small businesses can afford to be more flexible in hiring than large corporations because employees will have more access to hands-on training and perform a larger variety of tasks at businesses with fewer workers.

DON'T: Overlook the importance of running the right employment ad. Business owners who ask for what they want in creative, eye-catching ads are likely to see applications come pouring in.

DO: Take the time to create a specific job description. If you're looking to hire an assistant, what type of computer skills will they need? How many hours a day will this job require? Will they be interacting with your customers? Answering these questions can help determine whether you need someone onsite or offsite, what to pay based on experience and the overall skills necessary.

DON'T: Settle for someone just because you are desperate for help right away. Help is expensive, and getting the right person in the right job from the start is easier than doing damage control and retraining new staff members.

DO: Look for someone who has chemistry with you and other existing employees. If you hire a virtual employee, this is just as important since they need that added sixth sense of coordinating with you offsite.

DON'T: Overlook the costs for both employees and contractors. On-site employees will cost you benefits and set wages (as mentioned above), but they can also be expensive if you need to open an office as your business grows. This can mean rent, computer hardware and other office supplies. If you hire a team of virtual employees, you can run your business from home, but this may mean you'll have to invest in more software and learn additional tools for project management.

As Benjamin Franklin so famously said, "An ounce of prevention is worth a pound of cure." Taking the effort to assess your needs and narrowing down the right type of help can not only accelerate your business, but it can prevent wasted time and money. Getting the best help is crucial for the success of your business, so take your time to ensure a great outcome.