Hiring employees for your small business can be a challenge. You have to develop the position, budget for it, offer competitive compensation, recruit candidates, consider benefits and select, onboard and support your new hire. In short, it’s an enormous amount of work that is, nonetheless, critical for the future of your business.

That’s why it’s important to not only address the needs of the candidates you attract to the position; it’s also essential to stay in compliance with the law — something that is often easier said than done.

Here are five items you will want to keep in mind the next time you start the process of adding new talent to your team:

1. Classify correctly.

Many small business owners start off on the wrong foot when it comes to compliance, simply by misclassifying their new hires. The common myth is that anyone who is salaried is exempt from overtime pay, and anyone who is hourly is non-exempt, and eligible for overtime. Only, that’s not true.

In reality, there are many jobs that may be salaried but for which you are still obligated to pay overtime. For example, salaried employees must be paid at least $455 per week to be exempt (Note: this is subject to change), and the law adds further stipulations depending upon the kind of work that the employee performs. Many retail and service-sector positions, for example, would still be eligible for overtime even if they meet the minimum pay threshold.

2. With contractors, independent means independent.

In addition, many small businesses will “hire” someone as a 1099 independent contractor, rather than as an employee. To be clear, you can only retain someone as an independent contractor (or freelancer) if they are truly independent of your business.

Generally speaking, that means that they work out of their office (not yours), use their own computer, choose their own work hours, have multiple clients (not just you), and deliver work to you primarily in deliverables or completed tasks and activities that you are outsourcing to them due to their expertise or capabilities.

If, instead, you treat a 1099 contractor more like a member of your own team, the government will interpret this as tax and compliance evasion since you’re avoiding the requirements of collecting payroll taxes as well as providing worker’s compensation coverage, paying overtime (if applicable), and more.

3. Have a handbook.

One thing you should never do is hire an employee without an employee handbook. Your handbook needs to specify your company’s employment policies and procedures, employee expectations, standards of conduct, and the processes everyone will follow to address issues or conflicts that arise (such as workplace drug tests, employee grievances or harassment complaints).

You also need to deliver the handbook to each new hire and ensure that they sign a document verifying their receipt of it and their acceptance of its content as part of their employment.

4. Know Your local laws.

So you’ve reviewed federal guidelines and you’re aware of the regulations applied by the state you do business in. You should be all set, right? Not so fast.

Have you considered the county, city, township, borough or other localities that your offices or retail stores are within as well? Increasingly, local governments are becoming actively involved in employment law matters through the passage of ordinances and additional regulations.

For example, the city of Washington, D.C. requires many companies to provide a paid transit benefit to employees. Montgomery County, Maryland has passed an employee paid sick leave law that is stricter than state standards require. Other cities and counties have passed laws on topics such as family and caregiver leave, increased minimum wages, enhanced protections for employees against gender discrimination or against bias on the basis of sexual orientation, and some have also passed “Ban the Box” laws that restrict when during the hiring process you can ask a candidate about past criminal arrests or convictions.

In short, you need to know about employment compliance related to every level of government whose jurisdiction affects your small business.

5. Check, check, and check some more.

You’ve found the “perfect” candidate and you’re ready to hire them to start tomorrow. You can’t wait to have them join your team. And you haven’t done anything to verify their story. Do you take the time now to check things out, or do you forge ahead and trust that they’re telling you the truth?

The answer should be obvious, but quite often it is not.

Taking your time through the hiring process is intended to protect you, first and foremost. Take the time to ask for employment references, and then check them. Ask candidates to submit to a criminal background investigation (and use a professional research firm to perform this function). Check their eligibility to work and confirm that you are being presented with accurate proof of eligibility when you fill out the I-9 form. Finally, make sure to check any certifications or licenses that the candidate is claiming, since the liability for these being inaccurate or incomplete will ultimately fall on you.

It is important, however, to make sure you know the law with background checks as well. For example, some states and localities restrict how and when you can perform criminal background checks, and many states also impose limits on where, how and when a prospective employer can check a candidate’s credit and/or use that information to evaluate a potential hire.

These are just five items that are part of a much larger process, and before moving forward with any changes, additions or enhancements to your hiring process, you should consult with the experts — your accountant, your attorney, and your benefits or human resources consultant.

Nonetheless, taking these five steps as part of a larger strategy will help you avoid some of the pitfalls common to hiring compliance as you grow your small business.

Image Credit: Bruno Covas (Flickr @ Creative Commons)