Hiring, laying off your first employee

By Beth Pratt

Hiring your first employee can be overwhelming, almost as overwhelming as laying off an employee. Many small business owners don’t know where to begin and what they must cover to avoid potential legal and financial liabilities. Most of the critical steps are listed below, but I would encourage all businesses owners when hiring or downsizing to be aware of the risks.

When you hire employees, begin by getting an employer identification number to use on tax returns and other documents you submit to the Internal Revenue Service. You can download the form from www.irs.gov.

Once you bring on employees, you will have to pay state unemployment compensation taxes. These payments go to your state's unemployment compensation fund, which provides short-term relief to workers who lose their jobs. The California State Employment Development Department Web site has a wealth of information and forms to ensure that employers follow regulations. The Web site is www.edd.ca.gov. California Worker’s compensation insurance information is available on the EDD Web site.

Employers will need to withhold a portion of each employee's income and deposit it with the IRS, and also make Social Security and Medicare tax payments to the IRS. The IRS has a special site for employers at www.irs.gov/businesses. I found the IRS Publication #15, “Employer's Tax Guide” to be very helpful.

Reducing the number of employees requires strict attention to final pay, bonuses and commission calculations, and employee benefits including COBRA subsidies. Often, employers will take “creative strategies” of reducing employee hours or benefits, which are not always legal and can put the employer at risk. Creative options, such as reduced schedules, raise legal concerns involving issues such as vacation, exemption of salaried employees and benefit coverage.

It is best to understand the legal course of action prior to making creative decisions.

For each employee you hire, create a file in which to keep job-related documents, such as job applications, employment offers, IRS Form W-4, performance evaluations and sign-up forms for employee benefits. Medical records should be kept in a separate, confidential file in a locked cabinet. Employers need to keep I-9 forms, which document an employee’s immigration status, in separate files and save the documents for at least one year after the employee has separated from your company.

Napa Valley College Small Business Development Center and the Napa Chamber of Commerce is hosting a Wake up Your Business Workshop on “How to Downtime and Downsize without Getting Sued.”

Presented by Rick Rybicki of Employment Law Advocates, the workshop will address some of the significant issues employers must consider when reducing hours, positions or even eliminating the workforce completely. Most risks can be avoided if considered in advance. The workshop will look at practical strategies to help employers make it through the tough economy and prepare for better times ahead.

The workshop is Wednesday, 7:30-9:30 a.m. at the Napa Chamber of Commerce, 1556 First St. $20; call 253-3210 to reserve a spot.

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