Saturday, June 19

Small Business Guide to Hiring Employees


job interview

Hiring the right employees is critical to the success of any business, particularly startup companies. Good employees can present new ideas and motivate other employees to work hard. They are dedicated, conscientious, trustworthy, and do not need to be micromanaged.

Conversely, hiring the wrong employees can slow down or impede the progress of your business and cause you to lose money through wasted training time, improperly performed tasks, or even internal theft. Furthermore, any incompetence or improper activities by your employees can reflect poorly upon you and your business and potentially result in legal liability.

Before hiring anyone, you should familiarize yourself with the laws and regulations imposed regarding interviewing and hiring employees. Protecting employee rights, ensuring physical safety, and maintaining fair treatment are at the heart of most laws created to safeguard the hiring process. Laws protect against discrimination on the grounds of race, religion, national origin, age, sex, or disability. They also protect against sexual harassment and unfair treatment of employees. You not only need to be aware of such employment laws, but you can protect your business by establishing appropriate hiring policies.

This guide offers business owners important guidelines for interviewing, hiring, and onboarding new employees.

Labor laws impacting employees

The U.S. Department of Labor (DOL) administers and enforces hundreds of federal laws covering workplace activities. The laws fall under various Congressional acts and are enforced by various divisions of the DOL. Included are laws pertaining to:

The DOL also enforces other laws pertaining to drug testing, polygraph use, garnishing wages, and family and medical leave.

Finding the right pool of candidates to interview

When hiring employees, popular methods for finding job candidates include using LinkedIn ads, employment agencies, executive placement services, job postings on employment websites, job postings on your own company website, and word of mouth. Keep in mind that the wider you extend your search, the more time you will need to go through resumes and narrow down candidates. In some cases, the cover letter accompanying the resume will tell you more about the individual than the resume itself.

Here are top tips on finding the right employee:

  • Ensure the job candidate is a good fit for the position
  • Look for candidates with integrity and a strong work ethic
  • Hire motivated people who have shown initiative
  • Look for high-performing individuals
  • Be sure the person will fit in with your company culture
  • Choose individuals who work well with others
  • Look for individuals with a positive attitude
  • Choose candidates that have problem-solving skills

Once you have decided which applicants you would like to interview, you need to prepare for the interview in advance.

Pre-interview to-do list

  • Prepare the questions you will be asking in advance and review them carefully.
  • Set up specific time periods on your schedule for interviews. Try to avoid scheduling too many interviews in one day or your recollection of individual applicants may become clouded.
  • Select a comfortable, well-lit, quiet location to conduct interviews. If the interview is to be done by Zoom or other video conference software, make sure the interviewee has the meeting link and password.
  • Have a legal pad or paper available on which to take notes during the interview.
  • Review each applicant’s resume just prior to the interview (and file along with your notes following the interview).

Different ways to approach employment interviews

Business owners who are hiring employees should know that there are several different philosophies when it comes to the job interview process. Depending on the position being filled, some employers will look more closely at specific technical skills when hiring employees, others will be concerned primarily with how this individual will fit in with the team, and some will focus on an applicant’s enthusiasm and desire for the position. The need to handle specific tasks, supervise others, meet with clients, and/or work independently should all factor into how you approach the interview process and make your assessment of the candidates.

Although you can get the answers to many questions from looking at a resume, it is important to hear each prospective employee respond so that he or she can provide greater insight into his or her previous employment, experience, and education.

Top job interview questions to ask when hiring employees

It is helpful to prepare a list of questions you would like to ask candidates, which you should review with your legal counsel. Keep in mind that you don’t need to always stick to the script; you can and should follow up on the interviewee’s comments with additional questions.

Here are some of the most frequently asked job interview questions:

Introductory questions

The job interview often starts off with some general introductory questions, such as;

  • Can you tell me a little about yourself?
  • What do you know about our company?
  • How did you hear about this job?
  • What motivates you?

Questions about work history

To learn more about the candidate’s work experience and how that experience might translate for the open position, ask these types of questions:

  • Can you please walk me through your resume?
  • Why are you thinking about leaving your current job?
  • Can you explain gaps in your work history? (if relevant)
  • Can you describe a difficult experience in a previous job and how you handled it?
  • What’s a professional accomplishment you are proud of?
  • Can you give me an example of when you went above and beyond the call of duty in your current job?
  • What is a typical workday like for you?

Questions about the job position

Questions about the specific job position that candidate is applying for can include:

  • Why do you think you will be a good fit for this position?
  • What relevant experience do you have for this position?
  • What interests you about this job?
  • How does this job fit in with your career plans?
  • When could you start work?
  • What’s important to enable you to do a great job?

Questions on interpersonal skills

Questions about work relationships and interpersonal skills can include:

  • Have you ever had problems with a co-worker or supervisor?
  • Do you consider yourself a team player? Can you give me an example of when being a team player was important?
  • Can you give me an example of how you deal with conflict?
  • How would your boss and co-workers describe you?
  • What’s your management style?
  • How would you describe your work style?
  • Can you describe how you dealt with a problem colleague in the past?
  • If you knew your boss was completely wrong about a particular issue, how would you handle it?

Questions about the company

Consider asking a variety of questions about the company to see if the applicant has done their due diligence. Consider these types of questions:

  • What do you know about our company?
  • Have you tried our product? What are your thoughts about it?
  • Do you know any of our employees?
  • What do you think of our company website?
  • Do you understand who our primary target customers are?

Questions on strengths and weaknesses of the job applicant

You should also consider asking potentially challenging questions to gain insight into the applicant’s strengths and weaknesses, including:

  • What do you consider to be your greatest strength?
  • How do you deal with high-pressure situations?
  • What is your greatest personal or professional achievement?
  • What do you consider to be your weakness?
  • What one thing would you like to do better? What’s your plan for improvement?

Questions on job compensation

You may want to ask salary/compensation questions, such as:

  • What is your current compensation (salary and bonus)?
  • What are your salary requirements for this position?
  • Why would you take a job for less money? (if relevant)

Concluding questions

Some questions to ask at the end of the interview can include:

  • Do you have any questions for me?
  • Are there any questions that I should have asked, but didn’t?
  • Is there anything you want to add that we didn’t cover?

Along with assessing the candidate’s answers, you should try to get a general feeling for the comfort and character of the person sitting across from you. However, try not to read too much into body language, since most people are typically nervous during a job interview. It is more important when hiring employees that you get a feeling for what this person could bring to the position from his or her past experience and his or her manner of presentation. Candidates should be dressed appropriately for an interview, depending on the formality of the position and company.

RELATED: Tips for Interviewing Potential Employees

Job interview red flags

You may find certain red flags during the interview process that will indicate that this is not the ideal person for the job. These might include:

  • Inconsistency in the applicant’s story
  • Inconsistency between what is on the resume and the applicant’s answers to your questions
  • Unexplained tardiness or improper behavior on the part of an applicant during the interview
  • Avoiding or talking around specific questions but not providing an adequate answer
  • Lack of knowledge concerning your company (showing lack of preparation)

Know what job interview questions you may not ask when hiring employees

Federal and state laws prohibit employers from making hiring decisions based on protected categories: gender, race, age, color, religion, disability, and others. Asking the wrong questions could lead to a discrimination claim against the company, even if decisions are not made on that basis. When hiring employees, here are examples of the types of questions to stay away from:

  • How old are you?
  • What is your religion?
  • Do you have any medical conditions we should be aware of?
  • Have you ever been arrested?
  • Do you have any disabilities that would hinder you in performing the job?
  • Have you had any recent illnesses or operations?
  • Are you married?
  • Do you have children or plan to have children?
  • How long do you plan to work until you retire?
  • Do you drink or smoke?
  • What is your political affiliation?
  • Is English your first language?
  • What type of discharge did you receive from the military?
  • What country are you from?
  • Where do you live?
  • Do you take drugs?

Some of these may be obvious. But these questions may also be prohibited:

  • What is your maiden name?
  • Do you own or rent your home?
  • Where is your family from?
  • What was the date/type of termination of your last employment?
  • Can you give me the name of a relative to be notified in case of emergency? (The problem is asking for the name of a relative. But you can ask “In case of an emergency, whom can we notify?”)

See the California Department of Fair Employment & Housing Fact Sheet—Employment Inquiries: What Can Employers Ask Applicants and Employees.

Have each job applicant fill out an Employment Application

Having prospective employees fill out Employment Applications will typically save you time gathering background information. While a resume will include some of their work history, you can obtain more information from presenting your own application.

Applications should provide spaces for basic information such as name, address, phone number, and Social Security number. While you cannot ask a person’s age, you can ask if he or she is over the age of 18. You may also want to ask where the applicant heard about the position or who referred them to your business.

Past job history, including job title, key responsibilities, salary history, and reasons for leaving the previous positions should be included for the applicant’s last three jobs.

Education should include high school, college, and post-graduate work as well as any special schooling the applicant may have had that would be applicable to the position.

Finally, you need to have a paragraph (review this with your attorney) proclaiming that all statements made by the individual are true and that this application does not signify that any hiring agreement has been entered into. Also, have the applicant answer whether or not it is okay to contact his or her current or previous employer. The Employment Application should then be signed by the applicant and dated.

As is the case with the interview, you cannot ask a variety of personal questions on the Employment Application. Once you have hired someone for the position, you should hold on to the application and the employee’s resume. This is the information on which you based your hiring decision should it ever be questioned in the future.

Perform a comprehensive reference check before hiring employees

Many employers conduct a limited and incomplete reference check as part of the hiring process, often leading to issues with the candidate’s inability to perform their required duties or to get along with others. A comprehensive reference check includes:

  • Verification of job titles and dates of employment
  • Verification of educational degrees and dates of attendance at schools
  • Verification of starting and ending salary
  • Verification of job role and responsibilities
  • Inquiry as to why the applicant left the prior employer
  • Conversations with prior supervisors as to the applicant’s strengths and weaknesses
  • Inquiry as to the applicant’s ability to get along well with other employees and customers
  • Inquiry as to the applicant’s ability to take on the new role
  • Inquiry as to punctuality or absenteeism issues
  • Reference checks with other people not listed by the applicant as a reference

The purpose of these checks is to make sure that the applicant will fit into the company’s culture and to ensure that the applicant has been truthful in their resume and employment application. However, the process is carefully regulated by the federal government (through the Fair Credit Reporting Act) and the laws of many states; failure to follow the highly technical process can lead to class action lawsuits. Consider consulting legal counsel and, for general information, see the EEOC’s Background Check: What Employers Need to Know.

Use a good form of job offer letter or employment agreement

Oral agreements often lead to misunderstandings. If you plan to hire a prospective employee, use a carefully drafted job offer letter, which the employee is encouraged to review carefully before signing. For senior executives, a more detailed employment agreement often makes sense. A good offer letter or employment agreement will address the following key items:

  • The job title and role of the employee
  • Whether the job is full time or part time
  • When the job will commence
  • The salary, benefits, and any potential bonuses
  • Whether the position is “at will” employment, meaning either party is free to terminate the relationship at any time without penalty (although employers may not terminate employees for legally prohibited reasons, such as for age discrimination or retaliation for sexual harassment allegations, etc.)
  • Confirmation that the “at will” agreement may not be changed unless signed by an authorized officer of the company
  • Confirmation that the employee will need to sign a separate Confidentiality and Inventions Assignment Agreement (described below)
  • If the company chooses, a statement that any disputes between the parties will be resolved solely and exclusively by confidential binding arbitration
  • Any stock options to be granted to the employee and the terms of any vesting (details usually laid out in a separate Stock Option Agreement)
  • To whom the employee will report
  • Language stating that the offer letter constitutes the entire agreement and understanding of the parties with respect to the employment relationship, and that there are no other agreements or benefits expected (unless additional provisions are laid out in a handbook, which should be referenced if so)

Companies should ensure that the employee and the Company sign the letter, the Confidentiality and Invention Assignment Agreement, any Stock Option Agreement, and any first day paperwork (such as the IRS W-4 Form for withholding and the I-9 form mandated by law).

Here is an example of a form of employee job Offer Letter.

Employment agreements for executives

For executives and other high-level employees such as CEOs and CFOs, you might want to compose a more formal Employment Agreement.

A well-drafted Employment Agreement for an executive addresses the following key issues:

  • The job description: title, role, and responsibilities
  • Whether the employer can change the position
  • The length of the agreement
  • The salary, bonus, and benefits
  • Whether the employee gets stock or stock options in the company (the employee should typically earn these over time)
  • When the employee can be terminated
  • Severance payments, if any
  • The employee’s job responsibilities
  • The employee’s confidentiality obligations
  • Where and how disputes will be handled (arbitration is sometimes best)

Confidentiality and Invention Assignment Agreements with employees

Companies pay employees to come up with ideas, work product, and inventions that are useful to the business. Employees have access to a great deal of their company’s confidential information, which can be highly valuable, especially in technology companies.

One basic way to protect proprietary company information is through a Confidentiality and Invention Assignment Agreement. This agreement deals with the confidentiality issues, but it can also provide that the ideas, work product, and inventions that the employee creates which are related to company business belong to the company—not the employee.

A good Employee Confidentiality and Invention Assignment Agreement will cover the following key points:

  • The employee may not use or disclose any of the company’s confidential information for his or her own benefit or use, or for the benefit of others, without authorization.
  • The employee must promptly disclose to the company any inventions, ideas, discoveries, and work product related to the company’s business that he or she makes during the period of employment.
  • The company is the owner of such inventions, ideas, discoveries, and work product, which the employee must assign to the company.
  • The employee’s employment with the company does not and will not breach any agreement or duty that the employee has with anyone else, nor may the employee disclose to the company or use on its behalf any confidential information belonging to others.
  • Upon termination of employment, the employee must return any and all confidential information and company property.
  • While employed, the employee will not compete with the company or perform any services for any competitor of the company.
  • The employee’s confidentiality and invention assignment obligations under the agreement will continue after termination of employment.
  • The agreement does not by itself represent any guarantee of continued employment.

Venture capitalists and other investors in startups expect to see that all employees of the company have signed such agreements. In an M&A transaction in which the company is sold, the buyer’s due diligence team will also be looking for these agreements signed by all employees.

A sample form of Employee Confidentiality and Invention Assignment Agreement can be found at the Forms & Agreements section of AllBusiness.com.

Similarly, it will be appropriate that all consultants of the company also sign a Confidentiality and Invention Assignment Agreement. See Key Issues with Confidentiality and Invention Assignment Agreements with Consultants.

Properly classify workers as employees or independent contractors

Both emerging and established companies face the issue of properly classifying workers as employees or independent contractors. When hiring employees for your company, it’s critical to get this right. Lawsuits are often filed attacking the classification of workers as contractors, and the potential damages and penalties can be enormous.

Employees and contractors are paid differently. Generally, the company must withhold income taxes, withhold and pay Social Security and Medicare taxes, observe wage and hour laws, and pay unemployment tax on the wages of employees. On the other hand, employers generally are not required to withhold or pay taxes on payments to independent contractors, pay overtime compensation, or comply with other payroll and related issues applicable to employees. The general idea behind the difference is that the contractor will often have his or her own business, work for other companies, have expertise that is not subject to detailed control and supervision of the company, and may want the flexibility of setting hours and working arrangements.

The savings to a company by properly designating a worker as an independent contractor could be 20-40% of the labor costs. However, that savings will be quickly eaten up by challenges and claims from the government (which wants the tax payments) and lawyers for the workers.

The IRS takes the position that in determining whether a person is an employee or independent contractor, the key factor is the degree of control the company exerts over the process. Here are some of the factors that might indicate the worker should be classified as an employee:

  • The worker is required to work a designated schedule of hours
  • The worker is required to work at the employer’s place of business
  • The worker only provides services to one company
  • The company controls or has the right to control how the worker performs the service
  • The company provides the worker tools, supplies, office space, or equipment needed to do the job

These factors may indicate the worker may properly be classified as an independent contractor:

  • The worker sets his or her own hours
  • The worker has licenses, insurance, and other indicators of a separate business
  • The worker provides services to more than one company
  • The worker works relatively independently
  • The worker has the authority to decide how to go about accomplishing tasks
  • The worker incurs the costs of performing the services
  • The worker has the opportunity for profit or loss from the work

This is an evolving area of the law and some states are adopting specific legislation dealing with gig workers and independent contractors. California legislation in particular has been hotly contested by Uber, Lyft, and other companies.

New employee paperwork

Prior to welcoming new employees into the business and before you show them around the office, plant, or sales floor, you should be prepared with all of the proper paperwork.

Consider the following paperwork for the employee to sign on the first day:

  • Employee handbook. Have employees sign a receipt indicating that they have received and read the handbook.
  • Form W-4. It is mandatory that an employee completes the IRS W-4 Form used to determine the appropriate level of tax withholding.
  • Employee benefit elections. Employees should sign up for any such benefit programs, providing all necessary information. This would include company health or pension plans.
  • Confidentiality and Invention Assignment Agreement. This agreement stipulates that all proprietary information will remain confidential and that the company owns all inventions created by the employee, relevant to the company business, while under the employ of the company.
  • Emergency notification. This form lists phone numbers to contact should there be an emergency.

An employee handbook should include all practical information on:

  • 401(k) or retirement accounts
  • Pension plans
  • Stock options plans
  • Medical & dental benefits
  • Disability insurance
  • Vacation days
  • Sick & personal days
  • Leave of absence
  • Maternity/paternity and family leave
  • Adoption benefits
  • Legal holiday schedule
  • Performance reviews
  • Operational policies & procedures
  • Safety & security policies
  • Codes of conduct
  • Sexual harassment policies
  • Dress codes
  • Email, social media, and internet use policies

Short of such a handbook for each employee, there should be a central location such as an Intranet site or a handbook in the office of the person who handles human resources for your company with all of this information spelled out in writing. It’s to your advantage to take the time to carefully think through and list all matters pertaining to employees prior to the hiring process. This can prevent future lawsuits.

Maintain proper documentation concerning employees and HR

Companies are often sloppy in maintaining the proper employee/HR-related documentation. This can become problematic if the company is pursuing financing, is involved in an M&A activity, or is involved in litigation with an employee or regulatory agency. Here is a compendium of the types of documentation the company should consider maintaining:

  • Job applications and resumes
  • Employee offer letters
  • Employment agreements
  • IRS W-4 forms (Employees’ Withholding Allowance Certificate)
  • Form I-9 completed by all employees (eligibility of the employee to work in the United States)
  • Anti-harassment and discrimination policy
  • Employee handbook
  • Stock option plan and agreements with all option holders
  • Benefit plans
  • Employee personnel files (including performance appraisals)
  • Employee complaints
  • Worker’s compensation documents
  • Emergency contacts
  • Records of any disciplinary proceedings taken against employees
  • Social media policy for employees
  • Code of conduct policy for employees
  • Compensation and bonus history
  • Employee-related posters mandated by law to be posted in the workplace
  • Employee termination notices
  • PTO tracking records

RELATED: 10 Key Contracts for Small and Growing Businesses



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