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Set Policy to Avoid HR Disaster

Posted by: Today's Tip Contributor on October 29, 2010

Human resource planning is often overlooked by small businesses until they face a problem. As your business grows, you will need to add resources to manage employees and contractors. Documented HR policies allow you to act swiftly, rather than make up policies to solve issues on the fly. Consider the following crucial issues:

1. Know the difference between employees and contractors. Before you scout for talent, know how you’ll put that talent to use. Not everyone who works for you is viewed the same way. The IRS treats contractors and consultants differently from full-time employees. In general, work-for-hire individuals such as contractors or consultants are used for limited periods of time or for specific projects.

2. Evaluate the costs. Some consultants have a fixed hourly billing rate, while others demand payment per product or item produced. You may not need a full-time employee when a contract worker will do. Full-time employees usually get benefits and are paid salaries (a set amount per month or year) rather than wages (a set amount per hour worked). Some full-time employees, usually in sales positions, receive payments on commission. If you want to hire someone for an ongoing task, it may be more cost-effective to have an in-house employee, rather than hiring a consultant.

3. Put it in writing. Regardless of the type of employee, you’ll need to set conditions in writing, with consulting or contract agreements, or employment agreements. These agreements should include terms of employment, non-disclosure, and non-solicitation agreements, a system of rights and ownership, and conditions of termination. Many of these forms are available for free on the Web.

It doesn’t matter how small your business is or how well your employees know each other—you need to have a clearly developed HR policy. Laying ground rules for employees from the start can eliminate many common issues before they become problems.

Charley Moore
Founder and Chairman
Rocket Lawyer
San Francisco

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