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Starting a new job can be challenging. Irrespective of the experience of the new employee or the role you hire them for, it’s a bit tough to fit into a team where others have adjusted to the company's culture.
During this period, you should help the new hire develop a sense of comfort and belonging so that you don’t lose the person to attrition. Neglecting this is the reason why an average of 28% of employees leave their new jobs within the first 6 months of joining a company.
However, a great onboarding process enhances the chances of retaining new hires by about 82%.
In this article, you will discover how to integrate payroll, equity, and compliance systems into the onboarding process to ensure new hires and contractors are not only properly compensated but also fully compliant with regulatory requirements.
An Overview of an Onboarding Process
According to the Society for Human Resource Management (SHRM), it costs a company about 6 to 9 months of an employee’s salary to replace the employee.
For an employee earning $60,000 annually, this translates to recruiting and training expenses ranging from $30,000 to $45,000.
Hence, it is important to have a strong onboarding process to retain your new hires and reduce costs.
Effective onboarding helps new hires fit into the company culture right from the outset. This makes them feel engaged, thereby improving their performance and encouraging them to stay in the company for a long period.
According to a report by Gallup, only 33% of employees feel engaged. Hence, you need to find ways to increase this number to improve your company’s performance.
How to Add New Hires or Contractors to Payroll using Gusto
Alt: gusto payroll software
Efficiently integrating new hires and contractors into your payroll system is a key step in the onboarding process.
We will use Gusto to illustrate how you can add new hires or contractors to the payroll.
Gusto, an online payroll software and HR administration platform for small businesses and startups tackles the most complex aspects of payroll processing and benefits administration.
The tool facilitates payroll for:
- Employees
- Contractors
- Employee benefits like retirement, health, and lots more
To use Gusto, enter all the relevant company details such as tax information, benefits, bank account details, and third-party apps that you will integrate into the software.
Gusto will then provide a brief questionnaire that will help you choose the plan that best suits your business needs. After completing this step, add employee information, like pay rate, direct deposit details, and withholdings into the tool.
After recording all the information, Gusto’s automation will take over and streamline the process. All you need to do at this point is to enter employee hours weekly or biweekly while Gusto runs the payroll.
Tax Filing
Gusto also helps calculate and file payroll taxes for employers and employees. It also records pay stubs that employees can have access to via their online profiles.
Employees will get an email every payday to inform them their pay is coming in.
As part of the employee’s and contractor’s profile setup, Gusto files employee W-4s and contractor W-9s. The tool also creates and distributes W-2 and 1099 forms every January for tax returns.
You also have the option to let Gusto handle the automatic filing of a new hire report in the employee's state when you onboard them.
How to Incorporate New Employees into the Cap Table
A cap table (also known as a capitalization table) is a table or spreadsheet that displays a company’s equity capitalization. It is usually used for startups and early-stage businesses.
Cap tables include all the equity ownership capital of a company, including common equity shares, warrants, preferred equity shares, and convertible equity.
A basic capitalization table displays each type of equity ownership capital, the investors, and share prices. A more complex cap table may include information on:
- Sources of potential new funding
- Mergers and acquisitions
- Public offerings
- Other hypothetical transactions
The cap table by Acme Incorporated is an example of a basic cap table in action.
In a nutshell, a cap table reveals a company’s total market value and its components. Business managers consider the table in every financial decision that impacts market capitalization and the company’s market value.
Hence, the cap table must be accurate, designed to meet the business needs, and maintained to decide on the most recent information.
How to Manage Your Cap Table
Cap table management entails understanding business needs, analyzing their impact on equity, and updating the table accordingly.
These tips will help you manage your capitalization table:
- If your company chooses equity compensation, analyze your hiring needs and create an ESOP pool in advance. This helps in determining ESOP allocations and dilution for key positions. Ensure thorough ESOP management by including all employee information in the cap table.
- Over time, cap tables can grow in complexity, requiring more calculations and attention to legal obligations. Delegate the cap table management to someone who has a legal background. This minimizes the risk of errors within legal jurisdictions.
- Not all stakeholders need a comprehensive cap table for making decisions. For instance, investors may not need details about ESOP payouts, as it's not important to their interests. Likewise, employees don't need to know every shareholder. Determine the appropriate level of information to share with each stakeholder and generate a summarized cap table accordingly.
- There are lots of plugins and calculators online that you can use to create a digital cap table. However, update the cap table throughout business operations. This raises the need to invest in a tool for creating a capitalization table. Hence, choose an equity management tool that streamlines the process of managing your cap table.
How to Create a Cap Table Using Pulley
Alt: pulley cap table solution
The steps below will guide you to create a cap table using Pulley:
Sign Up and Setup
- Sign up for a Pulley account on their website.
- Follow the on-screen instructions to set up your company profile, including company name, industry, and other relevant details.
Add Company Details
- After setting up your account, navigate to the dashboard or settings section to add your company's details.
- Input essential information such as the company's legal name, incorporation date, jurisdiction, and any other important details that Pulley requires.
Add Share Classes
- Define the different classes of shares or securities issued by your company, such as common stock, preferred stock, options, warrants, etc.
- Specify the rights, privileges, and preferences associated with each share class, including voting rights, liquidation preferences, and dividend preferences.
Enter Existing Equity Holders
- Input information about existing equity holders, such as founders, investors, and early employees.
- Include details like the name of the shareholder, number of shares held, share class, and any relevant agreements or restrictions.
Add New Employees
- To add new employees to the cap table, go to the section for managing employee equity.
- Enter the details of each new employee, including their name, role, start date, and equity grant information.
- Specify the type of equity grant (e.g., stock options, RSUs), number of shares/options granted, vesting schedule, and any other relevant terms.
Track Vesting and Exercisable Equity
- Pulley allows you to track the vesting progress of employee equity grants over time.
- Update the cap table regularly to reflect the vesting schedule and the number of shares/options that have become exercisable for each employee.
Generate Reports and Analytics
- Use Pulley's reporting and analytics features to generate customized reports on your company's ownership structure, equity dilution, and other key metrics.
- These reports can help with internal decision-making, investor communications, and compliance purposes.
Overview of 401(k) Enrollment Process
Enrolling new hires in 401(k) plans is an important component of their onboarding process.
However, before enrolling new hires in a 401(k) plan, you need to determine their eligibility based on the plan's specific criteria. Eligibility may depend on factors like length of service, age, or employment status.
Communicate these eligibility requirements to new hires to ensure transparency and avoid any confusion.
Full-time employees are eligible to participate in a company's 401(k) plan immediately upon hire, while part-time employees may need to fulfill certain requirements, such as a waiting period or minimum hours worked.
Review the plan documents carefully to understand the eligibility criteria established by the employer and the plan administrator.
Timeline for Enrollment Post-Hire
After meeting the eligibility criteria, new hires should be promptly enrolled in the 401(k) plan according to the established timeline. You can automate this process to ensure compliance with regulatory requirements.
Generally, enrollment should occur within a reasonable timeframe after the employee's start date to facilitate seamless integration into the company's benefits program.
During the enrollment process, give new hires clear instructions on how to enroll in the 401(k) plan, including access to relevant documentation and online enrollment portals.
Furthermore, provide support resources, such as informational materials or access to retirement planning tools, to help employees make informed decisions about their contributions and investment options.
Best Practices for Educating Employees About Their 401(k) Options
Educating employees about their options in a 401(k) helps them make informed decisions about their retirement savings. Here are some effective strategies to consider:
Start Early with Orientation Materials
Begin the education process during the onboarding phase by providing new hires with comprehensive orientation materials that explain the company's 401(k) plan.
Include information on plan features, investment options, contribution matching, and eligibility requirements. This sets the stage for informed decision-making from the start.
Personalized Counseling Sessions
Offer one-on-one counseling sessions with financial advisors or HR representatives so that employees can have an in-depth understanding of their 401(k) options. Personalized sessions allow employees to ask questions, address concerns, and receive tailored advice based on their financial goals and risk tolerance.
Interactive Workshops and Seminars
Host interactive workshops or seminars focused on retirement planning and 401(k) fundamentals. These sessions can cover topics such as the power of compounding, investment strategies, and the importance of early savings.
Encourage active participation and provide real-life examples to make the information more relatable.
Use Online Resources
Provide access to online resources such as webinars, videos, and interactive tools that explain complex financial concepts in a user-friendly format. Online platforms can offer flexibility for employees to learn at their own pace and revisit information as needed.
Communicate Regularly
Maintain ongoing communication with employees about their 401(k) options through email newsletters, intranet portals, or company-wide meetings. Share updates on plan changes, investment performance, and retirement planning tips to keep employees engaged and informed.
Setting Up Payments Processing for Contractors
Paying contractors does not have to be complex. The key steps involved in paying contractors include:
Contractor agreements
Establish comprehensive and clear contractor agreements that highlight payment rates, terms, and schedules.
Payment methods
Determine the method you will use to pay your contractor. This includes checks, electronic transfers, or online payments.
Tax considerations
Know the tax obligations (such as reporting requirements and withholding taxes) that are connected to contractor payments.
Invoicing
Have a standard invoicing process that helps you to easily submit the contractors’ invoices and for them to be processed by your accounts payable team.
Recordkeeping
Keep organized records of contractor payments (such as invoices, receipts, and all tax-related documents).
Differences in Payment Processing for Contractors and Full-Time Employees
In some cases, entrepreneurs have projects that they may not have the experience required to handle them. These projects may be a market campaign, product launch, or integration of a new technology.
Due to how limited the scope and length of these projects are, you need to hire full-time employees.
However, paying an independent contractor under a contractual agreement per project or hourly basis is different from paying an employee. Independent contractors operate as self-employed individuals, establishing their rates of pay and having the flexibility to negotiate payment terms and schedules.
Tax considerations for independent contractors also differ from those of employees; they are responsible for self-employment taxes, which comprise both the employer and employee portions of payroll taxes at an equivalent percentage.
How to Pay Independent Contractors Using Gusto
Determine how to pay
Paying independent contractors is different from handling employee payroll. Determine how you will pay your independent contractors during the hiring process and the amount you will pay them.
Contractors don’t earn salaries. Instead, they are paid per hour or project. According to IRS guidelines, paying a worker with a salary makes the worker an employee rather than an independent contractor.
Let contractors complete W-9 forms
After figuring out the payment terms for your contractors, the next step is to ensure they complete a W-9 Form. This form includes important personal details such as name, Social Security number, or, if applicable, an Employer Identification Number (EIN) for those operating under their business entity.
Ensure your contractors fill out this form before work commences, as it will be used to report their annual earnings on Form 1099 at the end of the year.
It’s easy to collect the W-9 if you’re using payroll software or a service like Gusto. After adding contractors to your account, the system will automatically send them a link to set up their online profiles.
They will be prompted to input all the necessary W-9 information, which will then be securely stored within the application. This automated approach saves both time and resources.
Set Up Contractors in Gusto
After collecting the W-9 Form and determining how to pay your contractors, the next line of action is to set up contractors in your payroll system.
You can do this by using Microsoft Excel, a notebook, or payroll software like Gusto.
Send 1099-NEC Forms
As you approach the end of the year, you need to prepare 1099-NEC Forms for each of the contractors that you’ve paid more than $600 in the year.
Each contractor should receive a copy, along with submissions to the IRS and possibly state tax agencies for those subject to state income taxes. Keep a copy for your records and adhere to the January 31 deadline for reporting payments made in the previous calendar year.
Use the W-9 forms collected from contractors they start working to transfer important information (like name, address, and Social Security number or EIN) to the 1099-NEC. This ensures accuracy in the year-end reports submitted to the IRS.
The 1099-NEC Form helps independent contractors calculate their tax obligations and assists the IRS in tracking contractors for tax payment purposes.
Tips for Ensuring Compliance During the Onboarding Process
Ensuring compliance during the onboarding process reduces legal risks and maintains a positive employer-employee relationship. The tips below will help you ensure compliance:
Develop a Comprehensive Onboarding Checklist
Create a detailed checklist that outlines all the necessary steps and documents required for onboarding new hires. Include items like employment forms, tax documents, company policies, and any industry-specific compliance requirements.
Provide Clear Information
Communicate expectations and requirements to new hires before they start. Provide them with an overview of the onboarding process, including what documents they need to bring on their first day and any pre-employment screenings or training they must complete.
Verify Employment Eligibility
Ensure that all new hires are legally eligible to work in your country by verifying their employment eligibility through the completion of Form I-9 (in the United States) or equivalent documents in other countries. Maintain proper documentation of these verifications as required by law.
Collect Required Documents
Collect all necessary paperwork from new hires, including tax forms (e.g., W-4 in the United States), direct deposit authorizations, confidentiality agreements, and any other legal documents required for employment.
Ensure that all forms are completed accurately and signed by the appropriate parties.
Provide Compliance Training
Conduct compliance training sessions for new hires to familiarize them with company policies, codes of conduct, safety procedures, and relevant laws and regulations.
This training should cover topics such as harassment prevention, data security, diversity and inclusion, and any industry-specific regulations.
Review and Acknowledge Company Policies
Review key company policies and procedures with new hires, such as employee handbooks, code of conduct, and confidentiality agreements.
Have new hires acknowledge receipt and understanding of these policies by signing acknowledgment forms.
Wrapping Up
Throughout this article, we have discussed the importance of understanding and implementing systems, such as payroll, cap table management, 401(k) enrollment, payment processing, and labor compliance.
Each of these elements plays an important role in not only integrating new hires effectively but also in building a positive and compliant work environment.
Moreover, using suggested vendors like Gusto for payroll and payments processing and Pulley for cap table management can streamline your processes and provide additional support in executing complex tasks.
Don’t forget that the onboarding process is not just a one-time event. Hence, you must audit and update your systems regularly to ensure continued compliance with regulations.
FAQs
What is the payroll onboarding process?
Payroll onboarding involves adding new hires to a company's payroll system, ensuring they receive accurate and timely compensation.
Many businesses use payroll applications to automate this process. This ensures accurate data capture and secure storage of employee information.
What is the compliance process in onboarding?
The compliance process in onboarding involves ensuring that new employees meet all legal and regulatory requirements set by relevant authorities.
This includes verifying their identity, eligibility to work, and completion of necessary documentation such as tax forms and employment contracts.
What is the onboarding process for new hires?
Employee onboarding refers to the process of welcoming new employees into a company.
This process involves tasks such as filling out paperwork, configuring workstations and computer access, communicating job expectations, and facilitating social introductions to ensure their smooth integration and success within the organization.
