San Diego Business Lawyer Blog

Part One of this article focused on making the decision to hire employees and the costs of doing so.  Part Two provides a brief overview of the numerous Federal and California State laws and regulations governing employers.  It is important that businesses become familiar with these laws as they contemplate hiring their first employees.  Minimum wage, Social Security and Medicare, tax forms and withholdings, workers' compensation, eligibility to work in the United States and other labor laws are all important considerations.
 
As businesses look to hiring employees, their first consideration is cost.  Wage is of course the largest component of employment costs, and in California the minimum wage is $8.00 per hour.  This is the minimum wage cost prospective employers face.  In addition to the employee's wage, the employer is responsible for paying an equal contribution to the employee's Federal Social Security and Medicare payments.  This is the same payment individual business owners pay as their self-employment tax.  Currently, the combined tax is 15.3% of the employee's wage (12.4% for Social Security and 2.9% for Medicare) of which the employer is responsible for half.
 
Once a decision is made to hire, businesses are required to ensure that the employees they hire are legally eligible to work in the United States.  Each new employee is required complete a Form I-9, "Employment Eligibility Verification", and present their Social Security card.  It is recommended that employers take photo copies of the Social Security card for future reference and proof of documentation.  If for any reason, a prospective employee doesn't have a Social Security card, the employer should ask that they obtain one as soon as possible
 
Employers are also required to withhold taxes from the employee's pay.  The amount of tax withheld is determined by the employee's W-4 form which is provided to the employee by the employer.  The employee identifies his or her tax status and desired number of exemptions which the employer uses, along with state and federal tax withholding tables, to calculate withholdings.  At the end of each year, the employer reports the employee's income and total amount of withholdings to the IRS and the California State Franchise Tax Board via a W-2 form which is also provided to the employee for his personal tax return.

Continue reading "New and Growing San Diego Businesses - Hiring Employees Part Two" »

Eventually the day comes when every new San Diego business owner asks the question "Is it time to hire my first employee?" The prospect is exciting and often serves as a catalyst for business growth. For some, the right time is when business operations begin to negatively affect personal life. Most business owners face a number of challenges requiring long hours and considerable energy eventually leaving little time for family and friends. For many business owners, living a healthy, active life style and spending quality time with family and friends is invaluable. For others, the sheer volume of day to day operations leaves them with no choice. Either bring one or more employees on board to assist with operations or suffer inefficiencies and loss of profit. Still others see the present high unemployment rate as a time for bargains. Whatever the reason, when the time comes to seriously entertain hiring employees, business owners must carefully consider numerous issues including compensation, employee benefits, hiring practices, compliance with state and federal law and development of a company employee policy.

Before hiring that first employee, a business must have adequate revenue in order to maintain solvency and respectable profit margins. Cash flow, not fixed cash, is a key factor in determining whether a business can hire that first employee. To make this determination, the business owner must first decide what constitutes a fair wage. What constitutes a fair wage takes into account both what the employer can afford and what is commensurate with the job requirements and expectations. The employer must also consider whether to provide employee benefits. Medical coverage, retirement plans, paid holidays and vacation policies all come at a cost to the employer, but also serve as an additional incentive to prospective employees. The cost of advertising for the position is an additional short term consideration. If the business doesn't have the necessary "cash flow" to bring on a new employee, the business might consider other options like outsourcing important tasks. Accounting tasks for instance can be outsourced at a reasonable cost.

Finding the right candidates for the new position requires good strategy and a little common sense. Business owners must attract qualified employees. Salary, benefits, the business environment and other perks, the quality of the business itself and how the position is advertised for all have an impact on prospective employees. Newspaper advertisements, periodicals, websites like Monster.com and recruiting companies are all excellent tools. References from friends or industry colleagues are also effective ways to recruit employees. Before moving forward, the employer should put himself in the shoes of the prospective employee. A thoughtful consideration of what best enhances the business' appeal to prospective candidates assists the employer in anticipating employee preferences. The goal is to attract the best and brightest candidates and to ultimately choose the right fit for your business. The first few employees play a major role in the growth and developmental of any new business, and help define a business' relationship with clients and customers during its formative years.

Parts Two and Three of this article will explore compliance with Federal and California State government regulations and the development of a company employee policy. It is imperative that employers are knowledgeable of the numerous federal and state laws concerning hiring practices and other labor issues. Business owners may want to consider seeking legal advice from a San Diego business lawyer when developing employment policies. In the end, hiring new employees is rewarding. Business owners contribute to a lower unemployment rate as their businesses grow and long and rewarding associations are developed.