3.0 Implementation Team

Business Law Basics >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.

3.0 YOUR IMPLEMENTATION TEAM – EMPLOYEES AND INDEPENDENT CONTRACTORS

3.1  Why outsource?  Differences between employees and independent contractors

Independent contractors are cheaper than employees because you don’t have to pay employment taxes – an extra 15% on top of salary.  You don’t have to worry about training.  Or benefits.

Watch who you hire – your “independent contractor” may be an employee in the eyes of the IRS.  Make sure you hire a true independent contractor for the job.  Look at the amount of control you have over the work being done.

That’s what the IRS is going to look at in all these relationships.  Are you controlling what the worker does, when the worker does it, how the worker does it?  Does the worker have to be at your office site to do the work?  Are you the only one the worker works for?  If yes, that person might lean more toward being an employee – even if you have a written agreement that calls them an independent contractor.

The danger of misclassifying an employee (especially a part-time one) as an independent contractor:  a major dispute with the Labor Department; payment of taxes, penalty and interest on what you should have been paying from the get-go.

3.2  How can you effectively screen independent contractors?

Using a workforce model based largely on independent contractors and consultants can be done properly and successfully.  Look at the following:

• Do they have their own independent business as a corporation or LLC?
• Do they have a portfolio of other clients?
• Where is the work performed?
• Do you have to provide any training to get the job done?

Independent contractors – whether or not they have their own business entity – are business people.  So vet them as you would anyone else.

• Ask for referrals from people who have used them and liked their services.
• Be clear about the assignment and ask them to provide proposals.
• Check references.
• Meet them in person.
• Ask for creative ways they have helped solve their clients’ problems.
• Consider “testing” them on a short project, rather than taking a huge risk on a larger one.

Have a written agreement with them that covers the 3 M’s:  management (the services), money, and moving on – in other words, identifying the services they’ll provide, what you’ll be paying, and what you can do if you’re dissatisfied.

3.3  What steps can you take in preparing to hire employees?

The key to hiring employees well is to prepare in advance and get good counsel.  Make your hiring process and job positions as objective and consistent as possible.

• Job descriptions.  For many positions, you need a certain level of talent and expertise.  A clear job description can also help you steer clear of various discrimination laws.
• Background checks.  What do you really know about the candidate sitting in the chair across the table from you?  In many situations, only what she tells you.  As a business owner, that’s not enough.  Check all references.  Background checks are crucial.  All employees need to fill out Form I-9 – required by the Department of Homeland Security.  Do not hire undocumented workers.
• Employee handbooks.  Think about the policies and benefits you intend to give before you hire that first employee, you’ll avoid a lot of headaches later on.  With an employee handbook, you have an opportunity to determine the policies and procedures that apply objectively to all employees.  Like whether surfing for porn on the company computer is okay (not), and the internal complaint procedure if there’s a problem.  When you’re consistent, you can deflect many claims of unfair treatment.

3.4  Do you know how to manage employees so that they work efficiently?

One of the keys to managing employees is using a “correct and continue” approach. This means that you need to set clear guidelines for performance, but if they aren’t met, have opportunities for the employee’s behavior to improve . . . and move forward. Like other asset investments in your business, employees require care and maintenance to make sure they function at peak performance.

Performance expectations spring from the job descriptions you gave thought to in Lesson 3.3.

• Provide regular feedback and success plans.  Employees require feedback to know if they’re meeting the targets, and where their skills need improvement.  Help them to create reasonable and meaningful performance milestones.  Employee reviews can also serve as a powerful weapon in your arsenal, should an employee turn litigious and look to the courts for compensation.  When you establish a workforce, you need to set objective standards and enforce them objectively – which is why employee reviews and discipline go hand-in-hand.
• Plan the review procedure in advance.  Make sure you provide feedback to employees on a regular basis (at least quarterly is good).  Having an evaluation form handy can be a helpful guide to ensure that you’re covering all the points you want to address.
• Nip problems in the bud right away.  Employees, like children, need to be taught healthy boundaries.  If you allow your employees to get away with workplace “infractions” (tardiness, personal shopping/porn surfing online, etc.), they’ll assume it is okay. And bad habits are hard to break.  Don’t delay bringing a matter to an employee’s attention – or wait another two months for the quarterly review – just because you don’t want a confrontation there and then.  Make sure you’re enforcing the rules and policies you’ve set out in your employee handbook.

3.5  Can you fire employees without getting sucked into lawsuits?

Employee lawsuits have shown a marked rise over the last 10 years, and the numbers tend to increase when the economy is shaky.  Sloppy employment policies, lackadaisical harassment training, operating without a handbook – all can provide the very ammunition an employee needs to drag out a lawsuit.

Whether you’re firing for bad deeds (substance abuse on the job, theft, harassment) or just unfortunate situations (can’t do the job, doesn’t get along with co-workers, downsizing) you need to have the details in place before you have the “termination conversation.”  The key to success:  document, document, document.

• Monitor those milestones.  You want to give an employee a chance to perform up to par . . . but set deadlines for achievement.  If an employee can’t (or won’t) make the changes you agreed upon in Lesson 3.4, it’s time to let him/her go.
• Prepare in advance for the “termination conversation.”  Choose a private place in the office (e.g., a conference room).  Select a third party to be present, such as HR staff, legal counsel, or other senior manager who can be entrusted to keep matters confidential.  Know what you’ll say in advance.  Consider role-playing exercises or rehearsing.
• Coordinate with HR and legal counsel. Given the twenty-some-odd federal discrimination laws, and the myriad of state laws affecting employees, you’ll need and want proof that the firing has a reasonable business justification . . . and that you handled the process in an unbiased manner.

ACTION ITEMS: Complete the Action Items in your Action Guide.

REVIEW this lesson and take notes of major points for future reference.

REVIEW your business operation options:

What can be outsourced to contractors, etc?

What must be done in-house via employees?

REQUEST to see licenses, portfolios, references, and any additional information from every potential contract worker you may be considering.

PREPARE documents needed for each type of worker (contract or employee). View USCFE’s Employees & Staffing Lessons to prepare yourself and your business for bringing on staff.

Next — 4.0 Contracts »