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Small Business Employees: Who to Hire

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When it comes to hiring a team, one size does not fit all. Depending on your business stage, industry, and budget, your next hire varies drastically from your neighbor’s. Regardless of how you hire, adding your first team member is a milestone for small businesses. It’s a sign that your business is ready to grow, and the person you hire will be a strategic contributor to that plan.

Being responsible for people other than yourself can be both scary and exciting.  It’s no wonder that choosing to hire the right capacity is extremely important. Most entrepreneurs minds’ may go straight to the idea of a full-time or part-time employee. In fact, those are two great options, but they are not the only ones. Hiring can take many forms:

Employee v. Independent Contractor

Your startup’s first hire may not need to be an in-house employee. Depending on the task at hand, you may find yourself in a better position to work with contractors and freelancers. For project-based work where you can largely entrust the work to someone else, this may be a good option. Commonly outsourced tasks include accounting, graphic design, and even writing.

It’s important to know that employees and contractors are legal classifications, so you need to follow IRS rules to know which-is-which.  How you pay them also differs: contractors don’t require payroll taxes, health insurance, or even office provisions. On the other hand, independent contractors could charge a higher rate because they pay for their own overhead. Contractors could work for your business, since they often join the team to provide a specific, highly-specialized skills to fill a short-term need.

Working with independent contractors can be freeing to a founder who is more hands-off, or stressful to an owner who likes to be more hands-on with work.  Since contractors need to work independent of day-to-day supervisions, you will not have control of the process to accomplish the project results.  Just set clear expectations for what you want as the final deliverable.  Otherwise, an employee you will be able to manage more closely and watch as the project unfolds.

Full-Time Employee v. Part-Time Employee

If your business decides to move forward with an in-house employee, your next decision whether you have enough work and cash for full-time or part-time work. Several factors could come into play when making this decision, including the amount of work required (does it amount to 40 hours per week?) or your small business’ current cashflow.

Part-time employees save the employer money on employee benefits since these are rarely part of a part-time pay package. They also provide the obvious benefit of having to compensate for less than 40 hours per week, and can even provide flexibility in the weekly hours of the employee. Another pro? Part-time employees make a great pipeline for full-time employment when you have the financial capability to do so.

Full-time workers, however, are often more committed to your company because you are likely their only source of employment.  If your business is in need of manpower in your marketing or sales departments, for example, you may want to consider hiring a full-time team member for these critical areas. The efforts and work product of a full-time employee my be more consistent because they interact with your business more, producing a more efficient workplace. 

Exempt (Salaried) v. Non-Exempt (Non-Salaried)

The federal Fair Labor Standards Act (FLSA) and certain states with similar laws regulate the difference between these two classifications. Largely, the difference lies in (you guessed it) whether the employee is paid hourly or by salary, as well as whether the employee is entitled to overtime.

The federal FLSA requires that employees who are exempt must be paid a salary no less than $23,000 per year and $455 per week. Exempt (full-time) employees are expected to work for as long as it takes to complete a job, with no requirements for breaks. While exempt work is often considered 40 hours per week in the U.S., the FLSA does not entitle full-time employees to overtime beyond this threshold.  

Non-exempt (hourly) employees, however, must be provided overtime at 1.5-times wages for every hour over the overtime threshold, which is typically 40 hours per week. Employers are also required to give non-exempt employees regular breaks.

States that have their own laws of this type are even more favorable to non-exempt employees.  In addition to the 40-hours-in-a-week overtime basis, some states require overtime for more than 8 hours in a day as well.  And certain states have higher pay thresholds for being exempt, in order to entitle more workers to overtime.

You may always pay an employee on an hourly basis with overtime eligibility, but not the other way around.  If you are hiring salaried employees, make sure the job (not the person) meets the exemption requirements.

Temporary & Seasonal Employees

For many small businesses, the need for a little extra manpower may vary based on the time of the year. If you have a particular sales peak in the summer or around the holiday season, hiring temporary workers can help you meet the demands of added customer support needs.

Legally, a seasonal employee must work less than 120 days per year and is expected to stay for only a limited period, but a temporary employee can transition into full-time. However long your seasonal and temporary employees work with you, though, your business will still need to cover social security/Medicare, workers’ compensation, and unemployment.

Foreign Workers (H-1B) Visa

If your business requires a specialty occupation, you may temporarily employ foreign employees. “Specialty occupations” are those that require theoretical and practical application of highly specialized knowledge in “a field of human endeavor”. This could include biotechnology, chemistry, architecture, engineering, mathematics, medicine and health, education, law, business specialties, etc.

This requires an H-1B non-immigrant visa under the Immigration and Nationality Act, section 101(a)(15)(H). However, if the employee quits or is dismissed from your business (as the sponsoring employer), they must either apply for and be granted a change of status (to another non-immigrant status), find another employer, or leave the US. Your new employee will require a bachelor’s degree in the field as a minimum, as well as the equivalent of a state license if applicable.

How to Hire for Your Small Business

Before making the final decision on who you’ll hire next, start with a clear idea of the capacity you need in the job role. Do you need a full-time employee right away? Could an independent contractor complete a short-term project?  What is your management style? 

Whatever you choose, make sure you are clear on whether the position meets the needs of your small business while being classified and paid appropriately under federal and state law.

 

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