Every business owner’s favorite word right?
We have gone through a tax audit in the past, but this one was a little different: this audit was with the workforce commission.
Basically, they wanted to check our records and make sure of a couple basic things:
- Are we paying our employees honestly and fairly according to minimum wage requirements, as well as overtime requirement?
- Are we classifying our employees properly as employees versus independent contractors?
When it comes to classifying employees versus contractors you really want to keep up with the regulations on this. In July of 2014, there were a ton of updates made to the labor laws to make the distinction more clear. I wrote a post about this : Independent Contractor VS Employee
So whether you are hiring your first employee or your 100th, it’s best to keep consistent and accurate records.
This is a standard IRS form that is used to determine how much federal income tax is to be withheld from each paycheck. The form has a worksheet, and your employees will be asked to complete the worksheet in order to determine how many allowance they can claim. The more allowances that are claimed the less income tax is withheld and the less allowances the more income tax is withheld.
I have heard of people wanting to claim less allowances so that they can get a better refund and others who prefer to have more money in their pocket each week. I always warn that you should advise your employees only of the facts relating to withholding, but to remind them that if there isn’t enough taken out of their paychecks that it is possible that they will end up owing on their returns. That is never fun.
This form come to us from the department of homeland security. It is meant to establish a legal right to work in the US. The employee fills out the top half with basic info, and you the employer are responsible for filling in the documentation section. Getting the documents scanned or photocopied is the most secure way to ensure that you are getting proper documentation.
Follow the forms instructions and keep this on file. You do not have to send it in or record it with the government, but it is best to have it on hand if anyone ever asks for it.
Employee Manual and Other Docs
Having an employee manual clearly lays out the policies and procedures for your company. Having one from the time you hire your first employee is really what I would call a best practice. This way you are sure that all employees are informed of the same policies and procedures and no one can say “I didn’t know” or “that’s not what I heard from so and so.”
Well, they may still try, but you can point them back to the employee manual that they received, and signed for when they were first hired.
So that being said the employee manual does not need to be a massive 1000-page manual. Keep it short, simple, and relevant. And if you want a template, just pop me an email and I will sent it your way.
The Nondisclosure Agreement (NDA)
The NDA is often thought of as something to be used for companies that have valuable or proprietary secrets that they must protect…But aren’t all secrets important? Regardless of the level of security that you feel you need an NDA can protect you from having your employees share confidential information, such as client files.
The Non-Compete Agreement
Many argue that this one is practically impossible to enforce, and that is true in so many ways, as well as in so many states. However, it does serve as a deterrent and it will give you grounds for termination if you find that an employee is stealing your clients, or working on the side without your permission.
So that being said…here’s what really happened in the audit.
We answered basic questions about employee wages, all this info was taken directly from our filings with the Texas Workforce Commission, and our payroll processor. There was one error, it was from the transmission between the payroll software and TWC. It was minor.
We were also asked very basic questions that validated the fact that our contractors are really contractors.
- Do your contractors use their own supplies? (YES)
- Do your contractors set their own schedules? (YES)
- Do your contractors also work for others? (YES)
It was really not as bad as we thought it would be. But just the word audit is still enough to make me cringe…