Paul had everything in place for his PLLC to operate his new chiropractic practice. He was finally out on his own after years of working for another chiropractic group. But he hadn’t yet thought through how to hire the PLLC’s employees. He knew the administrative assistant whom he wanted to hire, and she had even agreed to the hours and pay. Yet what was his next step to actually get her on board?
Employees
Few business functions are as highly regulated as retaining employees. You, as the manager of your LLC, may have a great employee candidate with whom you have a great relationship of trust and confidence. Things may go swimmingly for as long as your LLC employs the employee. But your LLC’s employment practices and policies must still meet a thicket of laws, rules, and regulations. Forming and managing your own LLC is not hard. But employing employees can be quite complex. And the risks of doing it wrong are considerable.
Contractors
Ensure that your LLC needs employees before you hire them. You might find that you are able to retain independent contractors instead, saving yourself the time, trouble, effort, and expense associated with employees. Don’t, though, hire employees but call them contractors, denying them the required compensation, benefits, and protections of employees. If you mischaracterize employees as contractors to avoid legal obligations, you and your LLC can end up paying severe penalties and incurring substantial liabilities. The legal tests for who is an employee and who is a contractor depend on state law and the reason one asks, such as for withholding employment taxes, paying worker’s compensation benefits, and so forth. But control is the basic question. If your LLC is directing the worker’s time, tools, and methods, and has a hiring, discipline, and firing process for the worker, the worker is likely an employee, not a contractor.
Assistance
If you are not confident in your administrative knowledge and skills, or your ability and willingness to learn quickly, then consider getting help with your LLC’s employment needs. Your LLC may, for instance, retain a payroll service or accountant to handle employee payroll. Human-resources consultants are also available to provide your LLC with employee contracts, handbooks, and policies to ensure your LLC’s regulatory compliance. The same consultants can also give you advice on candidate recruitment, qualifications, interview, hiring, and compensation ranges. You may, alternatively, recruit another member of your LLC who has those skills, or you may find a mentor, professional association, or trade association to help you learn the necessary practices. Get the help you need. Don’t stumble through, making your own problems.
Temps
One way to reduce your LLC’s administrative issues around employment practices is to retain employees through a temp service. Temp services handle the employment administration for you. Your LLC signs a contract with the temp service and pays the fees the contract provides. The temp service then places its employees with you, where you get to direct them as if they were your own employees, but without the administrative issues. You can use the temp service as a way to recruit, evaluate, correct, and terminate the temporary employees. But beware the fee you may have to pay the temp service if you wish to convert a temp to your LLC’s own employee. That fee may be a percentage of total compensation for the position and therefore substantial.
Positions
Your LLC would do well to describe the positions for which it needs to hire employees. Once you get your LLC’s team assembled, the work may be all hands on deck. In most businesses, you don’t want a lot of that’s not my job attitude. But to recruit and retain employees, and orient new employees to the job, your LLC will need some kind of position description. And the discipline of describing in writing what you need and want the employee to do, including what qualifications the employee should have to do it, can help your LLC discern its true labor needs. You may be expecting too much out of a single worker or small number of workers. Include in your position description whether the work is part time or full time, whether the hours are fixed or scheduled, and whether the work is on site or off site.
Recruitment
You may already have in mind the individuals whom you would like your LLC to hire as employees. If not, then you’ll need some kind of recruitment process. Posting your LLC’s position description to an online job-posting site can quickly get you multiple applications. The online sites may also let you communicate with candidates, schedule interviews, and track candidates and your evaluation of them. But don’t rely solely on online job-posting sites. Some of your best candidates may be nearest to you but not looking online where they would see your job posting. Word of mouth may instead be necessary to reach those local candidates. Use your local networks to recruit local candidates and your trade or professional networks to recruit candidates with relevant experience and expertise. You might be surprised and pleased at the candidates whom your networking turns up.
Interviews
When evaluating candidates for your LLC’s employment positions, conduct interviews, in person if possible. You can learn a lot from even a relatively short interview. A candidate’s online presentation may be one thing and their personal presentation quite another thing. You and your workforce, customers, clients, and suppliers need to respect and value your new employees. A structured interview in which you ask questions specific to the work and general to the candidate’s good character will help you choose the right candidate. Require references from candidates whom you are seriously considering. And check those references, usually done after an offer of employment contingent on good reference checks. Your LLC’s position may also require or recommend a criminal history background check, especially for positions involving contacts with children, customers, or clients, or handling finances. Your state may offer an online system for employer criminal history checks, or you may find such a service available through an industry, trade, or professional association or payroll or similar service.
Retention
The terms on which your LLC retains its employees are also important. By far the majority of workers in the U.S. work at the will of their employer. Employment at will means that the employee has no job security. The employer may terminate the employment for any lawful reason or no reason at all. Employment at will gives your LLC the greatest flexibility. Employment at will gives the employee no assurance and may diminish loyalty and morale. But employment at will is the national standard, in the absence of a union bargaining for dismissal only with good cause. Be careful not to give oral or written assurances of dismissal only for good cause. Your doing so may end up subjecting your LLC to a wrongful termination lawsuit, in the event that you decide to terminate the employee’s employment.
Letter
A typical way in which LLC employers retain employees is with a letter of retention. The retention letter serves as the basis for the LLC’s employment contract with the employee. Your LLC’s retention letter should attach and incorporate the position description, offer the position to the candidate at a specific compensation rate with specific benefits, and ask the candidate to countersign and return the letter if in agreement. The letter should indicate that employment depends on a satisfactory reference check and may indicate that employment is probationary for a specific period. The letter should also clearly indicate at-will employment but may reference the employee handbook for other policies. Don’t attempt to put abundant employment details in the retention letter. Let your employee policies and handbook, modifiable at your discretion, provide the details. See the example retention letter at the end of this book.
File
Once your LLC retains the employee, keep the retention letter, employee’s resume and application, position description, and any employment evaluations in a confidential personnel file. Your state’s law likely requires that you maintain a personnel file that your LLC’s employee has the right to periodically inspect. The personnel file may become the key exhibit in any dispute your LLC has with its employee, whether over compensation, discrimination, evaluation, termination, or any other subject. Place in the employee’s personnel record only those documents that you expect the employee to see and that accurately represents all rights and responsibilities, and accurately describes all relevant events, in non-discriminatory, neutral, objective, and factual manner. No scuttlebutt, innuendo, or gossip goes in the personnel file.
Policies
Your LLC should adopt comprehensive employment policies ensuring your LLC’s compliance with federal and state employment law and regulations, like the Americans with Disabilities Act, Fair Labor Standards Act, and Family and Medical Leave Act. Adopting an employee handbook is a good way of doing so. The handbook should clearly indicate that it is not an employment contract and that the LLC may instead change its terms at any time. Your LLC should make the handbook readily and continuously available to employees, for instance through a shared document online. The handbook may run to ten pages or more, to cover all topics law requires and business and employment practices recommend. Don’t reinvent the wheel. Begin with a handbook you acquire from an attorney, human-resources consultant, professional or trade association, mentor, or other reliable source in person or online. Modify your pattern to create an employee handbook meeting your LLC’s specific needs.
Compensation
Your LLC should clearly communicate the compensation it intends to pay its employees. That communication should be in writing at the time of first retention, typically in a letter of retention. The communication should include the payment schedule, whether weekly, every other week, twice monthly, or monthly. Your state’s law likely prohibits any compensation schedule longer than monthly. The communication should also make clear whether compensation is hourly or salaried, and whether the position is exempt from overtime pay. Exempt positions are typically salaried, above the federal minimum salary for exempt positions, and supervisory or professional. Classify positions as exempt or non-exempt carefully so that you do not owe substantial back overtime pay and penalties. Also comply with your state’s minimum wage laws.
Benefits
Communicate employee benefits clearly, too. Federal law closely regulates employee benefits. Your LLC may need to retain an employee benefits consultant or payroll service offering benefits guidance. Differences in how you treat employees as to health insurance or other benefits can violate federal regulations. Health insurance is the primary benefit your LLC may need or want to offer employees. Health insurance is also an expensive benefit. Price health insurance through an independent insurance agent to choose affordable and sound coverage. Other benefits may include retirement contributions, life insurance, disability insurance, dental insurance, paid vacation, and paid sick leave. Don’t promise benefits your LLC cannot afford. Learn the customary benefits for equivalent positions, and ensure that your LLC can afford them before taking on employees. Benefits can add 20%, 30%, or more to the cost of base compensation.
Taxes
Your LLC will need to withhold and match employment taxes, and timely pay them over to the IRS and state government. If your LLC retains a payroll service to assist it, the payroll service will manage employment tax obligations. Be sure that your LLC is budgeting to meet those obligations. While an LLC can protect its managers and members from many liabilities, liability for unpaid employment taxes may extend through the LLC to reach its managers or controlling members. If your LLC does not properly manage payroll taxes, you could end up with personal liability to pay unpaid employment taxes for your LLC’s employees.
Evaluation
Your LLC may wish to periodically evaluate employees. Employment evaluations are routine in organizations with larger workforces. Employment evaluations are less common in smaller organizations with fewer employees and closer contact between employees and management or ownership. You don’t have to evaluate your LLC’s employees. But you may want to do so, especially if you find issues with an employee’s performance. Evaluation can guide an employee through a corrective action plan to improve performance. Evaluation can also help the employee understand why the LLC isn’t satisfied with performance, encouraging the employee to improve or voluntary leave. If you evaluate employees, write and retain the evaluations in the employee’s personnel file. Make objective rather than subjective judgments. And keep negative information confidential between you and the employee so as to avoid defamation.
Correction
Your LLC may come to the point of needing to terminate an employee. Consider implementing a corrective action procedure before terminating an employee whose performance is not meeting your LLC’s standards. Notify the employee of the shortfall, provide training to improve the performance, and then evaluate again. Repeat the cycle a second and even third time over the course of 90 days. If the performance has not improved to meet standards, then pursue termination if job reassignment or redesign does not adequately serve the common interests of the LLC and its employee. For deliberate employee misconduct, such as threats, assault, fraud, or theft, consider following a disciplinary action procedure. Terminate immediately if necessary to protect person, property, reputation, or relationships. Otherwise, consider job probation, suspension, demotion, or other discipline as a warning step toward termination. Don’t fool around. It can be easy to improve performance but hard or impossible to correct bad character.
Termination
Employee termination carries substantial liability risk. Employees have non-discrimination and other rights that they may be only too happy to assert after a job firing. Consider negotiating a resignation in exchange for a voluntary release of all claims, even if doing so requires paying modest severance. Expect terminated employees to seek unemployment benefits for which your LLC will pay, even if your LLC had good cause for the termination. Your state law may require the employer’s payment of unemployment benefits to fired employees unless terminated for wrongful conduct, suggesting intentional wrongs like theft rather than simple incompetence.
Key Points
Your LLC should hire only those employees it needs and can pay.
Consider retaining contractors or temps rather than employees.
Get your LLC qualified help complying with employment laws.
Write position descriptions to recruit employees.
Recruit employees online and through local networks.
Interview candidates and check references and history.
Confirm your LLC’s employment offer in a retention letter.
Retain your LLC’s employees at will rather than with job security.
Maintain a confidential personnel file for each employee.
Adopt a comprehensive employee handbook for policies.
Clearly state compensation and benefits.
Pay all employment taxes promptly to avoid personal liability.
Terminate your LLC’s employees only for lawful reasons.