Key Legal Steps You Shouldn't Skip When Hiring Employees
Hiring a new employee is an exciting step for any business. But skipping over key legal steps during the hiring process can lead to costly consequences down the line. Whether you're scaling up a startup or adding to an established team, these are the essential legal considerations every employer should keep in mind:
1. Classify Employees Correctly
One of the most common legal pitfalls is misclassifying employees as independent contractors. The IRS and Department of Labor have strict guidelines, and misclassification can result in back taxes, penalties, and lawsuits. Consider all relevant factors, and seek advice from an attorney to confirm the proper classification of your new hire, if needed. The most important factors to consider are the nature of the work, your level of control over the worker’s activities, the ability of the worker to provide the same or similar services to other clients during your engagement, and the worker’s use of your or his/her own equipment, resources and premises for the completion of the work.
2. Comply with Anti-Discrimination Laws
Before you post a job listing, make sure your hiring process complies with federal and state anti-discrimination laws. The federal Equal Employment Opportunity Commission (EEOC) prohibits discrimination based on race, color, religion, sex (including pregnancy, transgender status, and sexual orientation), national origin, age (over 40), disability, or genetic information. It is also unlawful to retaliate against a person because he or she complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.
3. Create a Clear Employment Agreement
Every new hire should receive a written employment agreement outlining key terms such as compensation, benefits, job responsibilities, start date, employment terms, and dispute resolution. An employment agreement is essential for setting clear expectations and protecting both the employer and employee. Having this documentation helps prevent misunderstandings and legal disputes later on. It is strongly advisable to have an employment attorney review or provide the draft of the employment agreement to ensure that it accomplishes your goals while it complies with applicable laws.
4. Set Up Proper Payroll and Tax Withholding
If you don’t already have one, register for an Employer Identification Number (EIN), set up a payroll system, and ensure you’re withholding the proper federal and state income taxes, Social Security, and Medicare taxes. You’ll also need to submit Form I-9 to verify the employee’s legal right to work in the U.S., and provide a W-4 for tax withholding.
5. Background Check
While not strictly required, conducting a background check prior to employment is a good idea. If you choose to do so, you need to ensure compliance with relevant state and federal laws. These, generally, require disclosure of your intention to conduct a background check to the employee and obtaining the employee’s written consent to such a check.
6. Understand Wage and Hour Laws
Make sure you’re complying with the federal Fair Labor Standards Act (FLSA), which governs minimum wage, overtime, and recordkeeping. You must also comply with state and local labor laws, which can vary greatly depending on the place of employment. Finally, if you are hiring non-exempt employees, you must track hours worked and pay overtime as required by law.
7. Create an Employee Handbook
While not legally required, an employee handbook is a best practice that sets expectations and outlines workplace policies, benefits, code of conduct, and complaint procedures. It can serve as a useful defense in the event of legal disputes. Keep in mind that employment laws and regulations often change, and therefore, the Employee Handbook must be reviewed and revised periodically to comply with such statutory and/or regulatory changes. Once drafted or updated, the Employee Handbook must be distributed to current and new employees, and a relevant written acknowledgment of receipt must be collected.
8. Provide Required Notices and Posters
Federal and state laws require employers to post specific notices about employee rights in the workplace. These include information on wage laws, anti-discrimination, family and medical leave, and workplace safety.
9. Ensure Workplace Safety Compliance
Even in low-risk environments, employers must comply with Occupational Safety and Health Administration (OSHA) regulations and provide a safe working environment. Train new employees on safety procedures and document compliance.
10. Protect Confidential Information
Having employees sign confidentiality agreements is crucial for protecting a business’s sensitive information, including trade secrets, client data, internal processes, and strategic plans. These agreements create a clear legal obligation for employees to keep proprietary information private during and after their employment. Without one, businesses risk losing competitive advantage or facing data leaks that could damage their reputation or violate legal obligations. In addition to the employees’ signature of confidentiality agreements, consider putting in place policies to increase protection of confidential information outside of the office, such as the non-use of personal devices for work purposes, the non-use of unapproved networks, and similar measures.
Conclusion
Hiring employees brings both opportunity and responsibility. By taking the time to implement these legal steps, you not only protect your business from liability—you also lay the groundwork for a positive and compliant workplace. If you're unsure about your obligations, consulting with a business or employment attorney can be a smart investment before bringing on new team members.
