In the beginning, most independent developers don’t think about hiring employees. Much of the work is done on an independent contractor basis, and the projects are small enough to not require additional labor. However, once you earn a reputation and you begin pulling down more projects, you may find that hiring additional employees is necessary to manage your workload.
Employment and labor law differs from state to state, country to country. Workers’ Compensation, employee discrimination, and sexual harassment are all very serious issues that employers have to consider when setting up their business. There are also other logistics, such as managing payroll and tax withholdings that may require additional software or accounting to ensure state and federal tax compliance. If you are considering hiring employees, it’s always smart to consult an attorney that is versed in employment and labor law. Failing to do so could lead to failure to comply with certain jurisdictional guidelines. Furthermore, lawsuits by disgruntled former-employees can create serious problems for developers and can often be avoided if certain quality of life and human resource issues are addressed prior to the hiring process.
The following checklist has been adapted to address issues peculiar to developers.
1) Get your tax information squared away.
This means a) filing an SS-4 for your EIN for federal taxes, b) registering with your state’s labor department to pay unemployment taxes, and c) set up a payroll system for state and federal withholdings. Turbotax is a great program for setting up payroll tax withholdings and is the one currently recommended by accountants. To determine what forms you will need to file come tax season, visit the IRS website (federal) and the FTA (state) for more information.
2) Get insured
Employers are required to carry workers’ compensation insurance to cover on-the-job injuries. You have to comply with your state’s guidelines when you file for insurance, and you can typically do so in one of three ways—self-insurance, state-administered insurance plans, and private insurance. To get insured, first figure out what your state requires and/or permits. Next, do your homework and determine which option is best for your purposes.
3) Develop Safety and Quality of Life Guidelines
Companies are required to comply with OSHA (Occupational Safety and Health Act), which sets out the baseline requirements to ensure the safety and health of your employees. Health and Safety becomes an issue for developers when you’re dealing with a lot of computers in a small space. There is the possibility of fire, electrical outages, electrical shock, improper grounding, spills, and various other risks and hazards that must be addressed. You must also comply with any applicable municipal building codes. Make sure your electrical wiring is up to date and provide employers with guidelines for how to properly handle certain situations. Make sure your fire alarms are all fully functional, and have appropriately spaced and well-marked emergency exits in your place of work. You may also be required to admit the fire marshal to ensure building code compliance, so be sure to notify your employees on the day she or he will be in the building.
4) Comply with Department of Labor posting requirements
Visit the DoL website to determine what information and notices you need to provide to your employees. You are required to inform them of their rights under federal (and some state) law. Make sure to comply with the posting requirements as well.
5) Create Personnel Files
Every employee should have their own file that contains their application, their signed NDA, their resume, other work related documents, their I-9 and their W-4. The file may also include employee evaluations, complaints, and other information relevant to their employment. Any medical information MUST be kept separate from the main file and locked away due to HIPPA and state health care privacy laws. Disclosure of any health care related information could lead to both civil and criminal sanctions depending on your state’s laws.
6) The employee handbook
Your employee handbook should describe office procedures, complaint reporting requirements, sexual harassment policies, anti-discrimination efforts, disciplinary measures, and confidentiality requirements. It should describe how you want your employees to behave. It should also describe your goals as a company and your standard business practices. It is important to enforce your disciplinary procedures, particularly in the areas of confidentiality/non-disclosure to maintain protection of trade secrets. You may also want to describe any employee benefits that employees can apply for if you’ve taken steps to provide a 401(k) or health insurance policies to your employees.
7) Annual reporting
You need to fill out a form 940 or a form 940-EZ every year for your federal unemployment tax. A form 940 is required if you are required to pay unemployment taxes in more than one state or if you failed to pay all of your unemployment taxes by January 31 of that year. Otherwise you may fill out the 940-EZ. You are also required to pay those taxes you withheld in you employees’ paychecks. These withholdings account for federal income taxes, medicare taxes, social security taxes and FICA. You can find all of the appropriate federal filing information at the IRS website. In particular you will need to fill out forms 941, 943, 944, and an annual W-2. A copy of the W-2 must also be provided to employees. Note that these are just for your federal tax filings. You must also comply with state tax filings.
Caveat: A lot of developers hire programmers and designers from other countries. If those employees are relocating to the United States, they MUST obtain the proper work visas and fill out an I-9 form. For more information on I-9, visit the USCIS website.
With each new employee that you hire, you must do three things:
1) Notify your state’s employee reporting agency;
2) Every new employee must fill out an I-9 to show that they are allowed to work in the U.S. This is required for both US and non-US citizens.
3) Have the employee fill out a W-4 and withholding allowance certificate.