In this presentation, Pavithri Kilgore of KPSK Consulting shares some things to consider before you hire your first employee or contractor and why it’s important to use an HR consultant or company.
Here is the transcript from the presentation:
Ryan
Move on to the speaker part of our meeting today, May is revise your work schedule month so all month we have speakers who are going to talk about ways that we can make sure that our time spent at work is as valuable as possible and sometimes that value is not getting a fine from the US government. For violating the law. So today, to help us avoid what? Could be an. Extremely costly screw up for someone who just doesn’t know. We have Pavithri Kilgore with KPSK Consulting and she is going to share with us the difference between a W2 employee. And a W9 contractor, and why knowing the difference will save your business thousands of dollars. So everyone, let’s give Pavithri a hand.
Pavithri
Hi everyone. Alright. We’re going to try the share screen thing. I might need one of those, one-on-one things with you, Ryan, cause you know definitely the old person. Skills are coming into work here, so I apologize. Can you guys see my screen OK? Awesome. So I’ll kind of skip through the first couple of slides since you guys know who I am and all of that lovely stuff. We’re going to mainly talk through the difference in W9s and W2s, especially since the Department of Labor. Who work on auditing these two topics at all sizes of businesses within the United States has been putting a lot of emphasis on misclassification. Especially right now with the gig economy, right? I don’t know if you guys have heard of the massive lawsuits that were happening out in California around Uber and Lyft drivers. I know at one point they were trying to classify Ubereats and DoorDash. Grubhub. Delivery drivers as employees versus contractors. So there’s a huge spotlight and one of the things that as time goes on, I am noticing. Within small businesses is a lot of small businesses start off by using contract employees to do a stop gap. Before you can really afford to hire full time W2 employees, so I really want to go through the difference between the two and things you need to have in. Place and what you need to look at. Before you hire either and making the decision on what’s right for your business so an employee, right? They’re either paid by hourly or by salary and or by the way, there is a test for both. So even inside the W2 employee, you gotta make sure you have them properly classified as a. Exempt salary employee or non exempt hourly employee, users, employers, materials, tools and equipment so you as the employees responsible for providing all that. Typically only work for one employer. Continuing relationship at will or a defined term and the employer decides the manner and means of performing. Meaning you get to direct when do they work? What do they do? How do they do it and where do they do it? And then you decide. The work that is performed an independent contractor. Paid upon completion of a project. So there is a set schedule you paid on. You do not withhold any taxes. They provide their own material. They have multiple clients, temporary relationship until the project is complete or the contracts out. The contractor decides the manner and means of performing and then the contract and client client agrees on the project scope. So I am a perfect example of an independent contractor. I am my own. Entity I. If you hire me for your company, I am not your employee. I am an independent contractor that work as a consultant. That does the work that you need me to do, or we agree upon mutually. This is what is needed. You cannot dictate where I am when I am. Doing the work, any of those things, unless there’s an agreement between you and I together. Does that make sense on the difference between the two? Cool. So let’s go through the W twos. Because that’s a bit more cumbersome one, right? This is the one that requires more. Before you hire. You need to make sure that you have the basics of what it takes to hire somebody ready to go. Job description please don’t hire somebody without a job description. And the job description should somewhat reflect what the job title is. New hire onboarding packet. I had a conversation very recently at a small business Expo. With a small business owner that said that. He’s good with that chart. He’s got everything together and we’re just having a conversation. And I was like. Do you have your onboarding paperwork all ready to go? And he said, Yep, all the tax paperwork is done. I was like, what about the I nines? And he looked at me. And he’s like, what’s a 9/9? So I pulled it up on my phone. I was like, did your employees fill out a? Document that looks like this. And he’s like, no, I’ve never seen that before. OK, so do you know that it is a $10,000 fine per page if you don’t have one filled out? And you said you have six employees? And he just looked at me. He’s like, So what happens? I was like, do you know the common agency that manages the I9 documentation? He’s like, no, I’m like, that would be the Department of Homeland Security. Do you know what happens when you don’t follow their direction and he’s like, am I going to jail? I’m like, well, if you willfully ignore a Department of Homeland Security guideline, it can be a federal charge. Not a scare tactic. This is why you want to make sure you have somebody telling you how to protect your business, right? It’s the little things that cost so much money in the long run. Employee handbook. Certain states require you to have one. Certain states don’t. I personally recommend everybody have one. If you have an employee. Why? Because everybody gets the same message the same way your message of your standards, what you require of them is all in one place and you can put your federal state, local laws. All in one place. So employees have it all together. Workers comp insurance. Please don’t neglect us. If you have employees, you should have workers comp with the exception of your professional services where you can get an exception and don’t need it. Better safe than sorry. It’s a minimal pay. A proper payroll system that can calculate taxes properly. Making sure you have your unemployment set up with each state properly, you’re paying the right unemployment insurance. All of those things are just the basics of what you need to have in place before you even start hiring. So job descriptions. UM. It’s your first introduction to the public first piece of communication that introduces the company, so you want to make sure that it is. Keep it uniform. Get the right first impression. Make sure you can recruit top talent. One to two sentences, a high level introduction reporting structure. Who they report to. Title, not names. Classifying correctly. Right exempt or non exam position? Getting those two wrong is as bad as getting a W2 or 1099 wrong. And then this is where you need to make a detailed list of what must anyone do day-to-day. Also called the essential functions of the position. Sitting, standing, walking, lifting work environment. Just a rough estimate of percentage of time during each. And then most important importantly, the very last. Equal opportunity. Employer disclaimer right, Ex Boyz employees and Equal Opportunity employer. We do not discriminate based on. All of the protected category federally required and then add in what is required by state. Cause state protections can supersede federal requirements. So you want to make sure instead that have, for example sexual orientation as a state protected, right? You want to include that into your job description to make sure that any candidate applying immediately knows you understand what their rights are and that alone. Gives them the idea that you are a real deal. I care about my employees company. Hiring on boarding. This is just a punch list, right? The minimum basics you want to have. To make sure you’re compliant. An application or resume. I highly recommend you go with a resume unless you’re in a manufacturing. Men where most employees will prefer to fill out an application. If you are doing an application, you need to make sure the application is compliant by state because different states have different questions. You can and cannot ask in an application you want to be conscious of. Federal and state W4. Right. That before is what an employee fills out in order to get your W2 tax forms the following year. Do I9. And then the corresponding IDs for the I9. Quick note for anybody looking to hire remote employees. Covid’s state of emergency has officially ended as of May 11th. Department of Homeland Security is gonna be lifting those restrictions as of August 31st, where you are going to be back to requiring. To review those ideas in person, you can no longer accept those ID’s virtually. If you are hiring remotely, you need to make sure you’re working with somebody that is able to put the proper measures in place. For you to be compliant with the new regulations that DHS is coming out with. Background check if required. This is very state specific. Every state has about 10 pages of. Disclaimers you have to provide an employee before you can run a background check on them, especially if you’re running a credit check. You want to make sure you are giving them that information that they sign off on it before you run anything, and for the sake of everything you’re investing in your business. Google is not a background check company. Do not Google search Facebook search your potential candidates. They do not constitute. A background check. Just putting it out there. Emergency contact form. Always have one. Especially states where you have natural disasters where you need to make emergency notification. Paycheck distribution. Direct deposit, live checks or pay card. Always require a voided check or a bank note with the information for direct deposit. Everybody’s handwriting is unique to them. Unfortunately, it’s not uniquely readable to everybody. Make sure you get a official document showing where this money is supposed to go. Don’t guess what a number looks like. And then depending on the state, there may be state required documentation. You have to include in that package. Done a bit of reading, so I’m going to ask if there’s any questions so far. Here’s what I will say. Not having a handbook is better than having an outdated handbook. So if you have an old handbook. And you are not sure that it is completely up to date with the most current federal, state and local laws in it. Please don’t use it because you can get in bigger trouble. Sometimes the fines for not providing those notifications. Are cheaper than providing the. Wrong notifications. OK. In most states. Especially the more. Coastal states. You are required to keep a complete and up-to-date employee handbook. And some of these fines can. Cheapest one I’ve seen is New York State at 15,000. Now there are people who will write handbooks of 15,000. It’s also people who will write them for a. Whole lot cheaper. That us. Geared towards small businesses, I don’t know. Three to five grand for a handbook is a lot cheaper than 15,000 to pay the government. Just say I’m not a mattress, but. A handbook brings uniformity, right? It is. Like I said at the beginning, it is the most important documents that your company have. Sets the standard and the tone of what kind of a business you run. It gives not just the laws, but also your policies. What kind of time off do they have? What is the pay schedule? Benefits if you provide any how to get a hold of somebody in an emergency. Just the little things that you don’t think are important. Makes a bigger impression on a brand new employee. Think about. What the what do you want? An employee coming into your company? Want them to know about you and who you are and what your company is about. First impression? That’s what your handbook does. It sets apart why you they made the right choice in picking your company. Remember, you’re not just interviewing those employees on who you want to hire. They’re also interviewing you. And every step till that. They start their job is part of that interview process on what kind of an? Impression are you? Leaving on those candidates on why they’re choosing you. And the handbook is a great way to set you apart from everybody else. I’m not gonna kind of. Run when you send the recording to everybody, it will have all the slides with it, correct? OK. So I’m not going to. Do the preschool thing and read the slides, OK? UM. Big one is the Equal Employment Opportunity, right? Those are the things that are legally. Legal protections you want to have in there and then state requirements. Conduct compensation performance reviews how those are going to be handled. Benefits and leaves. This is the one where this third bullet point the state. This is where a lot of companies miss the mock. Is because there are some leaves that are very specific to states. So for example in Indiana. UM. There is a. If civil air. If you’re a volunteer like a. What are you? I’m trying to think of the word but. Helicopter ambulances. Can’t think of the word.
Ryan
Is it the lifeline? Helicopters?
Pavithri
Thank you. Yeah. The other ones who fly the uh emergency helicopters, but it’s a all volunteer force. So if you if they’re on one of those and they get called to an emergency. Whether it is in state or out. Of state. That is a protected lead that is guaranteed by the state of Indiana. Now, if you’re in Texas and you belong to a militia. And they have some plan. That is a protected leave in the state of Texas. Now federally protected, but again state protected. Those are the things that you need to know inside each state. What everybody gets if you’re in California and your kid kid gets suspended from school. Your employer is required to give you paid time off if they are under the age of 14, so you can babysit them at home because your kid got in trouble at school and got suspended. Don’t ask me why, but that’s the law in California. So those are the little things that. You have to be aware of depending on what state you operate in. And then, like I said, workplace guidelines. You want to make sure that you have a proper acknowledgement receipt. Right. You want to make sure that it very specifically states that they have received the handbook. Not that they actually read the handbook. That is on them old enough to get a job old enough to follow the direction, right? Your job is to make sure they have this. Their job is to read and understand it. And then please make sure you have it reviewed and edited updated. Annually, because most states will change their laws. Mostly in the summer. Indiana is famous for having new laws coming in July. Because they will cram everything down before the legislature closes for. The year. Compliance posters. Federal and state. Workers comp insurance payroll systems. Unemployment set up at the right stake. The last three bullet points are easy, right? You want to make sure you’ve got the right. Stuff set up for right for your company. Let’s talk about these compliance posters because this is a question I get asked quite a bit. Is I’m a fully remote company. Where do I hang up my posters? Well, guess what? You don’t need to have it up anywhere, but you are legally required to e-mail that. Two employees when they start so they have it. So if you’re a remote company, I suggest you make it part of your onboarding paperwork that goes to the employee they keep. A little money saving tip. Most payroll companies you sign up with will tell you that they can provide all these posters for you. They’re beautiful, they’ll cost you money. Guess what? You can download them for free from every government agency there is. So don’t go spend money on them, especially if you’re remote and you’re going to be electronically sending them anyway. You can go download them. There is no requirement for it to be any specific size or anything like that. You can download it for free, print it and hang it up in a break room. If you’re in a in person work environment. If you’re in a remote environment, download it as a PDF and e-mail it to the employees. It is that simple to be compliant in that world. Questions so good. Alright. Anything around W twos before we jump into? The world of 1090 nines.
Speaker 3
Now it’s great information.
Pavithri
Thank you. Alright. Independent contractors. This will take all of like 5 minutes to go through cause this is like the easiest way to do things right, so much easier to hire 1099. So much easier to get sued if you don’t do it right. Trust me, honest. It’s simpler. You only have few but important documents, right? It’s a relationship between technically two companies, not an employer and an employee. When I say it’s technically a relationship between two companies. Is it a requirement for your 1099 to have an LLC for them to be a 1099?
Speaker 3
You mean the you mean the person that’s getting a 1099?
Pavithri
Yeah. So, no, the person who’s getting going to be the 1099 for the employer.
Speaker 4
Or the employer.
Speaker 3
No, I’m a 1099 and I’m not an LLC.
Pavithri
That is correct. Right, you do not have to have a company to be a independent contractor. You guys heard of Upwork and fiber? 99% of those individuals are not businesses on their own. You can be an independent contractor under your. Social Security number. However, depending on the kind of work that they perform. You can still require them to have a certain level of self insurance. And I will go a little bit more into details on that when we go through the paperwork that you want to make sure they have. So the most important thing in hiring a 1099. Make sure you are reading up and know state laws. Regarding hiring a 1099. In certain states you have to do what is called a independent contractor test. Prior to offering somebody a 1099 job. Some states it’s a 7 point test, other states it’s 10. If you’re in California, it’s 26. You gotta go through and answer those questions. To decide on the state law. Does the work you are asking somebody to do as a 1099? And actually a independent contracted job, or should it be a employee job? That is the most important thing you. Have to do. Is a solid contract. That clearly outlines the terms of the agreement, scope of work and the pain. The four important documents you want to have from that contractor. At W9 form, right? Like somebody said earlier. If you’re paying them more, then is it 600 or 650? You have to give them a tax form showing their income. Make sure you have a resume because you want to be able to show. That the person you hire to do this work is actually qualified to do the work. Preferably get some references. Certificate of insurance showing your company as a covered entity. I’ll use me as an example. If you hire KPSK. You will actually get a certificate of insurance that says if my company makes a mistake. And causes you a fine. My insurance will cover your company. If you’re gonna hire somebody to do things inside your business, especially around taxes, legals, HR stuff that are vital to your business. Make sure you cover your business. We spend way too much of our time, energy, and money investing into our business. Protect it. And then in the contract, like I said, scope of work. Amount and timing of payment when the payments are due. Defining the ownership of work I. If you’re hiring somebody to create software. You better have something in writing that says who owns that software once it is created. US, the company or the independent contractor right in the program? Right. IP copyright, trademark patterns, huge in the current market. You want to make sure you are covering yourself in who owns all of that. Optional agreements. Right restrictive covenant. It restricts what the. Contractors can it can can do right? Make sure the Co scope of work of the contract is doing and something your regular employees do. Confidentiality agreement. I’m huge on confidentiality agreements. Nobody should know what is happening inside your company without your permission. Non compete agreements. That is not to say that. So I have 5 different staffing agencies as my clients. That is not me competing against those staffing agencies. But if I go decide to open a staffing agency. Or my staffing agencies decide to go open an HR company. Then we have a problem. That’s what a non compete is. Be careful how you draft those non compete the time limit and the space or the mileage you put in where they can and can’t do that non compete work. Some states are very restrictive in that. Non solicitation. Your handbook has a provision for employees to keep them from working for competitors and taking your employees with them. So should your 1099. If they’re working for another company, that is. Similar to your business. They shouldn’t be going to your employees and saying, hey, I don’t know how much you’re making working for Ryan over here, but if you come work for this guy over here over here, I’m sure they can pay you at least 10% more. I should be able to, uh, stop them from doing that. The key to all of. This right is. Worse comes. Case scenario, can you take the person to court if they violate the terms of the agreement? The more restricted the agreement, the more likely the court will look at it as restraint of trade and throughout the agreement, being reasonable in terms of time and distance can make it more likely that the Court will hear your case. But at the same time, making sure that you’re doing what you can. To protect. Your business. Common mistakes. Making regular long term relationships as if they are an employee. So to have business consultants it accounting marketing is OK. But if they’re doing the same job every day long term, you may be crossing into the employee status. Dictating the use of equipment or software by definition. Contract is an independent employer. Scope of work should cover all the requirements. Of the job. But not dictate how it should be done. Setting a schedule it’s OK to let a contractor know the project specifications, including timeline. But you shouldn’t be kind of setting a schedule saying I expect you to be in the office from 8:00 to 5:00, Monday through Friday. That’s a full time job, not an independent contractor. Making the contractors work in the office. It’s OK to say, hey, if it’s easier for you, there’s a desk here you can use. Not a requirement. Paying wages and expenses incorrectly. Do not ever withhold taxes for a contractor. And then not regularly updating contracts. I do not recommending a 1099 contract lasting any more than three years before it is updated. Preferably updated every year. You are not required to turn your independent contractor documents to anyone. But if you are audited by the IRS or you need to verify the relationship, you will need to produce it. Create a file for each of the independent contractors you hire with their documents and keep them separated. Because in a subpoena, if they are specifically looking at 1:00. Contractor. You can just pull their file out. Because the last thing you want is to have somebody. Who’s executing the subpoena and you pull out a file that says contractors. And now suddenly you’re. In a position where you had to. Hand over the whole file. Was this just the file that pertaining to that one specific contractor? That is the end of my presentation. I will shut up and say questions, comments, concerns.
Speaker 3
Great information.
Speaker 5
Yeah. Thank.
Pavithri
Thank you.
Speaker 3
A lot of detailed information. I’m a 1099. So I get. What this is all about, and how important. It is so.
Speaker 4
I I do have one suggestion. I work with a couple of companies who are who hire contractors. They’re in the construction industry. If you’re hiring a subcontractor, always, always, always get that W 9 signed before you pay them the first time.
Pavithri
Oh my God, yes.
Speaker 4
Well, and I have to say, well, I’ll sign it later and I tell me you cannot do that because they may disappear or they may refuse to sign after they’ve. Exceed 6 eight $10,000 and then you are stuck between a rock and a hard place. You can try to get by with deducting that money, but the government wants it reported that you paid those people. So I and I tell my clients it, it may be stretching the truth a little bit. I say tell your contractor it is a federal requirement that they get that paper signed. Before they pay you, that’s the only leverage you have towards getting that document signed. If you already paid them, you may be out. Of luck. Yep.
Pavithri
Yeah, I mean, I tell my clients all the time, it’s like, listen, it’s. It’s your prerogative to say like, hey, in order to start working, you need to have all of these documents provided back. Otherwise no. We don’t give you any work. Simple as that. You want work from us. You gotta give. Get it all back to us.
Speaker 4
That’s right.
Speaker 5
Three, what about you were talking about a contract not lasting more than three years. If you were to like if I was to do have a monthly retainer with and that’s still acceptable, as long as it’s within the.
Pavithri
Scope of work it’s it’s slightly.
Speaker 5
So it’s defined.
Pavithri
Different in that I would still say because IT services offered, I would still do the same. So I’m in the same boat, right? So I I do work off a subscription retainer. My contracts run one, three or five years. My business attend is like you’re not allowed to sign a contract over five years. Period. No offense about about it. You’re gonna renew it. That’s all there is to it. I still personally, this is just the nerd in me prefer to do them every three years. Contract law doesn’t change as often. But it still does, so it’s always good to get that gut check at least every three years to make sure. So even if you’re on a retainer, I would do that gut check to review it and renew on a regular basis. But. Especially in the in in Indiana, I will say confidently no more than five years. On the complete outside.
Ryan
It so when you hire someone as a contractor, can you still hold them to the same drug free workplace requirements that you could an employee?
Pavithri
You can hold them to the same federal, state and local laws.
Speaker 5
Of the land.
Pavithri
As any individual you interact with.
Pavithri
Can you tell somebody? Hi, I expect you not to be high as a kite when you’re representing my company. Absolutely you can. Even in states that, uh, that have legal marijuana. Because federally it is still illegal. There are only 8 states currently that have marijuana laws specific to employment. So outside of that, federal law supersedes all state laws. So yes.
Ryan
Very good. Thank you.
Pavithri
Yeah, but I would not say hi. You can’t be high at work. You gotta rephrase the terminology to fit the. Specifics there. Right. So it’s you’re representing my company versus you’re working for my company?
Ryan
Does anyone else have any other questions?
Speaker 4
There’s one other comment I’d like to make for your subcontractors who are paying attention to what they’re doing. There is a place on that W9 form where they can ask you to withhold federal income tax, and if you do that and agree to withhold it, you must pay that federal tax by the 10th of the following month. If you pay them in May by the 10th of June, you have to pay that withholding to the federal government under their appropriate numbers. No, I’ve never had anybody do that, but that’s available to the subcontractor.
Pavithri
Thank you. Good call. Good catch, brother.
Speaker 4
Is that 1099 people? Jeanette. Yes. OK. Interesting. Nobody’s even ever offered it to me, so I didn’t even think about it. Yeah, you have to. You have to pay attention to the form, and it’s on you to make that call. And if you want your agency that you’re working for to withhold money from you.
Speaker 4
They can do it.
Ryan
That’s good information I never knew.
Pavithri
I will say it I completely forgot about it, but I should listen to my own advice and read every every line before you sign on the dotted line, right?
Ryan
Does anyone else? Have any other questions for Pavithri? Awesome. Well, Pavithri, since we’re recording here, can you read out how someone watching this later can get ahold of you?
Pavithri
Absolutely. You can go on my website www.kpskconsulting.com or you can call or text me at 317-779-5113. Or you can e-mail me at pkilgore@kpskconsulting.com.
Ryan
Awesome. Well, everyone, let’s give Pavithri a hand for her presentation today.
Pavithri
Thank you.
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