What Small Business Owners Need to Know When Hiring and Firing Employees


Jillian Kerwin

As the boss of your own business, you probably already know how important it is to maintain a strong team of employees. Employment has been a big topic over the past year due to COVID-19 layoffs, and as a small business owner, you need to know that hiring and firing people without taking the proper legal precautions can put your business in a serious legal blunder.
When it comes time to hire or fire an employee, you’ll thank yourself for knowing what steps you need to take to set your business up for success.

What to keep in mind when hiring employees:

Bringing someone into your business is an act of trust on both ends – you want to make sure you hire the right person, and they want to know they’re signing up for the right job.

To ensure a smooth transition and solid foundation from the get-go, make sure you follow these guidelines:

  • Get your legal paperwork ready from the start. The requirements for hiring someone vary from state to state, so do some research on exactly what forms you need. Regardless of state, these two things are definitive requirements by the IRS:
    • Set up an EIN (Employee Identification Number). This is a legal requirement for anyone you hire.
    • Have them fill out the right tax documents. Think: W-4 and I-9, Employment Eligibility Verification.
  • Interview intentionally. Prior to the interview, make a checklist of skills you need the new hire to have for day-to-day responsibilities, and use the conversation to confirm if the candidate has what’s needed to cross off the list. Additionally, get to know the candidate and consider how they would get along with your team.
  • Make sure you follow post-hiring legal requirements.
    Once you’ve made the decision, first thing’s first: It’s time to get this new employee legally started.

    • Set up a payroll: You will need a payroll system that can withhold a portion of your employee’s income for the IRS.
    • Create an employee handbook: While having an employee handbook isn’t technically a legal requirement, creating one can help prevent legal issues down the road. Having a thorough book that lists the “Do’s and Don’ts” of the job for your new hire to go through before starting can ensure expectations are understood. A handbook also provides you with tangible proof that you communicated expectations.

What to know when firing employees:

Whether you have to let someone go because of the pandemic or because of performance, remember that communication is key, always know your rights and ensure you’re going about it the legal way. Follow these guidelines for a roadmap:

  • Write out the bullet points of “Why”: List out the reasons they’re being terminated. Be sure to call extra attention for issues that specifically go against the rules established in your employee handbook. Example: “Being late every day.”
  • Keep a paper trail of the reasons “Why”: You’ll want to document everything so you can prove that it’s true. Your paper trail could be timestamps that show the employee got to work consistently late. And bonus, if you followed our advice on having an employee handbook, you can show that your company rules clearly state that employees must be on time for their shifts.
  • Communicate legal requirements. Make sure you cover what the plan is for the remainder of their time, as well as what will happen with their benefits and last paycheck.
  • Be honest but brief. Why? Especially if you’re firing someone due to performance, you want to keep it as professional and focus the conversation solely on reasons you think they are a wrong fit for the job. You should steer emotions out of the conversation and avoid saying anything unnecessary, because the conversation could be brought up if this were to become a legal issue for any reason.

When it comes to hiring and firing people, it can be tempting to cut corners and get it done as soon as possible. We get it – you’re busy running a business, and not to mention, it can be uncomfortable. But ensuring the process goes as smoothly as possible will protect your business and set up your employees for success.

Jillian Kerwin
Content Writer
Office: (580) 436-1234


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