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Home Invasion

When your home is your office, hiring employees is a touchy task. Learn how to set boundaries and cover your bases.

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Lanny Morton decided it was time to hire an employee after hespent hours packing boxes and writing shipping labels by handinstead of focusing on expanding his growing business. "Ineeded to be out looking for product and working on marketing-notpackaging and labeling orders all day," says Morton, the ownerof SportsCloseouts.com, an online sporting goods retailerthat launched in 2002.

After just five months in business, 36-year-old Morton beganlooking for an employee but quickly discovered that when it came tofinding 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 inPhoenix. "It's much more personal than hiring someone towork in a retail store."

"Hiring an employee in a homebased business is pretty closeto having a roommate," says Barbara Cunningham, businessdevelopment specialist for the University of Missouri ExtensionSmall Business Development Center in Kansas City. "It isreally important to hire the right person."

Finding the Right Match

Unlike many homebased entrepreneurs, Morton didn't have tolook far to find his first employee. "I was talking abouthiring someone during dinner at a Mexican restaurant," hesays. "We had this really great busboy, and I was saying thatI wanted to hire someone just like him--so I offered him ajob."

Morton was lucky--the employee, hired to manage shipping andreceiving, turned out to be a good fit with the company. "Hewas a really hard worker," says Morton. "Having him theregave me time to focus on other [aspects] of the business." Buthe concedes the idea was initially a little unsettling: "Itwas really scary to have a stranger in my home at first. I watchedhim closely for the first month."

Employers have numerous options when it comes to finding theright employees for their homebased businesses, but Cunninghamsuggests asking for referrals before placing an ad in thenewspaper. "Running an ad for someone to come into your homeis risky because you never know who is going to apply," shesays. "I would feel better about finding someone throughword-of-mouth."

Cunningham advises employers to check references, conductbackground and credit checks, and consider drug testing for allemployees. "The more you can check into [a prospectiveemployee], the better off you'll be," she says.

Frank Minssieux turned to his Rolodex when the time came to hirean executive vice president for TimingCube, the web-based stock market servicehe founded in 2001. A former co-worker expressed interest, andMinssieux made him a job offer. "From a skills standpoint, Iknew it was a match, but it was also very important to hire someoneI could trust," says the 45-year-old CEO, whose businessgenerated $1.6 million in 2004. Today, Minssieux has fouremployees, each of whom was hired through referral.

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

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

Preparing to Hire

Most employers believe that hiring an employee will give themextra time to focus on generating new clients, developing productlines and growing the business, but Robert W. Wendover, author ofSmart Hiring: The Complete Guide to Finding and Hiring the BestEmployees, says the opposite may be true. "Having anemployee actually takes time away from your work," he says."In addition to your regular job, you have added a managementrole. There are things that need to be done, like day-to-daysupervision, answering questions and payroll, that were neverissues before."

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

TimingCube also offers its employees benefits, which Minssieuxresearched thoroughly. "I talked to my accountant and weighedthe options and decided the Simplified Employee Plan IRA was theeasiest plan to set up because there is very littlepaperwork," he says. "The plan was set up through abrokerage firm, and all I have to do is write a check."

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

Obeying the Law

Hiring an employee is an extremely important step, and it'sessential to make sure everything is done legally. Experts suggestfollowing several key steps before hiring an employee to work in ahomebased business.

"First, make sure the employee is qualified to work in theUnited States," Cunningham warns. "Ask them to providecopies of their [immigration documentation] and their SocialSecurity card [to verify their eligibility]."

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

Cunningham also advises employers to check local laws pertainingto hiring employees in a homebased business. "In a lot ofcities, it is not legal to have an employee in your home," shesays. "Homebased business owners have to check with the citybefore bringing someone in to work in their homes."

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

The laws pertaining to minimum wage, benefits and insuranceapply to almost any type of business, including homebasedbusinesses. Cunningham suggests visiting your state'sDepartment of Labor office to get a copy of your state'semployment laws: "In reality, except for some oddities thatexist in a homebased business," says Cunningham, "you arestill hiring an employee and you still have to follow all the basicrules."

Setting Boundaries

The conditions of employment--including compensation, benefitsand sick leave--should be outlined up front, and employers shouldalso discuss their expectations with employees. "During thefirst day of work, go over the job description, discuss yourexpectations for their performance, and ask if they have anyquestions," 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 beafraid to broach these topics."

Morton always discusses the ground rules with his employees ontheir first day of work. In addition to insisting they arrive ontime and do their best work, Morton does not allow personal phonecalls or personal use of the computers and insists that cell phonesbe turned off during business hours. "We make it clear upfront that we live here, but it is also a business and needs to betreated like one," he says.

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

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

Indeed, sharing your home with employees can be a challenge, asMorton quickly discovered. "It becomes really hard to separatework from home," he says. "The employer-employeerelationship is really skewed when you work from home because theysee so much of your personal life."

Cohen-Fyffe says that she never planned to share her home withemployees. "Initially, I thought this was a business I wouldrun on the side to bring in a bit of extra money, but it quicklytook 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 myhome."

Both Morton and Cohen-Fyffe have employees working throughouttheir homes. In his three-bedroom home, Morton uses two bedroomsand the living room as office space; the dining room as aconference room; and the garage as a shipping dock. Cohen-Fyffe hasoffices in three different rooms at the back of her house and usesher kitchen as the employee cafeteria.

Reaping the Rewards

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

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

The Game Plan

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

  • Get a copy of state employment laws through the StateDepartment of Labor.
  • Check the zoning laws for your neighborhood.
  • Verify that the employee is legally allowed to work in theUnited States.
  • Perform background and credit checks, drug tests and referencechecks.
  • 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 hiringemployees, 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 atG.Neil.
  • To establish status as an employer, set up employee withholdingtax and manage the financial aspects of hiring an employee, visitthe IRSonline.
  • Check out the International Association of Home BusinessEntrepreneurs for even more tips and resources.
  • Brush up on the laws affecting you by reading TheEmployer's Legal Handbook by Fred S. Steingold.

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

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