Last month, our Scratchpad entrepreneurs had the opportunity to learn about employment law from a diverse group of experts. This subject is especially relevant to the growing SP companies, as many of them are just starting to think about employing new help as their operations continue develop and progress.
Below are some of the most valuable insights our entrepreneurs gained from the talk, starting with that given by Roger Prince. Prince a senior tax manager for Berry Dunn, Portland specializing in employment benefits. Berry Dunn also serves as Scratchpad’s apprentice sponsor.
Attracting good employees in a competitive market:
One of the best ways to retain and attract people is with competitive health and retirement plans. Roger advised our SP companies to find benefit packages that are right for them by working with an experienced broker. Since our companies are just starting out and have less than 50 employees, they are not required to provide them with health insurance. However, it is an important consideration to make as they scale and plan for the future.
There is no “one size fits all” plan that will work for every company. Especially within our cohort, the needs of future employees will differ dramatically, and it is important to understand the implications that come with each option.
Whatever plans you go with, the most important piece of advice Roger hope to impress upon our entrepreneurs is the importance of accounting and documentation. Utilize professionals to conduct thorough audits in order to avoid unnecessary legal action and promote transparency to investors. In addition, using well respected payroll service, this is not a place to try and cut corners to save money. It is the best economic decision to prevent future costs made by false accounting reports.
New companies can’t always afford to hire as many employees as they want, so how do we hold on to the people we want?
In the early stages of a scalable business, it can be hard to hold on to talent that the business model cannot support. In order to avoid losing this talent, business owners will offer alternative ways, such as the methods listed below:
Deferred Compensation- This is a compensation plan that links performance today with payment at a later date. This arrangement is agreed upon and set out in exact terms. These could be in the form of shares of company stock or pensions.
Synthetic Equity- Synthetic equity is an effective way to reward and retain the highest performing employees of your organization. Through the use of “phantom stock”, employees are rewarded based on how well the company does in the future. If the value of the company increases, the owner of the phantom stock is paid, without altering the actual ownership of the firm.
Vesting Schedule- This is a way to incentivise the right behavior performed by employees. For each x number of years they continue to work for you, they are vested a certain percentage of certain assets such as retirement or stock options.
Stock Appreciation Right (SAR)- SAR ties future compensation to stock price, exclusively with future growth. Today the employee gets nothing, but if the company grows they share the benefits. A downside to this tactic is that stock right is taxed as wage income, as opposed to the preferable capital gains.
Sarah Newell is an Attorney at Eaton Peabody, Scratchpad’s craftsman sponsor, specializing in labor and employment law. Her job, as she puts it, is “to help employers keep and get out of trouble.”
Stay out of trouble:
Wage and Hour Laws:
The first thing to consider when hiring new employees is how you plan on paying them. Often, Sarah has observed that new companies are inclined to make all their employees salaried, without regard of the legal classifications. These different kinds of compensation have very specific qualifications that determine whether your recruit will be paid hourly, or if they will be salaried. Below are some of the most important distinctions and characteristics of each type of employment:
Salaried employees have a high level of independence in their work, and are paid a fixed rate regardless of how long it takes them to complete their work. Due to this, they are often exempt from overtime pay. For example, a marketing director would most likely be salaried.
Hourly employees perform the day to day tasks and are entitled to minimum wage and overtime pay over 40 hours. For this reason, managers need to be careful about record keeping, and how many hours each employee works. This can accomplished by creating a universal system that is logged by employees and approved by management. Hourly employees can be limited by banning overtime or only allowing it with approval. However, if an employee works extra hours without approval they must still be compensated for their time, though they are subject to reprimandations.
Scratchpad’s companies will most likely be hiring on an hourly basis, especially the companies that will have set daily tasks used to manufacture their product.
Hourly v. Contract:
Another important distinction to make between employees is whether they are hourly or contracted.
There are 6 definitions of an independent contractor under different statutes, but the main theme they all follow is that of control. Control is defined by how much say the employer has over how the worker performs the task at hand. This can also be determined by how much ability for personal gain or loss the worker has, such as how long it takes them to finish the job they were paid one lump sum for. No matter how long it takes them to complete the project, they are paid the same amount. Contractors also have the right to hire their own assistants.
Hourly employees have set times they must work and are entitled to a break. The employer has direct control over how they perform their given tasks. In addition, the gains or losses of this kind of employee are harder to argue.
As new talent is required, companies often hire employees with the stipulation of a probationary period. This serves as a sort of trial run, could include a promise of a 6 month review that could result in termination, a raise, or nothing at all. However, it is important to be aware of a new employee's performance before the 6 months are up, as they do not become eligible for unemployment for five weeks after being hired regardless of the size of the company. Due to this, it is essential to do regular evaluations early on to ensure that they are a good fit and worth investing continued time and resources on.
Nettie Kilby works as the Branch Manager for Bangor Staffing Solutions, which helps businesses find employees. Before working for BSS, Nettie served as an Area Director for Conifer Industries (KFC). During her time at KFC she conducted over 5,000 interviews and oversaw 350 employees, giving her a plethora of experience in hiring and training new employees.
Choosing who is right for your company:
When recruiting, Nettie advises to keep it simple and avoid “reinventing the wheel.” Below are the steps to consider before publishing your job ad:
Decide how you plan on engaging potential applicants, whether it is by utilizing platforms like Linkedin or using a hiring agency.
Employers should list their non-negotiable qualifications for the position for the job ad, so that they do not waste their time reading through the resumes of unqualified applicants.
Make sure the application process is the same for everyone. This will help avoid hiring bias and potential conflict.
In addition to these steps, a “golden rule” to always follow is to routinely send out emails to applicants, and never ignore an application. Even if you are positive that a candidate is not the right fit for your company, always send out updates regarding their submission, including a rejection letter. This is important to remember when growing a client base, as every applicant can also be a potential consumer. Showing appreciation for their interest in your brand is another way a company can positively represent themselves, especially in growing scalable businesses where every customer counts and good word-of-mouth is vital to success.
As you start to put out job ads it is important to create both concise and comprehensive job descriptions. Job descriptions not only let your potential recruits know the qualifications and necessities vital to the position, but they also are a helpful guideline to follow during interviews. It narrows down exactly what you are looking for, and strictly details exactly what you should be looking for in a candidate.
Another important consideration when posting the position on job search websites is how you can positively represent your company and imply that it is a great place to work. You are describing yourself and your company through what is being asked of a future employee, and it is vital to make this description a favorable one that encourages job searchers to apply. In addition, make sure your list of duties is succinct, as most searchers will merely skim the advertisement. Interviewers can get deeper into the specific details of the position when they first meet.
From a legal standpoint, companies must also list the physical demands of a job in order to avoid disability discrimination. This is done by being clear on the essential functions a employee must be able to perform in order to be successful at their job (such as the ability to lift 50 pounds), and it also lets employers know if they need to make accommodations. Job descriptions should also detail if drug tests are required, and if there is room for advancement.
Hiring an employee is only half the battle when looking for new recruits. Employers also have to think about how they plan on effectively training the newcomer so that they feel welcomed and prepared for the tasks they will be asked to perform. This can be accomplished by making a solid onboarding or orientation plan. Being prepared will make them feel like you want them to succeed, and are ready for them. Explaining the day to day tasks step by step will make them feel like they know what’s going on. Be completely transparent in what is expected from them, and give them the tools they need in order to do well, as well as practising praise, patience, and accountability.
For our product companies, creating effectual training programs can be especially relevant. As their productions grow and they can no longer run their operations single handedly, they have to let go of the direct control they once have and put their trust in another. This becomes less daunting as they build a dependable and self-sufficient team through comprehensive training programs.