Congratulations! If you’re reading this, it probably means your business is ready to take a big step—bringing on your first employee. You may find yourself wondering what exactly you need to do to make sure you are compliant with the myriad of employment laws and requirements. While we can’t list every single thing you need to do before hiring an employee (we’re a law firm—we have to say that!), the following checklist outlines the major pieces that should be in place when onboarding your newest team member.
- Background Check. Conducting a background check on applicants is standard practice, but employers must be aware of potential liability pitfalls. The federal Fair Credit Reporting Act (FCRA) governs background checks, and violating its terms can be costly for employers. Further, many states have additional requirements regulating the use of background checks in employment. Make sure you do your homework on the law before you do your homework on an applicant.
- Offer Letter: An offer letter is a formal offer of employment from the company to the employee. It outlines the basic terms of employment, such as the position and job duties, anticipated start date, and working hours. It can also include whether the position is remote, hybrid, or in-office, as well as benefits offered by the employer and any obligations of the employee (such as licensing requirements).
The offer letter should also specify if the employee is at will, meaning either the employee or the employer can terminate the relationship at any time, for any reason. The offer letter should be signed by both the employer and the employee.
- Confidentiality Agreement: All employees should sign a Confidentiality Agreement on or before their first day. The Confidentiality Agreement outlines what information is considered confidential—such as business processes, client and employee information, and marketing strategies—and obligations of the employee to keep this information strictly confidential during and after employment. This agreement can also include restrictive covenants, such as a covenant not to solicit clients or employees of the employer, or a covenant not to compete with the employer during and after employment.
Employers must remain cautious: many states are cracking down on the enforceability of restrictive covenants. In Illinois, for example, there are restrictions on the types of employees who can enter into these agreements. They need to be carefully and narrowly drafted to ensure enforceability.
One last consideration for employers is ensuring that the potential hire is not subject to restrictive covenants from past employers. Such a situation can lead to a headache down the road—and potential legal liability. If an applicant is in fact bound by certain obligations, your business can be proactive to reduce liability and steer clear of any covenantal obligations.
- Employment Eligibility Verification (Form I-9): Employment should be conditioned on the individual’s ability to verify their eligibility to work in the United States. This is accomplished by completing a Form I-9. All U.S. employers must complete a Form I-9 for every individual they hire, including citizens and non-citizens. Both employees and employers must complete the form, and the employee must also present identification documents.
- Payroll/Taxes: In order to run payroll and pay employees, employers must register with the appropriate state agency, such as the Illinois Department of Employment Security. While companies can run payroll themselves, it’s easier to utilize a payroll provider, who will ensure the appropriate deductions are made. The employee must also fill out federal and state W-4 forms on their first day of work.
- Key Workplace Policies. Even if a company only has one employee, it is best practice to establish certain crucial workplaces policies from the beginning. The most important policies cover these issues:
- A reporting procedure
- Social media use
- Employment Handbook: Once your policies are set, memorialize them in the form of an employment handbook. In addition, the handbook usually includes a company’s mission statement, code of conduct, benefits offered, timekeeping procedures, disciplinary process, and more. The handbook is usually presented to an employee on the first day of work, and the employee should sign a form acknowledging that they have read and understood the handbook. The company should keep a copy of this acknowledgment in the employee’s personnel file.
- Required Workplace Posters: All states and even many counties and cities require certain posters to be made readily available to employers. These posters should be hung in a common area, such as a kitchen or break room. For remote employees, employers can email the posters or post them on a company intranet.
- Benefits: It’s up to the employer on what benefits they want to offer to employees. However, some benefits are mandatory in Illinois. As of January 1, 2024, most employers must give PTO to all employees, and Chicago has an even stricter PTO law going into effect July 1, 2024. Many employers must also enroll in Illinois Secure Choice, which is a mandatory retirement program for employers who do not offer a qualified retirement plan.
- Insurance: Small businesses should ensure they have the appropriate insurance coverage, which may include general liability insurance, owners/officers’ insurance, and rental insurance. No matter what industry you are in, employers in Illinois must obtain worker’s compensation insurance. Employers cannot charge employees for any part of the worker’s compensation insurance premiums.
This is not an exhaustive list of everything you must do before hiring an employee. There may be additional requirements or nuances depending on the size of your company, the industry you are in, and your local jurisdiction. The attorneys at The Prinz Law Firm can walk you through what needs to be done when hiring your first employee.