No Human Resources Department? Here’s How to Take Control

Each year in the U.S., about 400,000 new businesses open their doors. While many small businesses never hire employees, roughly 19% (5.9 million) of small businesses in the U.S. do have paid employees.

Unfortunately, many small business owners treat human resources much like they treat disaster recovery planning: they neglect it until there’s a real problem. If you have employees and don’t have the budget to hire a full-time human resources (HR) director, knowing a few basics can help you stay organized and in compliance while you develop your own HR department from scratch.

How to manage personnel issues for your small business

Handling employee’s sensitive information and juggling U.S. Department of Labor (DOL) laws can be challenging. You want to familiarize yourself with federal and local laws and create policies and procedures to avoid getting into trouble. Here are a few places to start.

1.   Educate yourself about the Family Medical Leave Act

The Family Medical Leave Act (FMLA) allows eligible employees to take up to 12 or 26 weeks of unpaid leave per year for certain family and medical reasons.

The employee is eligible for 12 weeks of leave for:

• The birth of a child or caring for a newborn
• Adopting or fostering a child
• Caring for a spouse, child or parent with a serious health condition
• The employee dealing with their own serious health condition that makes them unable to perform their job
• Any urgent need due to the employee’s spouse, child or parent being an active duty military member

The employee is eligible for 26 weeks of leave if they are caring for an immediate family member who is a covered military service member with a serious illness or injury.

While the employee is on leave, the employer must maintain the employee’s health benefits. The employee is entitled to return to the same or equivalent job when their leave is over.

The FMLA doesn’t apply to all employers – only businesses with 50 or more employees. You can learn more about the FMLA and in the Employer’s Guide to the Family and Medical Leave Act from the DOL.

2.            Decide which benefits you want to offer

The benefits you offer employees can make or break their decision to work for you, especially if they are transferring out of a freelance or contract role, which accounts for nearly 5.9% of workers these days, where health insurance is both expensive and hard to come by. But they can also be a significant expense for a small business. According to the Bureau of Labor Statistics, employee benefits cost employers an average of $11.82 per worker, per hour. That’s why it’s important to be strategic about the benefits you offer.

According to one study, small businesses most often provide health benefits (69%), a 401(k) or another retirement plan (52%), family leave (48%) and paid time off (45%).

You can shop around for employee benefits programs through an insurance agent or broker, whom you can find through Independent Insurance Agents & Brokers of America, Inc.

3.            Handle new hire reporting

You may have applied for an Employer Identification Number (EIN) from the IRS when you started your business. If not, you need one now. You can apply for an EIN online, for free, via the IRS.

An EIN is used to identify your business for tax purposes. You’ll need it to open a business bank account, apply for a business license and file income and payroll tax returns.

You may also need an EIN to register with your state’s DOL to pay payroll and unemployment taxes. Federal law requires businesses to file a new hire report with their state within 20 days of hire. This is to determine if the employer needs to garnish the employee’s wages for child support or other debts owed to the government.

You can locate your state’s new hire reporting requirements via the U.S. Department of Health and Human Services.

4.            Learn to manage payroll

Employers are required to withhold taxes from their employees’ paychecks, send those taxes to the proper agencies, issue W-2s to employees at year-end and file payroll tax reports with the IRS and state tax authorities.

If you’re tax-savvy or have some experience navigating payroll tax laws, you may be able to take a DIY approach. But handling payroll on your own can be tricky, and you can face hefty fines if you mess up. For that reason, it’s a good idea to work with a payroll service.

Most payroll services calculate employee pay and taxes, send payroll taxes and filings to the appropriate agencies on your behalf and issue paychecks to employees. Shop around with different payroll services to compare features and pricing. A few reputable options include:

• Gusto
• Paychex
• QuickBooks Payroll

Even if you outsource payroll, there are a few things you’ll likely still need to handle on your own. One of those is having employees complete Form W-4. This form lets you (or your payroll service) know how much money to withhold from the employee’s paycheck. All new employees should complete this form. They can also fill out a new W-4 any time they need to change their withholding due to a change in their income or tax filing status.

5.            Manage personnel issues

Many small businesses start out without an employee handbook, but a handbook is essential for setting clear expectations for employees and protecting your company against lawsuits. It covers important areas such as harassment, discrimination, expected conduct, hiring and firing.

While you can find many free and low-cost sample employee handbooks online, you need to ensure it complies with all applicable state and federal laws. Those laws can vary depending on the number of employees you have. For that reason, it’s a good idea to have your attorney review your employee handbook before distributing it to employees.

Once it’s ready to go, make sure every employee signs an acknowledgement to confirm they received and reviewed the handbook and save that signed acknowledgement in the employee’s personnel file.

Handling your own HR can be challenging, but follow the steps outlined above and pull in professional help where needed. Having your HR programs and policies in place early will prepare you to deal with the inevitable personnel problems that arise as your business grows.