Before Hiring Your First U.S. Employee: The Legal, Payroll, and Tax Playbook

Andrea Bernstein:
Thanks, Edo. So I'm going to hop right in because like Edo said, we have a lot to go over. So I think that this is the most important slide in the entire presentation. It's how I start almost every presentation that I do to different audiences, which is that there's no law in America. Unlike other countries that have national employment laws or EU employment laws. In the United States, there are laws at the federal level and those are relatively few dealing mainly with minimum wage and discrimination. Then there are laws at the state level and then some cities have their own laws as well. And there seems to be some correlation between political affiliation and the number of laws a particular location has. So blue states tend to have more laws. Blue cities within red states, meaning like Democrat, more labor parties will have more laws, more pro-employee protection laws.

And employers have to be compliant with the laws at all the different levels. And sometimes they conflict. Sometimes they add requirements onto one another. So for example, if you employ somebody in Chicago, Illinois, you have to be compliant with Chicago's city laws, Cook County's county laws, Illinois state laws, and then obviously the regular federal government laws. And employment law in the United States is governed by where the person's working. So it doesn't matter what choice of law you put in the contract or where your main office is. Most employment laws governed by state law and it's going to depend on where your employee is sitting, which means you have four remote employees in four different states. You could have four different sets of laws that you're working with. And last but not least, by having one remote employee in a state, you could open yourself up to, as it says, their legal presence in the state and it can trigger obligations for the company as a whole just by their mere presence in that state.

So that's just something to keep in mind as we're going through this. And you'll see examples of it as we go through and I'll pepper some examples throughout pointing out areas where there are differences.

So when you're going to hire somebody, what's the first thing you need to do? You need to decide, or often my clients say, are they going to be an independent contractor or are they going to be an employee? So in the United States, every worker is presumed to be an employee unless they fall within a statutory definition or a common law definition of an independent contractor. So you need to start with the premise that your worker is an employee unless you can find something that justifies making them classified as an independent contractor. An independent contractor is often, there are different definitions. It depends on the law. It depends on the state. But it's usually someone who's in business for themselves. They can choose whether or not to accept a particular project from you. They set their own rates. They use their own equipment. And the ultimate characteristic is control.

Do you tell them when they need to come and when their assignments are due and give a performance evaluation? Or are you hiring somebody who's performing a service for you and they're controlling their economic terms? By misclassifying somebody as an independent contractor when they should be an employee, it opens the company up to, first of all, you're failing to take proper taxes. And I don't know if you're just going to speak about this a little bit more, but you're failing to take taxes, you're failing to provide employee benefits that are due to employees. And you may not be paying and tracking and paying minimum wage and overtime as required by law. So all of those become liabilities. And the most important thing to remember is somebody who should be classified as an employee cannot consent or request to be an independent contractor. So while we draft a contract to say it, the contract can't save you if the employee really isn't.

And it doesn't matter if they agreed, if they want to come back after you later to say, "I was misclassified," they can. And really all of the liability will fall on the employer and not on the employee. So those are the few things to keep in mind. I just

Edo Pollack:
Jump in for a quick second on this one because a different issue that we see, at least from the accounting side, let's say from the tax perspective, when it's a corporate employer, it's sometimes a little bit more clean cut that you've employed someone or you've contracted with the person. We've seen startups who actually set themselves up as LLCs, which will default partnerships. And then they get into kind of a, am I actually a partner with this person? Or are we splitting the profits or are they sharing the profits? Is there going to be a future profit interest? And then you get into even a lot worse complications rather than just independent contractors versus employees. You actually might actually have a partner. So that's something which, again, you got to be careful when you're coming into the US and opening an LLC, which is probably the easiest type of entity to set up in the US.

That might actually open yourself up to a whole other Pandora's box. So make sure that when you're doing the entity type, even before the actual employees being hired, you want to make sure you're doing, at least from a corporate standpoint with these startups, corporate structures would be best. If it's an LLC, make sure you're making elections to be treated as corporation.

Gila Weiss:
And another, I have a point as well. What we'll all tend to see with our companies is where there's a independent contractor, very frequently it's because the individual working says, "Oh, I prefer to work as an independent contractor for their own purposes, tax purposes." And I'll ask the client, "Why don't you just make them an employee?" Oh, well, they don't want to. And to be a little bit blunt about it, that's kind of not your problem. You have to look after your company. If this person who's working for you full-time, they are for all intents and purposes, an employee of the company. If they can theoretically come back later and say, "No, I wanted to be an employee." And the government's going to side with them, you have to be looking after your own selves. In particular, if you are a startup and you're planning on going through due diligence.

And the other very practical impact of having a lot of people stuck at the independent contractor level as opposed to an employee is especially when you're starting out. Let's suppose you have one employee and two independent contractors. If you go to a PEO, a professional employer organization, and you're like, "I'd like to go and work through you guys. I would like to be able to get group health insurance." If you don't have enough employees, you won't be able to. So that can delay your being able to offer group health insurance or have a PEO set up, which offers a lot of benefits that can push it off a year or more until you manage to get enough people who are willing to also be employees. Okay. Andrea, back over to you.

Andrea Bernstein:
Sure. I'll just add one more little motivation for somebody seeking to be an independent contractor. Going off of your point, I had a client whose employee came every year and said, "I want to switch to being an IC." And every year we said no. And it seems that the reason was he was trying to hide income from his ex-wife and his kid because in most states, it's reported and can be garnished by the state for child support and alimony. So he thought by becoming an independent contractor, he could avoid the reporting to the state. So sometimes people have a nefarious motive as well. So now you decided that someone's -

Gila Weiss:
I had that happen with us as well where I literally told him I know why he wants to do this, but this is so not your problem.

Andrea Bernstein:
Right. Exactly. Exactly. So once you know you have an employee, what's the next decision you have to make? Now, just like someone's presumed to be an employee, unless they fall within an exception that makes them an independent contractor, the law presumes that everyone is eligible to earn overtime unless they fall within an exception. And every time I say it presumes unless, that means the burden is going to be on you to prove. And you're going to have the liability if you're wrong that you were correct to give them that status. The United States has no such concept as a global salary. I know that there are certain countries where you say, "I'm paying you 100,000 a year." 80,000 is your base and 20,000 is if there's any overtime you work, this will cover that. There's no such thing in the United States. No matter how much you make, if you don't meet the job duties and the specific tests to be exempt from overtime, then you're eligible for overtime.

Again, an employee can't waive this. They can't agree to something else. And even if they do, the liability is still going to fall on the employer. Once somebody is overtime eligible, it means that they need to be keeping time records, clocking in and clocking out. And if you don't have accurate time records, I can promise you the people who come back and sue, they never worked 40. You get overtime after 40 hours in a week. And in some states after eight hours in a day, nobody comes back and says, "I worked 41 hours a week, three weeks last year." Everybody worked 65 hours a week, 51 weeks of the year. And because the burden was on the employer to keep the records, which they didn't, again, the liability's going to end up falling hard on the employer. Even if you're willing to settle, it's going to take a long time and a lot of attorney's fees until you get to the point where you can settle.

Failing to pay overtime and minimum wage results in back pay of the amount that you fail to pay, an equal amount in liquidated damages. And you have to pay the attorney's fees of the employee. And so you'll see in the last bullet, it mentions that not only do they need to actually be exempt, you want to make sure that everything reflects that. So the job title, the job description should try to, at least in some respect, mirror the definitions in the law. If the law says that to be exempt from overtime, you need to exercise discretion and independent judgment. The job description should say on a weekly, daily basis, exercises discretion in making these kinds of decisions. You want to at least back it up and make it seem like that you're not coming after the fact and making excuses. It was always the intention that these were the job duties.

So that is about that. And these are complicated. Courts in the United States have found the same job for the same company in different states and come out differently. So you really need a seasoned attorney to take a look at this and teach you how to deal with it if there's a question on the line. Gila, should I take this one first?

Gila Weiss:
You take this one and then I will jump in with my one golden rule here.

Andrea Bernstein:
Okay. So now legal issues relating to payroll. I've really cut this back to the minimum, but basically payroll issues are largely defined by state law. So state law is going to govern, do I have to pay once a month? I know a lot of European overseas countries pay once a month. Most states in the United States require employees to be paid every other week or at least twice per month. There's also rules that the payday has to be no more than a certain number of days after the last day of the payroll period. The penalties for paying late are, depending on the state, can be little to nothing to draconian. So for example, I always use Massachusetts. Massachusetts, if you are a minute late on payroll, you owe 300% to the employee. It doesn't matter if a nuclear bomb hit your facility when the day payroll was due.

There's no discretion. There's no room. You owe them 300% and then that amount becomes part of the wages due. There are strict rules about when you can make deductions and reductions from pay. Certain states require advanced consent. Some allow consent at the time of the deduction. So you need to know what those rules are. States have varying rules about when commission pay is due. So this is the most stark example. California law says that you have to pay by no later than X number of days after a payroll period ends for all money earned during that pay period. So if you have a commission plan that says it's earned when the customer pays, that means that you have to do all your calculations and have the commissions earned during that two week period in that next check. So how do we deal with that? We write the commission plan a little bit differently, but you need to be aware of that.

If you're going to change your payroll schedule from biweekly to semi-monthly, that might require advance notice. Changing on someone's salary might require a certain amount of notice. Again, it depends on the state. And final wages in most states have a deadline that may be different than otherwise. So for example, in California, Illinois, Massachusetts, I believe those three, definitely California, Massachusetts, you have to pay the same day. So you can't decide at 9:00 AM, I don't like this person. Today is their last day. If you're using a payroll provider who can't get them a check the same day. So sometimes the date of termination is going to be dictated by when your payroll provider can get that out. And you also need to know in a particular state, does the final paycheck have to include accrued but unused vacation? So these are all things we fly off the handle.

So the way to deal with that is if you want them out the office today, you say today's your last day in the office. Your last day of employment will be Friday. And then that gives you some time. So I generally recommend that you don't, on an hour's notice, decide to terminate somebody, at least not with an effective date of that date because there's a lot of payroll issues related.

Gila?

Gila Weiss:
Yes, I was just unmuting myself. Yeah. My golden rule is from when back in the day, many, many years ago when I was a bank teller, I was a very bad bank teller, but I learned a very important rule, which is never come between a person and their money. And that is a rule that has served me well for many years. When it comes to payroll, that yes, there's all the legal issues and potential of fines, but even if you're in a state which is kind of like whenever, you just pay them when you get around to it, there's no better way to build animosity and bad blood within a company than to not pay your employees on time. Your employees really need to know that if they're supposed to get paid on the first, that money's hitting on the first. If they're supposed to get commissions on a certain date, on that date, it hits their account.

There should be no uncertainty at all when it comes to payroll. That's just such a sensitive point for people. So that's my golden rule. Handing it back over to you guys.

Edo Pollack:
All right. I think we're up to state nexus. So what we find is that when you're a non-US person coming to the US, if you do not have a single US person on your team, it's a little bit difficult. Starting from just getting the employer ID number, right? When you're going to the IRS website, it's difficult to obtain EIN. If you have a US person with a social security number on your team, it makes things go a lot smoother starting with the EIN. It is possible to get an individual tax ID number, which is completely separate. You do not need to be American to get that. Just a simple ID number that the US would be able to identify a person. That can also be quite helpful. Some people don't like to have any sort of exposure to the US, but it will definitely help.

Where? Mostly with the states. State nexus is just a connection to a given state. That means once you start doing business in a state, and that usually begins when you start hiring someone who's going to either reside in the state or be traveling through that state for excessive amounts of time. Meaning you can have someone from Chicago, Illinois, that's where they reside, but then you send them for weeks on end to Las Vegas for conferences or to Silicon Valley for conferences. And they're going to be in those states for excessive amounts of time. All of a sudden you may have actually tripped certain rules of doing business. And that will require you to register the company with the Secretary of State. And all these registrations will start to be required for ways to identify not only the company, but a representative of the company. It doesn't need to necessarily be the CEO.

It doesn't need to be the founder, but it should be someone from the team. And again, that's really where we see a US person with a social security number or a person with an ITIN really, really will help streamline this process. So again, we just threw over a few things here in terms of physical nexus, meaning you have a physical connection there because you have employees in the state. Economic nexus means you're selling in the state. So you may have the employee in Chicago, but they keep going to Texas to sell in Texas. They keep going to California to sell into California. That might create economic nexus. What do we care? Because then you start triggering the sales tax and income tax. And the two low hanging fruit for both sales tax and income tax is going to be the reporting obligation. A lot of times the states don't actually collect any tax from you.

They just want to know what are you doing? And they want information. From the information, that's the low bar that they put out there that you need to report. So it could be you need to register for sales tax even though you don't need to collect it. Again, sales tax is on the customers for you, the company only to collect and submit to the state. You may not have actually any requirements to do so, but there might be a requirement to file a nil report on a monthly, bimonthly, quarterly, annual basis. So that's the low hanging fruit of the obligation simply to report and in the future then to collect. Income tax, similarly, you may have no actual reason to pay taxes in the given state in terms of income taxes. But again, once you have an employee, you may need to start reporting to the state that you have something there.

They need information that's low hanging fruit. And you will get penalties if you do not file with the state for sales or for income tax. And then future down the line, different states have different ways of measuring income tax. Sometimes it's a single sales factor where they're just simply looking how many sales you have in the given state. And sometimes they're looking at three factors, payroll being one of them, sales the other, and then property. If you have an office or rent or something, they'll use that as a factor as well. But again, employment is usually the first time that you're going to see states coming after you, definitely on the payroll side for sure. But then again, even on the sales tax or income tax side, you'll start getting these questionnaires. What are you doing in our state? So something to keep an eye out for, which is not necessarily logical.

Gila Weiss:
If I can just jump in here for a second. One thing I see a lot with our clients is that they'll say, "We're doing the bookkeeping and controller services." And I'll tell them, "Let's go ahead and get you set up with a tax accountant. Call Edo." And they're like, "No, I don't have to file taxes before next October. So what's the rush?" It's because of all these day-to-day obligations. It's sales tax, it's annual reporting. It's making sure that having somebody that you can call and say, "Hey, do I need to register in this state? And when do I need to register?" That's why you want to have a tax accountant. Basically the moment you're going into the states, make sure you have that set up. Make sure you know who you're going to be working with. So that way, as these things come up, you're dealing with them and you're not finding out two days before you're due to file your tax return.

Oh, right. We also have an employee in this state, which has actually happened to my clients. So be organized, get your tax accountant, make sure that you're working nice and clean.

Edo Pollack:
A 30 second, I guess, commercial. All right. When you're issuing invoices, this is not Europe where there's value added taxes where it's just across the board. Anything that adds value, all of a sudden you're going to pay a certain percentage on the value. It's across the board. There's 13,000, I believe, different combinations of sales tax. It could be on the product, it could be on the service, it could be on the insurance, it could be on the installation. It could be on entertainment. So a lot of times what we do with clients as they're starting out, we actually review their invoices to see how are they selling and what exactly are you selling? Because then you can tag things and you can redo your invoices. Are you WeWork? Are you doing a lease? Or no, you're doing a gym membership where you're giving someone a table at your WeWork.

There's different ways of looking at things. And each state will look at things differently and tax things differently. So you really, really got to be proactive about it from the get go. All right, Andrew, I think you're up for the employment

Andrea Bernstein:
Contract.

Moving on to employment contracts. In the United States, employment contracts are not strictly required. And I think that they are primarily for the protection of the employer. And in short, it's basically if you write down the terms and conditions and follow it with a sentence that says this can't be amended except in a writing, it protects you from managers and other employees who make promises, "You're so fabulous, you're going to have a job here forever." Well, they already have a contract that says you're at will. This is your notice period or you don't have any notice period. And that can't be changed by some mid-level manager just throwing some praise your way. That's always the example I use. So I do a very minimal pro-employer employment contract that doesn't really protect the employee so much, but mostly protects the employer. One size does not fit all.

Again, and this is sort of my theme throughout, which is every state is different. And also the law is constantly changing. New York City and New York State, I think, have instituted about 15 new employment laws in the last two years. So what do we learn from that? You can't necessarily take an agreement that your friend used three years ago when he started his company. You can't use someone's agreement from a different state. And I would also say that even if your employment counsel drafts a new agreement for you, before you use it for an employee in a new state, you probably want to run it by somebody. Now, where this is the most true, and especially in the United States right now, is on confidentiality, assignment of invention and non-compete agreements. Non-competes, contrary to what people seem to think, they are enforceable in the United States in most states.

In certain states, they're absolutely not permitted. California, they are absolutely not permitted. So choose carefully when all things are equal and you could choose what state you're hiring from someone and you're telling them all of your trade secrets. Obviously they can't use your trade secrets, but if you want a non-compete, don't hire somebody in California. Other states have instituted rules that say you can only offer a non-compete to somebody who makes above a certain amount of money. And in fact, in Colorado, they've made it a crime. I think it's a misdemeanor, but it's a crime in Colorado to, as part of an offer letter, give a non-compete to somebody who doesn't make enough money to qualify as within the law as being allowed to have one. And then other states have different rules. Illinois says they have to get a copy of it 14 days before they start.

So there's different rules about non-competes. It's very heavily regulated by state law. There are states where it's definitely. Florida, Florida's the most pro-employer state in terms of non-competes. They actually negate certain regular rules of contract interpretation in favor of the employer enforcing the non-compete. But it's something that you need to know. And also in terms of confidentiality, following the Me Too movement and issues with harassment, you have to be very carefully, your confidentiality language does not prevent anybody from reporting illegal, unlawful harassment, unlawful conduct in the workplace. And certain states, again, I'm going to keep going back to California, Illinois, Colorado, New York, sometimes New Jersey actually requires specific language in your confidentiality agreement, making clear nothing herein is intended or should be construed as preventing somebody from reporting unlawful harassment or unlawful conduct in the workplace. So that's the kind of thing actually. So for example, in New York, failure to include that language in your confidentiality agreement, I believe violates the non-discrimination laws of the state.

So there could be effects to not properly drafting your employment agreement.

What should be in writing signed by both the employer and the employee are commission plans. This is where my clients I see have the biggest issue. Most of my clients are overseas hiring for the first time in America, and they're using a contract that's fined in the country where they're located. Again, their friend was a CFO and they've been using this for three years and they haven't gotten in trouble, which doesn't mean it's right. It just means that nobody has sued them yet. And what you need to know generally, especially for commission plans, but employment law generally is if it becomes a real dispute. The burden is always going to be. It's always going to be in favor of the employee with the burden against the employer, especially you drafted a commission plan. If you draft it and it's ambiguous, they're going to favor the employees.

So when you're drafting a commission plan, as I said, it should always be in writing. You want to make sure you clearly define the earning event. We already talked that earlier about the earning event could trigger when you have to make the actual payment. So is it a booking, shipment, invoicing, payment? You want to make sure you define and you're consistent with all terms. So you need to define what a sale is. A sale is when the documentation is done. Not in terms of when you earn it, but what constitutes the sale? Is it they've accepted delivery? At what point do you call something a sale? Do you have to be the person in the sales system that has credit for it? Does it have to be within your territory? All these ambiguities. If your agreement is ambiguous and you call me and you tell me there's a conflict with your employee, I'm going to say it's almost always going to be cheaper to pay him than to get into an argument over a $10,000 commission because the risk to the employer is so great.

Going back to Massachusetts, there was a Massachusetts case a couple years ago. This going to combine the late fees that we talked about earlier with commission plans. Somebody was let go and there was an ambiguity as to whether or not post-termination he was entitled to commissions. The company though not. Let's just assume they in good faith were taking their position. Eventually the court determined that the employee was entitled. The commissions were 150,000, which became three 100% because even if there was a dispute, they were still late. With the attorney's fees, they ended up paying, I think it was about 750,000, $800,000 on 150,000 in commissions because they didn't pay it on time. So just something to think about. And then finally, you want to be clear about what happens to termination. Is it all payments that are received through termination? If you have already closed something but the payment hasn't arrived yet, might you still be entitled to the commission?

There are certain states, this is important to know, even if your plan says payment has to be received before your last day of employment, if you terminate somebody without cause and they've done everything that they need to do to make the sale, you're just waiting for the check to come in. There are states that will say you need to pay them if you terminated them without cause. You can terminate somebody without cause, but you can't do it to avoid paying a commission that they're owed.

And Gila, did you have something on commission plans?

Gila Weiss:
Just another golden rule, another one. Do not let the head of your sales department write the commission plan. Or rather if they do, because they are very good at sales, including selling themselves. They will say that commission should be paid as soon as they book the sale, irrespective of whether that's been earned or even paid. Make sure that your commission plan, aside from being viewed by your legal counsel, is also reviewed by whoever's in charge of financing your company to make sure it makes sense from a cashflow position, a logical position in your company.

Edo Pollack:
I'm going to throw in one item of PACS just for the hell of it, because what we do see in the US with the incentive plans, a lot of people get issuing stock to their employees. And there is something called an 83B election that basically beyond the scope of this one. But again, you do want to make sure that if you're paying your employees with stock, that it's not going to trigger an inconsistency between their home country and the US. So that is a huge area of exposure where someone may have a taxable event with an incentive plan prematurely.

Andrea Bernstein:
I would also, I don't know, Edo, I don't know that we discussed discussing this, but 409A also is something that they should be aware of. Can you do 409A in a sentence or should I?

Edo Pollack:
We do 409A is true. It's just a valuation of the stock plan, right? Of how much the stock's going to be as they're being issued as they go.

Andrea Bernstein:
Oh, that's not what I meant. I meant deferred comp.

Edo Pollack:
Go ahead.

Andrea Bernstein:
Okay. So there's an idea that in the event that you defer compensation into a different tax year, that there are tax effects. So basically, if you're deferring compensation into a different tax year, and I'm not a tax attorney, I can just issue spot this for you. If you're going to be paying somebody in the future rather than at the time when the money is earned, you need to check with tax counsel to ensure that it doesn't fall into these rules that would say, even though you're getting it in the future, you're manipulating the timing of the paying, so we're going to make you pay the taxes now. That's everything that I can tell you about 409A is a non-tax attorney. You do not want me giving you tax advice, but you just need to be aware when you're paying a bonus past February 15th or March 15th, the following year, or you're paying severance well into the future, especially where the employee has any control over the timing of the payment, just call a tax attorney.

Am I right, Edo?

Edo Pollack:
Yeah. It's on the back of what we have here in Israel is like the 102 plans and whatnot. So right, there's going to be delays in when did you receive the payment? When did you have the benefit of it? When did you have access to it? And whose option was it to delay it? Yeah. So they're very complicated rules. And if you're in multiple jurisdictions, you definitely want to make sure that you're synchronizing.

Andrea Bernstein:
Okay. I'm just going to touch on discrimination and retaliation, which isn't specifically a payroll topic, but it affects everything. So as you know, or maybe you don't know, employment in the United States, except for Montana is at will. I've never met anybody from Montana or anyone who's hired in Montana, but I'm just going to mention that as an exception. The at will doctrine means that an employer can fire you or you can quit with or without notice, with or without a reason, with or without cause. It really means with or without cause. Usually in the United States, there's also no notice provision.

But discrimination or retaliation are an exception to that. You can fire someone for a good reason, a bad reason or no reason at all, but not an illegal reason. And an illegal reason is usually discrimination because you're in a protected category, age, race or retaliation, which is you complained about something, you were a whistleblower, you said, I didn't get paid on time. Now suddenly you're protected. Or you ask for some sort of, say, for example, disability accommodation. So that's an exception. So the discrimination laws apply to payroll in terms of unequal pay or benefits for similar roles can trigger claims of discrimination. I will tell you that the fact that somebody negotiates for less is not necessarily a defense to an unequal pay claim. You can't say, well, the woman asked for less, so I paid her less. So yeah, the men all make 100,000 more, but the women ask for less.

Negotiating for less is not a defense necessarily to a discrimination and pay claim. There are now states with laws that say there's pay transparency laws that when you post a job, you have to post the pay range in your job listing. And there are rules for how to figure that out. There are states that now say you can't ask somebody what their current salary is because past discrimination will perpetuate if you rely on past salaries.

They also say here, bonus commission plans, we can look at those for discriminatory impact. Retaliation risk arises when an employee says, "Are you sure I'm not supposed to be getting overtime? Or why didn't I get paid for that?" And sometimes the casual comment later becomes the premise for retaliation claims. So somebody who just said, "I can't believe I don't get paid more for that." When you fire them in six months, they're going to say, "That was actually a complaint that I get paid less than somebody." So you need to be aware of the decisions you're making and also what people are saying to you. And payroll records are frequently used as key evidence in discrimination and retaliation claims. And you're required by law to keep those, again, depending on the state for a certain amount of time.

Gila Weiss:
Okay.

Yes. Okay. So now this part is how you can take all of these nice laws and actually get your employees paid. The key thing to remember about payroll is that it's deadline heavy. As Andrea was saying, it's detail heavy because you have all of these states and this state has this and this state has that. And because there are different elements of payroll. This person's getting commissions, that person's getting the bonuses, and this one's getting expense reimbursement, but it's also a big number. And it's also a very sensitive number. So if you go through a due diligence process, if you're going through an audit, whoever is checking your numbers is going to spend a lot of time looking at payroll. So what you need is for any payroll related detail or change, it needs to be tracked and accessible. And that means you need a process.

So there are three more golden rules. First of all, write it down. When we're managing payroll, one of our roles, or even for my own payroll, for my firm, the moment there's a change, we maintain for each pay company. And then for each pay run, let's say if it's payroll from the 15th or 16th to the 31st, I have a file with all the employees, what their regular salary is. And we have columns for commissions, for changes, for expenses, what have you. Somebody writes me and says, John is getting a raise. I'm going to go in and I'm going to automatically update it. I'm not waiting. I'm not leaving it in my inbox. That's a rule I've told my team. The moment you get it, you go in, you open up that file, write it in the file. Do not wait. Why? Because otherwise you're going to forget.

Especially if you are a busy startup person and you are trying to manage 75 things, you're going to forget. And then you're going to be late. And then you're going to be talking to Andrea. And she's lovely, but you don't want to talk to her about being late on the payment. Have a fresh back copy of this Excel for every pay period. One thing we do is we will enter payroll, let's say into venture or into whatever program. We will actually send it over to them to review just to make sure we got everything in correctly. Second rule is PDF it. You get an email from one of your managers, I promised John a $1,000 bonus. Great. Put that bonus right away into your chart and then take that email, save a copy. Save it in the employee's file or in the file for that pay period.

If it's a raise, bonus, commission calculations, document everything. One of the key reasons, first of all, so you have support. If you have time sheets, save those as well. Make sure you have copies. But also because when you get to your audit or your due diligence and they're looking and they're saying, why did payroll go up $10,000 in the last period or like six months ago? You're not going to remember. I promise you will not remember why payroll went up $10,000. You're going to completely forget that you promised Mary a special bonus. Have it written down with the pay information for that period. And finally, simplify. You want to make it as simple as streamlined as possible. There are all sorts of tools that you can use now, for example, for expense reimbursements. You can use Expensify. That way you have a nice, simple report, which you can tell people, if you want your expenses reimbursed, we have rules.

You have to get it to me by the 15th. It came to me by the 16th. Will you see this rule? It's written down, like Andrea said. Good. We're going to pay you the next pay period. Have rules, very clear rules, very strict deadlines and good tools. Another thing which we really like are managed credit cards. You can give an employee a credit card and say, this can be used at restaurants for your next trip. Great. Can you use it to buy shoes? No, because you can really strictly define these cards. You can put limits on them and that's going to get rid of the whole expense report issue.

The next thing is you want to pick your tools wisely. So when you're doing payrolls, and I use the word Chiko Lead here, Chiko Lead is a popular payroll program in Israel. And it can be used here because there's one state. There's one set of rules that does not apply to. We don't have to worry about the rules in Tel Aviv are different than the rules in Haifa. When I did payroll for a company in the UK or we managed it, there was one set of rules in England. I didn't have to worry that the rules in London were different than the rules in Manchester. The United States, as Andrea has already discussed, there's any number of rules. So you're going to want to have a good platform and which one you're going to pick is going to depend on where you are in your development and the type of company.

If you are very small or if you're larger, but you have everybody's pretty much in the same place, you can use a self-service platform like ADP or Gusto. We use Gusto a lot because it's well suited for startups. It's pretty user friendly. And a lot of these platforms will have partnership, integrate things like provide workers' comp, which is you're required to have from the first day the employee starts, you're required in the event of if they are a work fair place accident, that has to be in place by the first day. If you're working with Gusto, you can actual management company. That's something where you're like, "I don't really need a really fancy thing, but I don't want to have to deal with this." So they'll have their own software. Maybe they're working off of Gusto or ADP, but there's a professional who's managing it for you.

And I guess the fanciest model is going to be a PEO. That one is co-employment as opposed to the other ones where you are the official employer of record. When you're working with a PEO such as TriNet or Venture, then the official employer for purposes of certain reporting is going to be that company. It's going to be Venture or TriNet. Now what's really nice with them is that if your team is not only remote, but dispersed, you have one employee in Massachusetts and one employee in Illinois and one employee in Texas, they manage all the state compliance. They're the one making sure that everything is registered properly. They also can bundle your benefits inside along payroll and they also provide good HR support. So if you contact your PEO and you say, "Well, my employee in Michigan, we just let her go or she just quit." They're going to be able to tell you, "Okay, so for this date, you can pay them to get their last paycheck together with the last payroll." Or they're going to say, "No, no, no, you need to get the check out today.

You can't fire them today. It has to be tomorrow because you have to pay them on the same day and we can't get them paid on time." So that, especially if you have a very widely dispersed team, a PEO costs a bit more. They can save you a lot of aggravation and a lot of problems. And just something I. Yeah? I'm

Edo Pollack:
Going to jump in just quick. Just on the PEO, it is extremely important to remember that at the end of the day, it is your responsibility as the employer, right? The contracts are with you. Even though they're listed, the PEOs are listed as what might appear as the employer. The buck stops with the company, not with the PEO. And so I do meet companies who are like, "Oh, we don't have any employees. They're all employed by ADP." There are contracts out there which can say, "I've outsourced my entire function where I'm sort of borrowing staff from another company." But generally when you're dealing with the PEOs, you do employ the person. You do have exposure to the states that they live in, the states that they travel to and whatnot. So don't get confused that just because you have a PEO, it's really there for the ease of use rather than for any sort of legal or tax protection.

Andrea Bernstein:
I would just add on also. Sorry.

Gila Weiss:
Go

Andrea Bernstein:
Ahead. That in terms of things like classification, ultimately the employer's going to be the one who's responsible. And the PEO is going to say, "We just said they get overtime or they don't get overtime based on whatever you check." They're not going to take responsibility for strict legal classifications. So that's something else to keep in mind. You still need legal advice, whether it's from me or from somebody else. But for the strict legal questions, they're going to basically give you a form and say, "How are you paying this person? Are they exempt? Are they non-exempt?" And they're not going to be reading your commission plan to make sure that your commission plan is compliant with state law.

Gila Weiss:
Right. What they can do, however, is they're able to provide support on a day-to-day basis. So again, if somebody leaves, they have an HR team that can tell you, "Hey," and each one has a different model, but they'll have an HR team who can tell you, "This person's in Illinois. In Illinois, they have to be paid right away when you terminate them, or they can be paid in the next pay period." And that's actually really useful when you're operating on a day-to-day basis where you may not know all this information. Another advantage to PEOs is because they can buy certain benefits or they can get them. They're basically buying benefits for very large pools. So they can sometimes, not always, but sometimes get you a more variety and lower cost. Not always. They are more expensive than self-service. But while you're in the process of growing and when you're not in a position where you can manage all this in-house, a PEO can be a good bridge, in particular if you are very remote.

If everybody is in one place, that of course changes the picture.

And the other thing is on a practical basis, whether you're doing payroll by yourself or if you're doing it with a PEO, there are certain things which you can have prepared at the last minute. I can do my commissions the day before. I can get that if I'm working with a payroll provider, if I'm working with somebody outsourced who's managing my payroll for me. I can get them my commissions and bonus detail the day before payroll goes in. I literally got a bunch of stuff on Monday from my clients and we just put it into the payroll system and we're good to go for July 31st. Other things, however, take more time. If you're setting up a payroll system, that can take a few weeks. If you have a new hire, that can take a week, especially if you're opening up as it were in this new state.

Depending on who you're working with, if they have to register in the new state, that's not necessarily something that can be done in a half hour. So if an employee relocates to a new state, you need to add that. You have to update their details and make sure you're registered in that state. So for these things, if you're doing it yourself, make sure that you're leaving yourself enough lead time. And if you're working with an outsourced provider, make sure you let them know as soon as you do. Don't call me the day before I have to do payroll and say, "Oh, by the way, we hired three new employees and two of them are in new states." They're not going to get paid on time because it takes time to set them up. So please bear that in mind. And now I'm going to hand it back over to Andrea because this is more legal stuff.

Edo Pollack:
I'll make one more comment on the differences. Records. A lot of people feel that if I'm not actually doing the filings myself or I'm not using Gusto, so then the PEO has all the records and whatnot. We've seen it comes up every few years. There's some sort of government incentive, some sort of back files they can do. For example, on COVID, where you had to go back and demonstrate that you were paying people throughout COVID, that you maintained employees and you were paying them, but you switched your PEO and all of a sudden you didn't have access to the PEO's website. And you didn't have the filings to demonstrate that you were paying employees during COVID, even though they weren't coming into the office, they weren't working. So we found that it was extremely difficult to go back and then ask for records. And then again, who was responsible for maintaining the records if they were purged or whatnot.

So again, COVID was just a really good example, but I think in any given jurisdiction, you can really find that there are various incentives that when you compare payroll from one period to the next, there can be incentives for maintaining those records locally. So even if you have the PEO, make sure you're downloading stuff on a monthly basis, keeping it on the local drive.

Gila Weiss:
You're also going to want those records. Our rule is every payer period, records have to be downloaded. They have to be in our client's files. You're also going to need them for your annual audit. You're going to need them for due diligence. You have no idea if your due diligence reviewer is going to come and pick random samples and say, "Hey, please provide us with the payroll records for the pay period ending August 31st. They will do this and your auditors will as well make sure you have copies." Okay. And now back to Andrea.

Andrea Bernstein:
Okay. So in a nutshell, an I9 is the right to work verification in the United States. Basically within the first three days of employment, an employee has to present documentation to the employer proving the right to work in the eligibility to work in the United States. And there's a list of documents. If you're using these, you need two. If you're using a passport, that's enough. And historically, the employer had to look at the original documents in person or designate somebody, as Gil and I were discussing earlier, a family member to be the employer's agent, to be the inspector, but somebody had to inspect the documents. Post - COVID, there is another procedure that can be used, but it has, as with everything else, strict requirements and preconditions that need to be followed, but for doing your remote I-9 checking. But the important thing to remember is that these forms need to be filled out.

They need to be filled out correctly. The US Department of Labor can come in with no notice and do an I-9 audit and ask to see all of your I-9s. And even if everyone is working for you is lawfully working for you, it's a violation of the law just for your I-9s not to be in compliance. And there's silly things about the wrong box wasn't filled in or something. So you want to make sure that these are getting filled out correctly because it's a silly thing to get a penalty for, but it's not enough that your employees work legally in the United States. It's that it's somewhere in a file, you have proof that they showed you that they're legally working in the United States. And as you can imagine, given the environment in the United States right now, this is a policy priority. So we can expect to see more and more I-9 audits coming up, especially in certain industries where it's more likely that there are legal and undocumented immigrants working and they're trying to ferret out undocumented people.

So that's just something that you want to have filled out correctly. And you can consult either, I guess, with your PEO or with your counsel in terms of how to do it. But it's not enough for your remote employee just to scan you a copy of their documents. That is definitely not enough. There must be some sort of live action taking place.

Gila Weiss:
I'm just going to point out here that especially for a lot of the. If you're overseas and you're hiring your first time in the United States and maybe you're sending somebody over from your home country to work in the United States, do make sure that they have whatever visa they need before they start working. Also, if you're hiring and you're like, "Oh, I know this guy. He grew up in the same neighborhood. Now he's in the States. Hire him. Make sure they are legally allowed to work." I have one client where literally two hires in a row. We actually got to the I-9 stage. They were a bit late, but they told me, "Oh yeah, I hired this person two weeks ago." I'm like, "Great." So I asked for their documentation and it turned out that neither one of them was legally allowed to work in the United States.

So they had to let both of them go. Take this seriously. As Andrea said, it's a very, very hot button topic right now. Make sure you have your ducks in a row and that you're checking this. Also, bear in mind when you're working with a PEO, different PEOs have different methods of setting up their website for you to basically complete their I9. So you want to go over this with your PEO and find out, for example, PEO TriNet will allow you to appoint somebody to review the documentation remotely. Whereas Venture will person to upload a copy of their documentation directly into Venture so you can download it from there and then do a call separately. So find out from each PEO, what do you offer? What is your process? What tools do you have on your website so I can manage this? And so on and so forth.

Andrea Bernstein:
I'm just going to make one more point if this all sounds like a lot of work. It's actually illegal to discriminate based on. I'm sorry?

Gila Weiss:
Andrea, you're breaking up.

Andrea Bernstein:
Oh, can you hear me now?

Edo Pollack:
Yeah, go ahead.

Andrea Bernstein:
It's actually illegal in the United States to discriminate based on citizenship. So once somebody is lawfully permitted to work in the United States because they have a green card, they have a visa, whatever it is, I'm just kind of throwing this out there, you can't discriminate against them. So, oh, I don't even want to get involved with somebody from another country because now I'm going to have to worry. You can't discriminate against them on that basis though, provided they are legally permitted to work in the United States. So I'm throwing that out there.

Edo Pollack:
Next time we probably have to invite a immigration attorney for some of the other stories, the horror story of getting into the country and working.

Okay. We made it to the end. Fantastic. Thank you all for joining, especially to Andrea and Gila for all the effort here and for the idea. I'm glad we did this. And looking forward to everyone's feedback. If there's any questions, our information's right here. And looking forward to next time.

_{Transcribed by Rev.com AI}