URL: http://www.entrepreneur.com/homebasedbiz/homebasedbasics/hiringinyourhome/article77662.html

Lanny Morton decided it was time to hire an employee after he spent hours packing boxes and writing shipping labels by hand instead of focusing on expanding his growing business. "I needed to be out looking for product and working on marketing-not packaging and labeling orders all day," says Morton, the owner of SportsCloseouts.com, an online sporting goods retailer that launched in 2002.

After just five months in business, 36-year-old Morton began looking for an employee but quickly discovered that when it came to finding the right person, he wasn't sure where to start. "Hiring employees to work in your home is difficult," says Morton, who runs SportsCloseouts.com out of his home in Phoenix. "It's much more personal than hiring someone to work in a retail store."

"Hiring an employee in a homebased business is pretty close to having a roommate," says Barbara Cunningham, business development specialist for the University of Missouri Extension Small Business Development Center in Kansas City. "It is really important to hire the right person."

Finding the Right Match

Unlike many homebased entrepreneurs, Morton didn't have to look far to find his first employee. "I was talking about hiring someone during dinner at a Mexican restaurant," he says. "We had this really great busboy, and I was saying that I wanted to hire someone just like him--so I offered him a job."

Morton was lucky--the employee, hired to manage shipping and receiving, turned out to be a good fit with the company. "He was a really hard worker," says Morton. "Having him there gave me time to focus on other [aspects] of the business." But he concedes the idea was initially a little unsettling: "It was really scary to have a stranger in my home at first. I watched him closely for the first month."

Employers have numerous options when it comes to finding the right employees for their homebased businesses, but Cunningham suggests asking for referrals before placing an ad in the newspaper. "Running an ad for someone to come into your home is risky because you never know who is going to apply," she says. "I would feel better about finding someone through word-of-mouth."

Cunningham advises employers to check references, conduct background and credit checks, and consider drug testing for all employees. "The more you can check into [a prospective employee], the better off you'll be," she says.

Frank Minssieux turned to his Rolodex when the time came to hire an executive vice president for TimingCube, the web-based stock market service he founded in 2001. A former co-worker expressed interest, and Minssieux made him a job offer. "From a skills standpoint, I knew it was a match, but it was also very important to hire someone I could trust," says the 45-year-old CEO, whose business generated $1.6 million in 2004. Today, Minssieux has four employees, each of whom was hired through referral.

Missy Cohen-Fyffe, 44-year-old founder of Babe Ease LLC, a manufacturer of fabric inserts for shopping carts and highchairs, hired her first employee in 2000-but says she was cautious about interviewing prospective employees in her Pelham, New Hampshire, home. "Initially, I only hired friends because I was working from home and wanted to be sure my employees were people I knew and trusted," says Cohen-Fyffe, whose company brought in $1.8 million in sales in 2004.

Eventually, Cohen-Fyffe had to look for employees beyond her circle of friends. "I prescreened applicants before I brought them to my home to be interviewed," she says. "I talked to them a few times over the phone and checked their references. If I was still interested in hiring them, I brought them in for interviews."

Most employers believe that hiring an employee will give them extra time to focus on generating new clients, developing product lines and growing the business, but Robert W. Wendover, author of Smart Hiring: The Complete Guide to Finding and Hiring the Best Employees, says the opposite may be true. "Having an employee actually takes time away from your work," he says. "In addition to your regular job, you have added a management role. There are things that need to be done, like day-to-day supervision, answering questions and payroll, that were never issues before."

Minssieux knew there would be extra paperwork involved in hiring employees, so prior to bringing staff into his homebased business, he researched his options for payroll and benefits services. Though he pays close attention to his bottom line, Minssieux believes it is often more cost-effective to outsource certain tasks. "We decided to have a third party handle our payroll," he says. "We could do it ourselves, but it is much cheaper to outsource."

TimingCube also offers its employees benefits, which Minssieux researched thoroughly. "I talked to my accountant and weighed the options and decided the Simplified Employee Plan IRA was the easiest plan to set up because there is very little paperwork," he says. "The plan was set up through a brokerage firm, and all I have to do is write a check."

Minssieux knew it would be difficult to find an affordable benefits plan with only four employees but was determined to find a way to cover benefits for his staff. "I decided to let the employees choose their own [individual] plans, and I pay for them," he says. This nontraditional approach has allowed the company to provide health insurance to its employees at a much more affordable price.

Obeying the Law

Hiring an employee is an extremely important step, and it's essential to make sure everything is done legally. Experts suggest following several key steps before hiring an employee to work in a homebased business.

"First, make sure the employee is qualified to work in the United States," Cunningham warns. "Ask them to provide copies of their [immigration documentation] and their Social Security card [to verify their eligibility]."

Additionally, homebased business owners should also check with their insurance agencies to ensure they are covered to have employees working in their homes. "In some cases, depending on the state and the number of employees, a homebased business owner has to purchase workers' compensation insurance or change [his or her] insurance policy to have employees working in [his or her] home," Cunningham says. "Call your insurance agent to find out what coverage you need."

Cunningham also advises employers to check local laws pertaining to hiring employees in a homebased business. "In a lot of cities, it is not legal to have an employee in your home," she says. "Homebased business owners have to check with the city before bringing someone in to work in their homes."

Cohen-Fyffe checked to ensure that there were no zoning laws restricting her from hiring employees to work in her homebased business-and then she talked with her neighbors to ensure they felt comfortable with the additional traffic that her business generated. "I felt it was common courtesy to let my neighbors know about my business," she says. "I wanted them to feel comfortable coming to me if they had any concerns."

The laws pertaining to minimum wage, benefits and insurance apply to almost any type of business, including homebased businesses. Cunningham suggests visiting your state's Department of Labor office to get a copy of your state's employment laws: "In reality, except for some oddities that exist in a homebased business," says Cunningham, "you are still hiring an employee and you still have to follow all the basic rules."

The conditions of employment--including compensation, benefits and sick leave--should be outlined up front, and employers should also discuss their expectations with employees. "During the first day of work, go over the job description, discuss your expectations for their performance, and ask if they have any questions," says Wendover. "In a homebased business, employers should also let employees know which areas [of the house] are open to them and which areas are off-limits. You cannot be afraid to broach these topics."

Morton always discusses the ground rules with his employees on their first day of work. In addition to insisting they arrive on time and do their best work, Morton does not allow personal phone calls or personal use of the computers and insists that cell phones be turned off during business hours. "We make it clear up front that we live here, but it is also a business and needs to be treated like one," he says.

Wendover also encourages homebased business owners to take their management duties seriously. "You need to be a good businessperson," he says. "If [employees are] not performing up to par, you need to correct their behavior; you need to terminate them if they are not working out. Employers need to remember they are managers, not friends."

Cohen-Fyffe created an employee handbook to ensure her employees understood what was expected of them. In addition to specifying which areas of the house employees can access, the handbook also addresses office codes of conduct and policies for holidays, sick leave and personal phone calls. "It makes everyone aware of the rules and ensures every employee is treated the same way," Cohen-Fyffe says.

Indeed, sharing your home with employees can be a challenge, as Morton quickly discovered. "It becomes really hard to separate work from home," he says. "The employer-employee relationship is really skewed when you work from home because they see so much of your personal life."

Cohen-Fyffe says that she never planned to share her home with employees. "Initially, I thought this was a business I would run on the side to bring in a bit of extra money, but it quickly took on a life of its own and I had to hire help," she says. "It took me a while to adjust to having employees in my home."

Both Morton and Cohen-Fyffe have employees working throughout their homes. In his three-bedroom home, Morton uses two bedrooms and the living room as office space; the dining room as a conference room; and the garage as a shipping dock. Cohen-Fyffe has offices in three different rooms at the back of her house and uses her kitchen as the employee cafeteria.

Reaping the Rewards

With the right attitude and a little planning, employees can help transform your homebased business into a thriving enterprise. The employees who work at Babe Ease not only manage day-to-day tasks like answering phones, filling orders, managing accounts and shipping, but they also contribute to the company's bottom line. "Initially, I was struggling just to fill orders, but now that I have employees, it frees up time for me to focus on growing the business," Cohen-Fyffe says.

Morton attributes much of the success of his business to his employees. "Our employees have made a huge difference in the bottom line of our business; we have been able to grow at a rate that is mind-boggling because we have great people to help us out," says Morton, who earned $1.1 million in sales in 2004 and expects to triple that number in 2005. "When you have good employees, they generate more than enough revenue to cover the cost of their employment."

The Game Plan

Before hiring an employee to work in your homebased business, be sure you've done the necessary research and planning to make the transition a success.

• Get a copy of state employment laws through the State Department of Labor.
• Check the zoning laws for your neighborhood.
• Verify that the employee is legally allowed to work in the United States.
• Perform background and credit checks, drug tests and reference checks.
• Research and establish payroll and benefits services.
• Update your insurance policy and purchase workers' compensation insurance.
• Establish boundaries for working in your home.

Get Off on the Right Foot

If you're a homebased business owner thinking about hiring employees, these helpful resources are worth a look.

• For information on state labor laws, visit HR.BLR.com or HREsquire.
• Find in-depth information on all aspects of hiring employees at G.Neil.
• To establish status as an employer, set up employee withholding tax and manage the financial aspects of hiring an employee, visit the IRS online.
• Check out the International Association of Home Business Entrepreneurs for even more tips and resources.
• Brush up on the laws affecting you by reading The Employer's Legal Handbook by Fred S. Steingold.

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Jodi Helmer is a freelance writer living in Portland, Oregon. Visit her online at www.jodihelmer.com.