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What to Consider When Hiring Employees in 2015 [e141]

The guys discuss the recent developments in employment law for 2015 and what employers should consider when hiring new employees.

Transcript:

NASIR: All right. Welcome to our podcast where we cover business legal news. My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: And, today, we are talking about hiring employees in 2015. It seems like everyone is talking about hiring employees either for the first time or they’re expanding and I think that’s good – that’s a good sign for the economy, obviously, and maybe it’s also the new year.
MATT: Yeah, and, I mean, I’m thinking it has to do with a couple of things. One, the beginning of the year.
NASIR: Yeah.
MATT: I would say anyone, any business owner in the last quarter of the year who was thinking of hiring people – unless it’s a seasonal thing – probably was thinking, “I’m just going to put it off until the beginning of the year and not mess with it.”
NASIR: Oh, yeah.
MATT: And then, two, just the economy in general has gotten better. Businesses are making more money so they can pay people to be there. So, I’m sure there’s more reasons but those are two things that come to mind and it’s definitely a good thing. Let’s see. I think I had some numbers here. So, this is from Career Builder which I guess deals with hiring people but who knows how credible this is.
NASIR: It’s some blogger, you know, that just came up with some number.
MATT: It’s something.
NASIR: Oh, yeah, careerbuilder.com.
MATT: Yeah, 36 percent of employers plan to increase their full-time permanent employee number in 2015 up from 24 percent last year. So, that’s a pretty significant jump. But it’s interesting too because we talked about, obviously, more people being hired, but in terms of – at least in California, and I think probably nationwide, too – the amount of money that needs to be spent on employees has also increased. So, it’s interesting that employees are now more expensive to have, but people are hiring more of them. So, it’s a weird dynamic where, I guess, at the end of the day, as long as, you know, you make more money than the cost of having the employee there then I guess that’s fine with the business owner. That’s how I would view it, at least.
NASIR: Yeah, absolutely. In fact, we even filled out our San Diego Regional Chamber of Commerce every year. Actually, also periodically during the year, they do a survey. I just filled out mine a couple of days ago and they ask these questions – you know, “Do you plan on hiring? Do you plan on expanding?” et cetera, like that. And so, the sentiment of businesses is always really cool to kind of see where they’re heading because that’s usually a good indicator of where the economy is going or at least what people’s impression thinks it’s going.
So, when you hire somebody, there’s just so many issues that are going on and I think your employees are the biggest liability of your business. And, if you’re hiring an employee for the first time, then you better learn pretty quick. I mean, there are a lot of issues to go through, even from the setup perspective. I mean, there’s lots of setup – everything from registering your EIN which you should have already, obviously, but, you know, doing things like registering with your state labor department, workers’ compensation insurance, payroll is huge.
MATT: Yeah.
NASIR: I’m always surprised that people actually handle their own payroll. I think it’s just silly. I mean, if you can afford an employee, you can afford to pay someone to do your payroll because it is something you do not want to mess and do incorrectly, for sure.
MATT: Oh, yeah. I don’t understand how people handle that by themselves either. I mean, I have some connections with some payroll companies in San Diego. I know their pricing; it’s very reasonable. Your time’s going to be way more valuable than just paying someone a little bit of money to handle it and they actually know what they’re doing. They have software and systems in place so, yeah, it’s a big thing. But payroll’s huge. Insurance, there’s a lot of things that need to go into it and, you know, occasionally, I’ll talk to somebody and they’re talking about hiring someone for the first time and they might not have thought about it, they just kind of jump into it, and I caution them against that because, I go, you know, “You want to make sure you have all your ducks in a row before you just jump into hiring someone.”
NASIR: Yeah.
MATT: Usually, people have thought about it and they’re pretty prepared but, from time to time, you’ll find those ones that aren’t and there’s been times where I’ve asked someone who’s maybe one of one or one of two employees that work for a place and I’ll ask them, like, “Are you an employee or are you a contractor?” and they just don’t know. They’re like, “Well, I just get paid in cash.” It’s like, “Well…” Yeah, it something that both sides should know; it should be very clear to the person who gets hired or even the person that gets brought aboard whether they’re an employee or a contractor as well. Cash, in general, is probably not the best way to go about that.
NASIR: No, definitely not. Of course, you mentioned the contractor-employee classification, but it’s a good question and it’s relative and I’m laughing because, of course, if you listen to the show, it’s something that comes up all the time. It comes up all the time in general, frankly. A lot of people now, especially if you’re expanding, you may be thinking about bringing an independent contractor on as an employee and I think that makes a lot of sense for a lot of people because independent contractors are a great way to minimize your cost until you get to a point where you can bring them on in-house and have this control that you need to grow your business and so forth. So, it’s a good transition step. But one thing that I think people may be underestimating is the actual cost associated with hiring an employee because there are other taxes that are involved that you wouldn’t necessarily have to pay otherwise and granted some of these taxes are split between the employer and the employee but, if you’re hiring in places like California – or even other states too, I mean, every state has both federal and state taxes but – in California, you might as well add eight, nine, even ten percent more to the wages because of everything from social security to Medicare to unemployment tax to also workers’ compensation insurance and sometimes that’s not calculated when you do the first calculation because it’s a premium on top of that so it’s not necessarily taken out of the wage. So, if you’re paying – I don’t know – $50,000 or so to a low-level employee, I would consider maybe $4,000 or $5,000 more in California that it’s going to cost you per year and that in itself may be prohibitive of you actually making that transition yet so keep that in mind because, even though you may be paying somewhere close to that same amount on an hourly rate or on a monthly rate to a contractor, it’s going to be a little bit once you convert them to an employee.
MATT: It’s a balancing thing. If you’re the only one, you need to bring someone to relieve you or get more business out of it, then it’s probably going to be… I mean, I would think that anyone who’s going to hire an employee is going to do so for the right reasons for the most part but, yeah, you make good points of things they need to keep in mind. It’s just very easy, that’s why people want to have independent contractors. They do work for you, you pay them, and it’s all on them.
NASIR: Yeah.
MATT: That’s why a lot of the tax cases that I deal with when I do tax controversy work is people that were 1099s because they aren’t fully informed of all the taxes they have to pay and everything like that. It’s very easy from the employer to 1099 someone, make them an independent contractor, but, on the employee’s side, it’s worth making the jump, if it makes sense.
NASIR: Yeah, and there’s just so much to talk about. Like, employers – top to bottom, big and small – make all these mistakes such as whether or not you need an employment manual – and I think we’ve talked about this in the past. I mean, how big do you need to be in order to have an employment manual, would you say?
MATT: I always tell people, once you’re getting close to double digits. I would say even, like, over five. I usually use the five to ten range.
NASIR: Yeah, I think that’s right. Put it this way; there’s no hurt in having it. There may be some costs associated with it. Still, at the same time, be careful because once you put it in writing and make it a policy, you better make sure that that policy is not only compliant with the law but that actually you follow it. And so, sometimes, with small employers, they have some employment manual that they may never use and so it’s more important to actually use it than to have one at all.
MATT: That’s definitely a good point. I couldn’t tell where you were going with that. That’s why I said double digits at first.
NASIR: Yeah.
MATT: It’s all dependent on the actual company itself and what it does, what the employees are doing, things like that – who they are.
NASIR: What’s your opinion about offer letters versus employment agreements? What would you say?
MATT: Employment agreements myself, that’s just what I like and – I don’t know – it just looks a lot better to me than an offer letter and I like to have all the terms laid out. You and I have a little bit different philosophies on things like that.
NASIR: I go back and forth. I think it really depends upon the industry and the kind of culture. Sometimes, if it’s just kind of a low-level employee, like, “Hey, look, this is just a minimum wage job,” or even more than that, then an offer letter makes I think more sense to me, even in an employment contract or an offer letter, it would still be an at will employment assumingly unless you change the terms. But, if you expect it to be really a long-term relationship and kind of having someone buy into the relationship or if you have any other creative compensation structures like, you know, stock options or whatever, then, of course, an employment agreement is the better tool for that.
MATT: Yeah. I mean, that’s a good point, but you know me – I’m more inclusive than exclusive. You like to cut out all the fat.
NASIR: Yeah, that’s definitely true.
MATT: So, as of the day we’re recording this, the previous day, there was a big call-out in Houston. Domino’s was looking to hire 600 new employees. Were you one of the people that showed up to that? They had a thing from 1:00 pm to 6:00 pm at the Cleveland Ripley Neighborhood Center.
NASIR: Ah! I thought that was next Thursday! Crap! Oh, man! My wife always makes fun of me because I swear my calling would be to be a pizza delivery guy. One of these days, I just feel like it’s something I need to do in my life someday. I’ve always had friends in that position and they always tell me, they always have the greatest stories of all these people that they run into and around the city. So, I don’t know, that’s pretty cool. But 600’s a lot!
MATT: Yeah.
NASIR: I mean, just thinking from an HR perspective, you know, everyone should know – I assume that people listening to this might be interested in kind of the basics of employment laws – that there are different laws that apply, depending upon how many employees you have. I mean, there’s some at five, fifteen, even with Obamacare there’s 25 and 50, and 50 is really the mark where all these other restrictions come into play and it makes it much more difficult from an employer’s perspective to manage their employees in a way that’s compliant. And so, by that time, you need to make sure you have a pretty well-rounded HR department. Frankly, even at fifteen, you need to have someone that is somewhat dedicated to the HR perspective of things because, with fifteen employees, you’re going to have issues with sick pay and people getting sick and asking for leave and things like that that are going to up whereas, you know, when it’s less in that, then usually the principal owners do find enough to manage it. But 600 employees, I mean, that’s an HR nightmare to me.
MATT: Well, it’s 600 employees across 58 stores in the greater Houston area. So, that’s toughly ten people a store. That’s a big jump. You know, another thing I just thought about for this specifically is some of them will probably be in-store but some of them might be delivery drivers and that’s a whole other liability thing in and of itself when you have people driving around that that’s part of their job description. I don’t know if we talked about employees specifically but we’ve talked about issues that Uber have had and things like that. When you start driving, everything gets more complicated so there’s more money that you have to pay in terms of the insurance side of it. I did deliveries for a few years and I’d never gotten any, never had any wrecks. One thing I always wondered is, if a Domino’s person, a delivery driver, they used to have the 30-minute thing, I don’t think they have that anymore but, if they get a speeding ticket, does the company cover that?
NASIR: Yeah, I’m sure that issue’s been covered before because I’m sure, if they have that 30-minute-or-less or they’re putting all the pressure on the drivers to get there as fast as possible and therefore they speed, then I suppose there could be a correlation to that, but I’m sure how they get around that is, “Look, no matter what we say, you have to go the speed limit and obey traffic laws and, if you break them, then you’re subject to suspension or termination, et cetera,” and that would be the proper way to handle it.
MATT: Yeah. Well, I always just wondered that. I never got a speeding ticket when I did the deliveries.
NASIR: Okay. So, these are just hypotheticals that you’re just thinking about.
MATT: Yeah, I was always curious. So, like I said, there’s a lot of new laws in 2015 for employees. We talked about the paid sick leave at the beginning of this year for at least in California.
NASIR: I think no matter what state you’re in, the two things that are going to continue to be of issue, and we even talked about this last year but I think now things are coming into fruition are any kind of paid leave – we’re not even just talking about sick leave but also maternity leave, possibly there’s going to be extending paternity leave and other family leave and those kind of definitions are going to be expanding the reasons of how you can get unpaid and paid leave, and we’ve talked about in the past how, compared to many other countries, we have a very conservative approach on how many days we give for that, and then, also, minimum wage. Minimum wage has increased in states throughout the US. It’s going to continue to do so. So, these are some things to think about that, when you’re hiring employees, that if you’re in that minimum wage category, this is going to affect your cost and so keep that in mind when you’re expanding, and also matters of leave. You might as well get with the program anyway because soon other employers are going to, in anticipation in order to attract as the job market gets a little bit better, in order to attract great personnel, they’re going to have very favorable policies regarding leave and unpaid and paid leave. Something to think about!
MATT: The minimum wage thing is pretty big. San Diego’s got its whole minimum wage dispute that went on.
NASIR: Yeah, I’ve heard city ordinance is being considered passed everywhere from LA to East Coast as well. So, it’s going to happen at the local level, city level, and a state level, and I don’t know if I can see a federal minimum wage increase anytime soon this year – thinking about how the politics are working – but, when it comes to federal employees, there have already been minimum wage increases for that already.
MATT: I say what we do is we’ll hire the first person that contacts us after this episode comes out, we’ll just hire as an employee.
NASIR: Okay. That sounds like a great idea.
MATT: What can do wrong?
NASIR: What could go wrong? First person to say, “I accept the offer.”
MATT: They’ll be an employee of the podcast.
NASIR: It is an employee position but it pays below minimum wage and also you don’t get any benefits whatsoever and you have to work 24/7 but, other than that, it’s pretty cool.
MATT: Yeah.
NASIR: I think that’s what people consider like an intern. Yeah, I’ll just get an unpaid intern. That’ll solve all my problems.
MATT: That’s an issue for another episode but, yeah, I hear that a lot as well.
NASIR: All right, guys. Well, I think that’s it. If you have any questions that you want to send in to our podcast or you have any ideas that you want us to cover, we appreciate it, you can send it in to ask@legallysoundsmartbusiness.com.
MATT: Yeah, keep it sound and keep it smart.

Nasir Pasha & Matt Staub

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