One of the most exciting, but daunting, phases of a startup’s lifecycle is when it begins hiring employees. The transition from bootstrapping your idea in your garage with co-founders and early hires, to running a growing company that is adding employees, can be a challenging one. The crystalline clarity of your early vision can start to get muddled by the multitude of daily administrative schleps. Don’t let these tasks become a burden that distracts you from critical substantive work, or the source of unnecessary stress.
If you are a founder and are ready to start hiring people, that is already an exciting sign of progress. Now it’s time to put your big boy pants on and get a hiring packet together. This is not an area where you want to take shortcuts. Doing it wrong could have significant repercussions. Fortunately, it is a simple enough matter to get right. As always, the best plan is to get a good attorney to guide you through the process. Naturally, every company is a little different, and your hiring documents may require some customization depending on your needs. When you’re really ready to start adding to your workforce, call an attorney you trust to go over everything. In lieu of that, I will go through some of the major items that you will need to have in place.
When I was Staff Counsel for GlyEco, Inc., part of my job was to curate and update our hiring documents and policies. The following items are the basic documents that should make up the bulk of your “hiring packet”:
- Form I9
- Tax form W4 – Federal and State
- Offer letter – state that the employment is at will – have the employee sign and return it
- Employee handbook – setting out policies, vacation policies, PTO, etc – have them return a signature page
- Confidentiality agreements
- IP transfer agreements
- Benefits forms (if any)
- Stock option plans
Provide all new hires with a copy of these documents. Once they have returned the pages that require their signature, retain copies of those documents in a confidential employee file that can only be accessed by designated persons. some of these documents–particularly the tax forms–will contain personally sensitive information, like social security numbers, so employers need to implement certain safeguards to ensure that information is not accessed by unauthorized persons. This means locking up the documents if they are retained in physical paper form, or password-protecting files if they are saved in digital format.
It is also important to practice uniformity. With limited exceptions, if you photocopy documents for certain prospective employees, it should be done for all employees. If you require a form to be filled out by certain prospective employees it should be done by all. This encourages consistent application of the rules and safeguards, will help prevent discriminatory practices in your company (even if unintentional), and will protect against allegations of discrimination.
The US Department of Homeland Security requires employees to fill out this form to prove their eligibility to work in the US. Employers need to keep a copy on file for the duration of that employee’s tenure, plus one year after the employee leaves, or three years after their date of hire–whichever is later. you can download a copy online HERE.
Ahhhh, taxes, everyone’s favorite subject. Hopefully you will have an accountant that will handle all of your actual tax filings for you, but you will still need to make sure that you obtain the necessary “withholding” forms from your employees when they are hired. Have them fill out the Federal W-4, as well as the state equivalent wherever the employee is working. For example, in Arizona, the proper document is Arizona Form A-4. Of course, there are numerous forms for a variety of unique situations, so sometimes they may need to fill out some additional forms (which is why you should always consult with an expert). However, at minimum, make sure you have the basic withholding documents.
It is usually a good practice to have new hires sign an offer letter setting out the basic terms of their employment, such as compensation, their title and role, and most importantly that they are an “at-will” employee. At-will employment essentially means that they don’t have a contractual right to their employment, and you don’t need “just cause” to terminate them. This will allow either party to end the employment at any time for any legal reason. Most employment relationships in the U.S. are characterized as “at-will,” however it is still important to have the employee give you written acknowledgment from the outset to ensure that the at-will status is protected.
This probably isn’t necessary for all early stage companies, however I would highly recommend that you start the process of putting a handbook together earlier rather than later. Employee Handbooks generally set out the standards of conduct in the workplace, corporate values, vacation and PTO policies, human resources contacts in the event of a workplace conflict, etc. This serves the important purpose of putting new employees on notice of the company’s expectations. Have them sign a document acknowledging that they have read and understand the handbook, and keep that signature page on file.
Confidentiality and IP Transfer Agreements
These agreements are particularly important if yours is a tech startup that has valuable proprietary technology or other intellectual property. For many young startups, IP represents the majority of their value. Failing to protect your IP with appropriate confidentiality agreements can result in your IP getting stolen or used by a competitor. Similarly, IP Transfer Agreements ensure that any rights to technology or intellectual property that might vest in your employees during their employment get automatically assigned to the company. Future investors will want to inspect your IP portfolio, and if you don’t have the necessary protections in place, they probably won’t want to invest. I write more extensively about these agreements HERE.
If your company offers any benefits as a complement to its compensation package, including health care, complementary services of any kind (gym memberships, dry cleaning, parking, etc.), paid vacation, etc., then present a package explaining those benefits and how to enroll in them. This will often be lumped in with the employee handbook. Keep in mind that certain benefits may trigger additional regulatory requirements. For instance, health insurance is governed by the Affordable Care Act and additional forms and disclosures may be necessary.
Stock Option Plans
Many compensation packages include some form of stock or equity payment. This is especially true with young startups that might not have the funds to pay a competitive salary and thus offset their compensation with equity. This can take many forms, but you will likely want to have an attorney help you craft your equity compensation plans. If you have gone through a Series A or any subsequent funding rounds, then you probably have a stock option pool set aside for employees. Whatever the plan is, make sure that the terms and conditions of the equity compensation are clearly spelled out. Depending on the plan you have in place, there will probably be specific forms that the employee needs to complete, which an attorney would have drafted for you.
By no means is this an exhaustive list, but it covers the basics. Putting this packet together is necessary, and fortunately is also pretty simple. If you are at a point where you are ready to start hiring people, then Congratulations! This is an exciting time, and you shouldn’t let simple administrative hurtles distract you. Hopefully this article will act as a good guide to get you started and keep you on the right track.
Disclaimer: This blog is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this blog. If you need legal advice, consult with a lawyer.