Bringing On Employees

Advice for Hiring Employees Within Your New Business

This information is taken from the Australian version of The Business Legal Lifecycle Book written by Jeremy Streten.
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Phase 4 – Bringing on Employees

As your business grows, so will the demands on your time forcing you to consider bringing in people to help you. There are many different types of employees that you can engage, but the first one will be the most crucial to get right. I have seen many businesses learn this lesson the hard way in the early days as they employ staff who, while being enthusiastic and dedicated, are simply not suited to their role. This means that they are forced to find new staff quickly which takes up valuable time and resources.

The Dip In Your Business After Hiring Employees

In navigating your way through the Bringing on Employees phase of the Business Legal Lifecycle, you will eventually realise that you now have, or will soon have, a business that you can really leverage and take to the next level. You will notice that the Business Legal Lifecycle displays a dip after you start to hire employees. Peaks and troughs are a natural part of running a business; there will be times when everything is going well and you are making great profits, and other times when you will experience a dip. Rather than being frightened of this occurring, you should simply be prepared so that the dip has minimal impact on your business. Hiring employees probably causes the greatest dip, but it can also provide the greatest rewards. There is a dip because your profits decrease as you are now paying wages. You are also spending your time training staff to work the way that you want them to. Once you learn to leverage your employees, they will become the lifeblood of your business and will be integral to your success.

Important considerations when hiring employees are:

Dangerous ways of thinking when hiring employees are:

How to start hiring the best types of employees

Different types of roles you may want or need to hire include:

Secretary/Receptionist

This person will be your right hand. Not only is this one of the most important roles in a business but also the most challenging to get right. Whilst not every business will need a secretary/receptionists, where there is one, they are usually the first point of contact, whether it  be on the phone or in person, for new and existing clients and customers.

First impressions matter and may be the difference between winning and losing a customer or client. How many times have you telephoned a business and spoken to someone who was clearly not interested in their job, or walked into a business where the secretary/receptionist kept their head down and did not greet you in a friendly manner, or worse, did not greet you at all? How did you feel about that business?

Your immediate impression was probably negative and may have influenced your decision about whether or not to work with that business. It is important that you employ a secretary/ receptionist that actually wants to do the job. Some people see the secretary/receptionist role as an entry point or ‘stepping stone’ to another role in the business. You need to ensure that prior to hiring a new secretary/ receptionist, you talk with the candidates to make sure they understand how vital the role is, how crucial they are to the success of the business, and to speak openly about their expectations and goals in applying for the role.

Administration

Whether this is a personal assistant, accounts manager, office manager or an internal bookkeeper, ensure you hire someone who fits your requirements for your business.

Workers/Fee Earners/Sales or Service Team

After the secretary/receptionist, these employees are the next most important contact point for customers and clients. These are the people who interact with clients and customers on a daily basis, generate revenue and ultimately help you to build your business. The right worker/fee earner/sales or service team member can greatly assist your business and, equally, the wrong hire has the potential to cause irreparable damage.

During this phase I will discuss the difference between employees and contractors, some tips on the interview process, your agreement with your new staff member, considerations of your liability as an employer, and the importance of workplace policies.

Obligations on employers when hiring employees

When you bring on employees it is crucial that you consider the additional obligations that will be placed on you as an employer. Important considerations that can be missed are not withholding the right amount of tax, not paying the right amount of superannuation and, if they are contractors, not paying appropriate goods and services tax.

When bringing on an employee it is very important that you speak to your accountant or bookkeeper to make sure that you are making proper provisions for these amounts and paying them when they fall due. Not doing so has led to the downfall of many businesses and you need to ensure that you comply with the requirements so that this does not happen to your business.

Employee vs Contractor

One of the biggest mistakes that business owners make is failing to understand the legal distinction between an employee and a contractor. In Australia, there are specific rules and criteria that determine whether a person is an employee or a contractor. In certain types of businesses, such as the building and construction industry, individuals may technically be employees but are known as contractors and treated as such.

Generally, an employee is someone who specifically works in a business; they earn all, or at least the vast majority, of their income from that particular business. They will be a necessary part of the business and the work they perform generally cannot be sub-contracted or delegated to other people. Employees are usually paid on a regular basis for the work performed and the tools or equipment that they need for their work are supplied by the business owner. Finally, an employee does not generally need their own insurance for the work that is performed, as the business owner should have insurance that covers this.

On the other hand, a contractor or sub-contractor is someone who works for a business owner and who can delegate work to other parties without restriction. They are paid on a per job basis as opposed to ongoing, regular payments. A contractor generally has their own tools and equipment and their own insurance. They work with a great deal of independence from the business owner as they also have the option to work for other businesses rather than exclusively with one.

Legal and accounting advice is imperative at this point as employment law is quite complex and there may be serious repercussions if you get it wrong, especially in relation to employer responsibilities, tax and remuneration. This is discussed further in section 4.4. If you employ someone under the wrong classification, it can end up costing you tens of thousands of dollars in unpaid entitlements and penalties.

From the Case Files

A classic example comes from the construction sector. The company provided services, in particular plumbers, to a large number of different jobs around Queensland, Australia. Approximately 20 staff members were engaged as contractors but according to the appropriate law, they may have been considered to be employees. The staff worked only for that company, which had insurance covering all staff and supplied all tools and equipment. When a disgruntled employee left the company, he made a complaint to Fair Work Australia contending that, as he was technically an employee, the employer should have been withholding his tax and paying money into his superannuation fund (both requirements of Australian law for employees). This was even the case where the staff member was paid as a contractor, at a higher rate of pay than an employee incorporating tax and superannuation payments. Unfortunately, Fair Work Australia deemed that he was in fact an employee. The construction company was forced to pay thousands of dollars in unpaid 65 payments, benefits and penalties. The employer’s company was then also forced to pay back all of the other contractors because they were also deemed to be employees rather than contractors. If they had looked for the right advice at the start they may have been able to prevent this sort of decision from coming about by having the right contracts in place and engaging with the staff members properly.

The interview when hiring employees for your new business

Being prepared for a job interview is as important for you as the business owner as it is for the prospective employee. You need to be ready to ask a variety of different questions that establish whether or not the prospective employee is suitable for your business. This will vary depending on the role and the type of business. Consider exactly the sort of person you want for the role before you start interviewing. If you do not do this, you will find yourself flying blind through the hiring process.

A business owner also needs to be aware of the local laws in relation to what they can and cannot ask a prospective employee. Most of these are common sense but, if you are unsure, then you should seek advice from your lawyer or employment consultant.

The Agreement with your Employee or Contractor

Whether you hire employees or contractors, it is essential that you have watertight agreements in place so that there is no confusion as to the roles and responsibilities of each party. To ensure your agreements are sufficient to cover you from any wrongdoing by the staff member and that the staff member is correctly classified, you should engage with your lawyer or employment consultant. In some cases, industry bodies can also assist with legal advice for business owners to ensure that they comply with these requirements. These agreements should be done as soon as you engage an employee and should not be left until later as you will have problems implementing the contracts. It is much easier to have an employee sign a contract when they start working for you than to wait until there is a problem in the future.

An employment agreement also serves to protect the business owner when an employee or contractor stops working for the business. The protection is twofold: firstly, a restraint of trade will stop the employee from competing with your business in an unreasonable fashion; secondly, a confidentiality agreement will protect your information so that the employee or contractor cannot take that information without your consent or agreement.

Many business owners like to take ‘barbecue advice’ from friends and other business owners in relation to restraint of trade issues. They are advised that restraints of trade are not worth the paper they are written on as they are too difficult to enforce. This is not true; a properly worded restraint of trade that protects the legitimate business interests of the business owner will be enforceable. These are highly technical documents and you need to ensure that when they are drafted, they are done correctly to protect your interests as a business owner.

I have personally seen many business owners fall into the trap of relying upon a handshake agreement with their staff instead of a written agreement. The employee leaves, and after a few weeks or months, customers or clients start to disappear only for the business owner to discover that they have gone to the ex employee’s new place of work. With an appropriately drafted agreement, this can be prevented as the written agreement can be used to enforce the restraint of trade through the courts.

Liability for Employers When Hiring Staff

As I mentioned previously, one of the distinctions between employees and contractors is the level of liability that the business owner has for the acts or omissions of the staff member in doing the work of the business. Where the staff member is an employee, the employer is liable for all of the work that the employee does for the business. This is the reason (as mentioned in section 4.1) why an employee does not need their own personal insurance for the work they do. The employer is what is called ‘vicariously liable’ for the work of the employee.

Depending on the type of work and the method used to engage a contractor, the contractor may be personally liable for the work that they have performed for the business owner. There is a lengthy list of factors that have to be considered in determining this; however, if you are going to engage contractors, you need to carefully consider who is liable for the work performed.

Understanding your liability when hiring staff is critical to successfully navigate your way through this phase. You should consult with your lawyer and employment consultant to discuss these requirements and what steps need to be put into place to protect you and your business from liability. An example of this distinction is in the cleaning industry. You may contract a cleaning company, but the person who does the work does so as an independent contractor engaged by the cleaning company. If that is the case, then the person engaged as an independent contractor is liable for any damage that they cause. If the person is an employee then the main company is liable for any mistakes or damage caused.

Workplace Policies For Your New Business

As your staff grow, it is important to set rules for their conduct within your business through workplace policies which depend heavily on the type of business that you operate.

Some important considerations when drafting policies include (this list is not exhaustive):

When you create a policy for your business you are setting out instructions, rules and regulations for your business. This will ensure that the staff (both employees and contractors) understands the standard of conduct expected of them and their colleagues and the consequences of any breaches.  They are also critical to protect you and your business if a problem occurs so that you are able to demonstrate that the appropriate systems were in place to deal with such problems. This can be used as a defence should an employee (or a former employee) make a claim of negligence against you.

There is no ‘one size fits all’ solution for workplace policies. You should consult with a lawyer or employment consultant in drafting these policies to ensure that they are tailored to your business’ unique requirements.

For a business in the Start-Up or Bringing on Employees phase of the Business Legal Lifecycle, the cost of having these policies drafted and put in place may seem prohibitive. Workplace policies are often left until a business is well-established and with many staff. However, once you have four or five staff (in addition to the business owner or owners), it is extremely important that these policies are in place as you will find it necessary to set the rules and expectations of your staff (both employees and contractors) to save you time and money. This will not only give you comfort that your staff have guidance on important issues, but it will also increase the value of your business as a good system will be of value to a prospective buyer.

Summary of How To Start Hiring Employees

Richard Branson once said, ‘Train employees well enough so that they can leave. Treat them well enough so that they do not want to leave.’ This really rings true for me as an employer. When the business is in the Start-Up phase, the business owner is the person that does all of the work, deals with all of the clients and wears all of the hats. As your business grows, you need to be able to relinquish some of that control and employ staff to do that work for you. If you micro-manage your staff, they will not develop the confidence and skill set that they need to become a valuable asset to your business.

Additionally, they may feel undervalued, dissatisfied and eventually leave, forcing you to find and train someone new at a considerable loss of time and money. It is natural during this phase of the Business Legal Lifecycle for you to start thinking, ‘my staff members aren’t learning fast enough’, ‘employing this person was a mistake’, or ‘I need to take over and do the work myself’. It is important to remember, however, that the vast majority of business owners were once employees or contractors themselves.

So think about what it was like when you started off as an employee or contractor and how you developed into your role over time. This eventually led you to the point where you were trained well enough to stay. Then, think to yourself, ‘why did I leave?’ If you can put policies and procedures in place to treat your employees and contractors well enough so that they do not want to leave, they will become trusted and valued members of your team.

Once you have properly navigated this phase of the Lifecycle you will know that you have a business that can be leveraged. You will probably experience a dip in your business because you are spending time and money on training the new employee(s) but by properly navigating this phase, you will be able to minimise that dip and be ready for the next phase: Protecting your Intellectual Property and subsequent phases.

Questions to ask before you progress to the next phase:

1

Do you want to bring on employees? (if no then move straight onto the next phase.)

2

Are you ready to bring on employees?

3

Do you need a third party recruiter to find the right person?

4

What do you want your new employees to do?

5

Are they employees or contractors?

6

What is the cost of bringing on employees?

7

Have you put in place any new insurance (e.g. worker’s compensation)?

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