How Do I Minimize My Risks as an Employer?

August 23rd, 2022, 2:56 PM

If you're a business owner, chances are hiring and managing employees has caused you more than one sleepless night. 

One of the questions that we get a lot is 

How can I protect myself when I'm hiring employees and growing my business? 

I'm going to give you five ways that you can protect yourself with employees, two of which may surprise you. 

The first way that you can protect yourself as a business owner, really your first line of defense is making sure you have the correct insurance in the correct amounts. Of course, you need general liability insurance. But there are other types of insurance you should have in place to protect yourself. 

In the state of Pennsylvania workers compensation insurance is often required. But you may also want to look into something like employment practices liability insurance (EPLI). there's all types of insurance out there that can protect you as a business owner, some are very expensive, and some are not. You want to make sure that you're working with a legal team and a good insurance broker to make sure you've got adequate and accurate coverage. Depending on your business, you may want something as complex as business interruption or cyber liability insurance, or something less complex like renters insurance.  Every policy covers different risks, which you should consider carefully.

The second thing that you can do to protect yourself if you're hiring employees is to have good contracts in place. 

These could be employment contracts, or employee handbooks, or just documented policies and systems and procedures. All of these things, if properly drafted, can help protect you from your employees creating liability for you. Of course, if they are improperly drafted, they may end up creating additional, unwanted, liability for you and your business.

Third, you want to make sure that you have the proper type of entity established for your business.  For example running your business as a sole proprietor can create a lot of liability for you. If you have an LLC (a limited liability company) or a corporation, you can add a layer of protection for yourself. Again, if your entities are formed properly, you can add this layer of protection.  If they are not set up properly, you can create additional and unexpected personal liability.  Too many unsophisticated entrepreneurs believe that setting up an LLC is just a matter of filing some limited paperwork with the state.  Unfortunately, they don't understand the complexity of the laws that go into preparing that paperwork, and they don't realize the additional work that is required to create the additional documents that give you the proper corporate formalities and liability protection.

I promised you two additional tips that may come as a surprise to you about how you can protect yourself when you're growing your business and hiring employees. This next tip is to make sure you're properly managing your cash flow. Yeah, I know that sounds completely ridiculous coming from a lawyer. But the reality is, if you've got money in the bank, and if you've got positive cash flow into your business, there are a lot of problems that can arise that you can resolve very quickly and very efficiently. Business owners begin to cut corners when cash is tight.  This is like ignoring the "check engine" light in your car.  The longer is persists, the worse things will get.

Make sure you've got a cash flow plan, make sure you've got a war chest built up to deal with problems when they do arise because it's much more efficient to deal with them earlier rather than later and having money in the bank can help you do that.  Your bookkeeper or managerial accountant should be helping you to establish "sinking funds" so that you can properly deal with issues when they arise.

Finally, the fifth tip to help protect yourself when you're hiring employees and growing your business is be very careful who you do business with. I don't care how good your insurance is. I don't care how bulletproof your contracts are. I don't care what type of entities you set up. If you're dealing with a bad, immoral, unethical, untrustworthy person, if you're dealing with someone with no integrity or with a bad intention, you can't be protected from that. So, do your due diligence and do your homework and make sure that you're dealing with good people. This includes taking simple steps like a google search, but also potentially doping background checks or checking references.  

If you'd like more information on how you can protect yourself and your business, please reach out to us today.  We've seen these problems arise, and we can help avoid or solve them.

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