When to hire your first employee

It’s exciting to see your business is growing. We’ll guide you on what you need to know when it comes to hiring your first employee.

How to not lose your best employees

As you grow your company, you’ll learn that your employees are your most valuable asset. See how these startups keep their teams engaged and happy.

How to create a culture employees will love

Among the top factors that contribute to employee satisfaction are work-life balance, acknowledgement for great work, and autonomy.

You just hired your first employee—now what?

Your first employee just signed your offer letter and you’re preparing for their first day.

While you’ll want to concentrate on training and onboarding, you need to take care of legal compliance and operational tasks before your new employee begins.

If you address these four areas before your employee’s first day, you can focus fully on setting them up for success:

Reporting and notice requirements
Policies and procedures
Workers’ rights
Accounting

How to write an employee handbook

By Ken Boyd September 12, 2019

Do your employees understand the rules of the road?

As a business owner, you need to explain your company policies and procedures to your staff. Your team members need to know what is expected of them, and what they can expect from you. If you handle these expectations properly, you can avoid misunderstandings and limit any potential legal liability.

The best way to explain the rules of the road is to create an employee handbook, which documents your company’s policies, procedures, and expectations. This discussion explains why a handbook is important, how to start writing the document, and what your employee handbook should include.

Why it’s important

Is writing an employee handbook really that important?

If you communicate frequently with your staff, and your workers perform well and seem to be content, you may decide that writing a handbook isn’t necessary. After all, creating a handbook is time-consuming.

Operating your company without that handbook, however, is a mistake. Here are some of the benefits you’ll gain by writing an employee handbook:

Vision and mission: Your handbook should include your firm’s mission statement, which is your description of where you are headed as a company. If your staff understands your mission statement, they may feel a stronger bond to your company, and be more passionate about the work.
Supervision: The handbook makes employee supervision more transparent because the handbook explains the rights and responsibilities of both the worker and the employer. Everyone in the organization can refer to the handbook to make informed decisions about workplace behavior.
Productivity: If you discuss the employee handbook with each new hire, you’ll speed up the onboarding process, and help new employees to work productively. When you provide clear guidelines using a handbook, your new staff members will start work with more confidence.
Discipline: Many business owners dread the prospect of confronting an employee who makes a serious mistake. To minimize confusion on both sides, you should clearly state your disciplinary procedures in the handbook. Disciplining a worker is stressful, but implementing the procedures stated in the manual will make the process less difficult for both parties.

The handbook should also explain the benefits you offer employees, which can be a powerful incentive to retain workers over time. A handbook helps your business comply with federal, state, and local laws and should provide a confidential system that workers can access if they believe a policy or law has been violated.

Perhaps most important, operating with an employee handbook may reduce your legal liability. If you consistently follow the policies and procedures stated in the manual, each employee will be managed using the same set of rules. This practice can reduce your legal exposure if a worker brings a legal action against you. Consult with your attorney on these issues.

How to start

Once you understand why an employee handbook is important, how do you start the writing process?

Most business owners create company policies as they run the business. You may, for example, have a process workers use to request time off. You’ve emailed a memo that explains the policy, but the information is not in a formal employee handbook.

You’re not starting the writing process at zero, because you’ve already created some policies.

Here are some steps that you can take to start the writing process:

Google search: Perform a Google search to find an employee handbook template that applies to your industry. If you Google “employee handbook restaurant”, for example, you’ll find templates for restaurant owners. The template that you find can help you understand what topics to include.
Outline: Once you find a template, outline your employee handbook topics, using the template and your own management experience. For example, a restaurant owner must manage a large number of workers and deal with employee turnover, so the employee handbook must focus on hiring and termination policies.
Clear language: After you outline the handbook and start writing, use clear and simple language. Avoid using jargon, so that your staff can understand your policies, and provide links to more complex topics, such as laws and regulations. While a clearly written handbook will minimize questions, encourage your employees to ask questions if a policy isn’t clear to them.

You should meet with each new worker, either in person or online, to discuss the employee handbook, and each new worker should sign an acknowledgment that they received a handbook. This documentation will help to protect your firm if you must terminate an employee for violating a policy in the handbook.

Make sure that the employee handbook can be easily accessed online, and update the handbook as policies change.

What to include

Your firm’s employee handbook is a reflection of the type of business you want to operate, so take the writing process seriously. The handbook sets the tone that you want to establish with your staff, and a well-written handbook makes the supervision process much easier for you and your employees.

Here are some important considerations for your handbook:

Safety: Worker safety is your first priority, so begin your handbook by explaining how your firm will deal with an employee injury, a crime (robbery), or a natural disaster (flood, fire). Each of these events is stressful, and your workers should understand how your company would address these types of issues.
Expectations: The handbook is your opportunity is set expectations, and you should include all relevant policies. For example, what’s your policy regarding cell phone use during work hours? Where should employees take their lunch break? State your policies in writing.
Attorney review: Your handbook must address a variety of employment and legal policies, including overtime pay, workplace harassment policies, and other issues. An employment attorney should review your manual, to ensure that you’ve complied with federal, state, and local laws and regulations.

As you grow your business and hire more workers, you’ll need to add to and change your employee handbook. Remind your staff that an updated version of the handbook can always be found online.

Don’t wait

Make the commitment to create an employee handbook sooner, rather than later. Your handbook will make it easier to manage your staff, and the document will reduce your potential legal liability. Make the effort- you got this!

Employee compensation and benefits: the complete guide

By Katey Maddux September 12, 2019

When it comes to employee compensation, there isn’t a one-size-fits-all solution. The right plan will not only motivate your workforce, but it will also align with your business goals and profitability.

So what is compensation? Is it just monetary? Are benefits included in the definition?

In my experience, both in the corporate (salary) and retail (hourly) space, an employee compensation plan encompasses salary or hourly pay and any benefits added to the package.

How to find a balance between employee pay and benefits

Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. These can range from monetary benefits (like extra paid time off, holiday pay, and parental leave) to lifestyle benefits (like flexible working hours, the ability to work from home, a pet-friendly working environment, etc.).

Some of this is likely due to a generational shift in what employees are really looking for. For post-Depression-era baby boomers, the security of a steady salary is important. Many millennials, however, are more focused on work-life balance and lifestyle plans, valuing more vacation or the freedom to work from home.

What are the most popular types of compensation packages?

Employers have to think about who their target employee is and what that employee is looking for. Are they just trying to pay their way through college? If so, an hourly rate with a flexible schedule could be more attractive. If they’ve just started a family, they may be looking for benefits like parental leave and the chance to work from home. It’s critical for employers to keep this in mind when deciding between different types of compensation packages.

The ten different types of compensation packages include:

Straight salary

This type of compensation refers to a set annual amount, divided by the year’s pay periods to get a pay rate weekly, every two weeks, or monthly. There is no additional performance or sales-based income added to the employee’s compensation.

Salaried workers who earn more than $23,660 per year are considered “exempt” under the Fair Labor Standards Act (FLSA). Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. As a result, salaried workers often don’t track hours worked. A job like this is more likely to have flexible working hours or the ability to work from home.

Who’s using straight salary compensation?

Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. Companies with employees who work in teams, spend a lot of time on projects, or whose performance is difficult to measure might also be better suited for straight salary compensation.

Teams in human resources, graphic design, or other supportive departments will often use straight salary compensation. Companies looking for long-term growth as opposed to short-term sales may opt for this type of compensation as well. It can also be beneficial if a firm is entering a new market or location.

Benefits of straight salary compensation

Companies looking for a simple or consistent payroll solution without any surprise payroll expenses will likely build their compensation offering around straight salaries. Employees who like to work on teams and don’t want their compensation to be judged on individual performance may be attracted to this kind of plan as well. Straight salary offerings can also be good for attracting new talent that’s concerned with stability.

Disadvantages of straight salary compensation

Some disadvantages of straight salary compensation may include reduced retention and high turnover if employees don’t see opportunities to increase their pay. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the company’s growth. It could be difficult to attract top performers who know they can make more in a job that rewards their work with a more commission-based pay structure.

Of course, there are exceptions to every rule. Salaried individuals who earn less than $23,660 per year often qualify for additional compensation, including overtime pay, per the FLSA’s standard for non-exempt salaried employees. In this situation, employers have to pay overtime, despite the employee being salaried. Laws differ by state, so do your research before making any decisions.

Salary plus commission compensation

Salary plus commission is a balance of both stability and performance-based income. Similar to straight salary, this compensation structure offers employees a guaranteed base income annually, but also offers performance-based income in addition, unlike straight salary.

The commission can include (but is not limited to) a percentage of personal sales, a percentage of team sales, bonuses, or overtime pay. These plans often include a straight salary income for training periods or during low seasons. A good salary plus commission plan will motivate employees to higher sales and performance while giving them the peace of mind of regular, stable income.

Who’s using straight salary plus commission compensation?

Salary plus commission plans are often used for sales positions or corporate positions when the company wants to encourage leaders to push for substantial growth and high performance. It is critical that companies using this type of system have good metrics in place for tracking sales so they can fairly and accurately calculate commissions.

Benefits of salary plus commission compensation

One benefit, from the employer’s perspective, is the company only pays commissions when the top line improves, so it’s beneficial from a profitability standpoint. The salary-plus-commission pay structure also encourages employees to set more aggressive sales goals. Employees like it because it rewards those who work hard. Many appreciate the fallback stability of the base salary paired with performance incentives.

Disadvantages of salary plus commission compensation

From a payroll standpoint, this type of compensation is harder to administer. There may be multiple rates of bonuses and commission, and payroll managers must have a system in place to keep track of everything. Employees may be confused as to how pay is calculated, so transparency is important. One thing to keep in mind: If the commission rates are too low, they may seem disingenuous and could decrease morale or cause bitterness among employees. The key to this type of plan is to offer enough stability that employees feel satisfied and secure but to pair that salary with a commission that motivates stellar performance.

Straight hourly compensation

This type of compensation refers to a set hourly amount without additional performance-based income. Employees who receive it are considered “nonexempt” by the FLSA, meaning their compensation is regulated. One regulation is employers are required to pay overtime at a rate of time and a half if an employee works over 40 hours in one week (this is a U.S. standard and differs by country). Employers are also required to pay employees the minimum wage, which can vary depending on their state’s minimum wage.

Who’s using straight hourly compensation?

This type of compensation is often used for entry-level jobs or employees working in restaurants, retail, or the service industry, usually in non-management roles.

Hourly roles can often be perceived as less valuable or easier to replace. Because so many hourly employees work in entry-level positions, education requirements are usually lower than those of salaried positions, which adds to this assumption.

Benefits of straight hourly compensation

For employers, hourly employees can be a good option for work that fluctuates seasonally. Employees need not be scheduled for the same number of hours each week. Running payroll for hourly employees, as opposed to salaried employees, can also be significantly cheaper, making it easier for companies to hit financial goals. Employees who also have seasonal or fluctuating availability, like students or people with children, also benefit from the flexibility that comes from hourly compensated positions.

Disadvantages of straight hourly compensation

It’s worth noting that inconsistent working hours can also hurt employees who may be counting on a consistent income. This can lead to high turnover, a need for more recruitment resources, and higher training costs—all of which cuts into potential bottom-line savings.

Another disadvantage is that hourly employees often have fewer benefits than salaried employees and are sometimes required to contribute more toward their health insurance premiums. They may have less vacation time or even zero paid vacation time.

Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. For more information on your state’s minimum wage requirements, read up on minimum wage requirements or visit the Department of Labor’s website.

Hourly plus commission compensation

In this compensation structure, the employee receives a set hourly rate, plus a percentage of their sales. The hourly rate can be less than the required minimum wage. However, if the employee’s commissions, plus their hourly rate, are together less than the minimum wage, the employer is required to make up the difference. Similar to hourly employees, workers who are paid with this type of compensation are usually governed by the FLSA’s nonexempt requirements and earn overtime.

Who’s using hourly plus commission compensation

Such positions might include retail sales, restaurant employees, barbers and cosmetologists, and customer service reps. Employers may use this type of compensation to keep payroll expenses low while still motivating employees to perform.

This compensation category also includes restaurant employees paid mostly in tips. Defined by the FLSA, “tipped employees” are those who receive more than $30 per month in tips. Tips may be considered part of the employee’s wages, but the employer must pay no less than $2.13 an hour in direct wages and make sure that the amount of tips received is enough to meet the remainder of the hourly minimum wage.

Benefits of hourly plus commission compensation

Employees who are self-motivated and hardworking are attracted to this type of work because there’s typically no upper limit to the amount in tips or commission they can take home. Some of these jobs also have flexible schedules, which can be beneficial to employees. In addition, employers also enjoy the flexibility of being able to increase or decrease employee hours seasonally or to reflect sales growth.

Disadvantages of hourly plus commission compensation

Hourly plus commission compensation does have its disadvantages as well. Because employee base pay is often low (employers can pay as low as $2.13 hour, which means the entire paycheck can go to taxes or withholding), making a livable income can be tough without significant sales. And while some competition in the workplace is good, this kind of motivation to not only succeed but to survive can sometimes breed distrust and a lack of camaraderie.

Commission-only compensation

Territory volume compensation

Profit margin/revenue-based compensation

Residual commission compensation

Contractor commission compensation

This is a very broad category of compensation. As defined by the IRS, independent contractors are people who “are in an independent trade, business, or profession in which they offer their services to the general public.” Employees and independent contractors are mutually exclusive, as a person is either one or the other.

Per the IRS website, the general rule is that “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to self-employment tax.”

This is a very important distinction, as it determines who pays the taxes (the worker, not the employer) and to what standard an employer is held.

Who’s using contractor commission

The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers.

Commission for independent sales reps can range from 5% to 40%, with the average ranging from 20% to 30% of gross margins or 7% to 15% of gross sales. Factors that might affect commission rates include the difficulty of the sale, education and training required, costs associated with the geographical location, work environment, the process of approaching clients, and bonus structures (if applicable).

Benefits of contractor commission

Working as a contractor definitely has its benefits. Per the IRS definition, the contractor is in control of how the work gets done, so there is a lot of freedom. Contractors can determine their own fees, working hours, employees, etc. Additionally, they have full control over benefits like insurance and retirement management. Because they are self-employed, contractors are eligible for SEP IRAs. These have a significantly higher (pre-tax) contribution limit than company IRAs.

Disadvantages of contractor commission

In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). Since no one is taking out taxes for them, it is up to the contractor to budget and remit taxes quarterly to prevent a fine and a huge tax bill at year-end (April 15). Another disadvantage is the lack of benefits. Contractors are required to find health insurance and retirement plans on their own.

Hourly vs salary

Depending on a company’s compensation strategy, there are both pros and cons for hourly versus salaried employees.

Pros of hourly compensation for employees

Overtime and holiday pay
The freedom to change work schedules in accordance with other schedules
The opportunity to work more hours to make more money
It’s often easier to get a new job if the current one isn’t a good fit

Cons of hourly compensation for employees

Hours can be inconsistent
Lack of security
Generally lower pay
Fewer or no benefits

Pros of hourly compensation for employers

Employers can increase or decrease hours based on heavy or slow seasons
Depending on how many employees are on the payroll, employers may not be required to provide benefits, including health insurance or PTO
Often lower payroll costs

Cons of hourly compensation for employers

Payroll can be more complex and difficult to calculate if using multiple rates
High turnover
Increased training and hiring expenses (as a result of high turnover)

Pros of salary compensation for employees

Consistent hours and income create more security
Better benefits
Often more flexible working hours
Often more opportunity to work from home

Cons of salary compensation for employees

If working for a straight salary, better performance doesn’t constitute higher pay
No monetary incentives to work harder
Switching between jobs can be more difficult, as there’s often a more intense hiring process

Pros of salary compensation for employers

Consistent payroll workload and expenses
Often higher retention rates
Salaried employees can be more loyal than hourly employees
Often a higher level of talent or education

Cons of salary compensation for employers

Payroll expenses are fixed, even if profitability decreases
Hiring can be more complex
It can be more expensive to attract top talent

Why employee classification is so important

The Department of Labor has very specific requirements for classifying and paying employees. Before making any decisions, consider what type of compensation you can offer potential employees and what the stipulations of that compensation plan are.

To ensure proper classification, employers should begin with the assumption that their commissioned employees are nonexempt, and then review the potential exemptions to determine whether they apply. The most common exemptions are executive, administrative, and professional exemptions. In fields that typically involve commissions, the outside sales exemption and the retail sales exemption may also apply.

Essential tools for hiring and management

Everything you need to know about hiring employees