Recruiting and Selecting Employees

1. Recruiting and Selecting Employees For the Small Business SCC Recruiting Employees Bus 207, courtesy of sjh

2. What was your first Problem? Who Job description? Personality Wages required Skills needed How Referral Walk on How to recruit Have any of you been involved in Recruiting or Selecting Employees? Is Interviewing a good predictor of future job performance? SCC Recruiting Employees Bus 207, courtesy of sjh

3. 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! SCC Recruiting Employees Bus 207, courtesy of sjh

4. 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 activities. 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? SCC Recruiting Employees Bus 207, courtesy of sjh

5. Limited Capacity and Life (of a sole proprietor) • The business is reliant on you. • Without you, there isn’t any revenue coming in. • If you get sick, you don’t have back-up. • If you go on vacation…it’s “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? SCC Recruiting Employees Bus 207, courtesy of sjh

6. Advantages to Hiring Employees • They can be trained to run the business in your absence. • 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! SCC Recruiting Employees Bus 207, courtesy of sjh

7. Making the Decision to Expand or Not? • Like starting a business, the decision to expand and take on employees, should not be taken lightly! • 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 responsibilities? • Are you ready to give up control? • Can you take on more risk? What happens if you don’t expand? SCC Recruiting Employees Bus 207, courtesy of sjh

8. 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. SCC Recruiting Employees Bus 207, courtesy of sjh

9. Hiring New Employees: The Paperwork- Federal Requirements • Federal Law requires you, the employer to withhold, report and pay over to the federal government certain deduction from your employees’ wages- • You must report- • Employee’s federal income tax- FIT (use tables) • Employee’s contribution to Social Security-FICA 6.2% • Employee’s Contribution to Medicare – Medicare 1.45% • 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! SCC Recruiting Employees Bus 207, courtesy of sjh

10. Federal Tax EIN Form SS-4 • Go on-line to www.irs.gov • Click on business related topics- Employer ID Numbers • 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 SCC Recruiting Employees Bus 207, courtesy of sjh

11. 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) SCC Recruiting Employees Bus 207, courtesy of sjh

12. Employees Vs Non- Employees Be very cautious trying to may associates INDIPENDENT CONTRACTORS! • Six categories of workers • Common-law employees • Statutory employees • Statutory non-employees • Independent contractors • Individuals referred by a Temporary or Staffing Agency • Leased Employees SCC Recruiting Employees Bus 207, courtesy of sjh

13. 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 COMMON-LAW TEST 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 Common-Law Employee SCC Recruiting Employees Bus 207, courtesy of sjh

14. “Statutory” do not fit the example of “common-law” employees, but are still employees- Examples: A driver who is an employee’s agent or paid commission A full-time life insurance agent selling for one carrier 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. Statutory VS. Non Statutory Employees SCC Recruiting Employees Bus 207, courtesy of sjh

15. 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 possible) • This policy is to protect employees not to punish employers. • BEWARE of the differences between IC’s and Employees! SCC Recruiting Employees Bus 207, courtesy of sjh

16. 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 EXEMPT To have exempt status your employee must fall into a certain “salaried” category Examples include- Executives Administrative Professional Outside Sales Normally paid salary…NO Overtime Exempt VS. Non-Exempt SCC Recruiting Employees Bus 207, courtesy of sjh

17. No instructions No training Services to not have to be delivered personally Work NOT essential to firm IC sets hours No on-going relationship IC’s have other work IC’s determine job location IC’s pay business expenses IC’s have own tools IC’s can make a profit or a loss IC’s cannot be fired “at will.” IC Checklist The IRS 20 point list… IC = Independent Contractor SCC Recruiting Employees Bus 207, courtesy of sjh

18. Independent Contractor vs.Employee…the 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 penalties. Always consider your risk bringing on Independent Contractors SCC Recruiting Employees Bus 207, courtesy of sjh

19. Necessary Documentation for IC’s To minimize your risk, make sure you have the necessary documentation on your ICs. • Copy of their business license and possibly their insurance • 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) SCC Recruiting Employees Bus 207, courtesy of sjh

20. What about “under-the-table?” • It’s true many small business owners will pay people “under the table” for services rendered • The government doesn’t have “stats” on this market. • Remember, it is your business…and your risk! SCC Recruiting Employees Bus 207, courtesy of sjh

21. Alternatives to Hiring an Employee • Source out work to other small businesses. This works well for certain administrative jobs like- payroll, bookkeeping, security, cleaning • Use a Staffing Agency This works well for part-time help or seasonal help & when you don’t want to deal with the paperwork. • Take on Independent Contractors SCC Recruiting Employees Bus 207, courtesy of sjh

22. 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) Options for Recruiting Quality Employees SCC Recruiting Employees Bus 207, courtesy of sjh

23. 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. SCC Recruiting Employees Bus 207, courtesy of sjh

24. Pros Often quicker than recruiting yourself Staffer is screened through the Agency No employment paperwork Can use for limited time without hiring Con’s 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 Pro’s & Con’s of Using a Staffing Agency SCC Recruiting Employees Bus 207, courtesy of sjh

25. 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 policy. Recruiting sources are normally 1) Places 2) People SCC Recruiting Employees Bus 207, courtesy of sjh

26. 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 SCC Recruiting Employees Bus 207, courtesy of sjh

27. 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 SCC Recruiting Employees Bus 207, courtesy of sjh

28. 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 • Monster.com • Careerbuilder.com • Northbayhelpwanted.com SCC Recruiting Employees Bus 207, courtesy of sjh

29. Employment Legal Issues SCC Recruiting Employees Bus 207, courtesy of sjh

30. Fair Labor Standards Act • Workers must be identified as non-exempt or exempt. • Business that make less than $500,000 MAY HAVE EXEMPTIONS (VERIFY!). • 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! SCC Recruiting Employees Bus 207, courtesy of sjh

31. 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. SCC Recruiting Employees Bus 207, courtesy of sjh

32. 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 Unions. • Age Discrimination in Employment Act - companies with 20 or more employees. Now we know why businesses limited their employees to 19! SCC Recruiting Employees Bus 207, courtesy of sjh

33. …and more Employment Laws • Family & Medical Leave Act – Companies with 50 + employees. • Occupational Safety & Health ACT – OSHA – All Businesses. • Workers Compensation – mandatory “insurance”. • Immigration Reform & Control Act & Immigration Act – All Businesses. SCC Recruiting Employees Bus 207, courtesy of sjh

34. 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 Form. • The Company must retain the form at the business location. • Fines are imposed if you do not have proper documentation. SCC Recruiting Employees Bus 207, courtesy of sjh

35. 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) www.osha.gov SCC Recruiting Employees Bus 207, courtesy of sjh

36. OSHA Posting & Reporting • You must post a notice called Job Safety & Health Protection.” • 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. SCC Recruiting Employees Bus 207, courtesy of sjh

37. California Small Business Hot Topics- Impacting Employers • Worker’s Comp Reform • Nearly 80% of all voters support the cost-cutting Reform Bill • Check out www.fixworkerscompnow.org • 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 Obligation”…in 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 SCC Recruiting Employees Bus 207, courtesy of sjh

38. 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 report. SCC Recruiting Employees Bus 207, courtesy of sjh

39. Other Considerations Before Starting the Hiring Process • What do I really need the employee to do? Do a job analysis and then establish a Preliminary Job Description. • Establish the future-employee’s “wage rates.” Are you competitive? Will this employee get benefits or be an “exempt” employee? • Develop a typical work schedule. • Revise the Organizational Chart. SCC Recruiting Employees Bus 207, courtesy of sjh

40. Class Assignment (Optional) for next week, November 6th, 2004 • What should you do before you “hire” an employee for your business. Where and how will you recruit? • What obligations or responsibilities do you have as an employer in the state of California? SCC Recruiting Employees Bus 207, courtesy of sjh