Hire

Hiring Employees

When you hire employees for your business, you must comply with a host of applicable federal and state laws and regulations. For example, you will need to obtain a federal level Employer Identification Number (EIN) (also referred to as a Federal Tax Identification Number) and certain state level identification numbers. You will need to complete and maintain various forms and records in connection with the hiring process, including tax withholding forms and work eligibility verification records.

You likely will need to obtain workers’ compensation and unemployment insurance. Consider engaging a small business payroll provider or Professional Employer Organization (“PEO”) provider to handle tax withholding, insurance and related matters.

You should strongly consider having employees sign an offer letter and a form of confidentiality agreement that, in some cases, could contain nonsolicitation and noncompetition covenants, depending on the level of employee and state law. You should keep in mind that various antidiscrimination, pay equity and transparency, background check and other employment laws may apply to applicants and new hires, depending on the jurisdiction.

Employee or Independent Contractor?

A vital decision for any business, whether new or established, is making the proper determination of whether to treat a worker as an “employee” or as an “independent contractor.” Contractor misclassification has been a particular focus of legal action in recent years. If an independent contractor is later found to be an “employee” for federal and/or state law purposes, your company may face serious financial consequences.

Equity Incentives

Many start-up companies use equity incentives to compensate, recruit and retain executives and employees. Equity compensation, typically in the form of restricted stock or stock options, serves to align the interests of employees and stockholders, as it incents employees to contribute to the long-term growth of a company without depleting a company’s cash resources.