It is common for people who start a small business to initially perform the vast majority of work on their own. When you start developing a reputation for excellence, people will begin to seek you out, eventually leading to higher numbers of clients or customers, which means you may not be able to do everything on your own anymore.
It is a testament to your determination and commitment to the business that you could grow it to the point where you would require help with daily tasks. It is likely that you hired someone you already knew or had a previously existing professional relationship with. Quite a few businesses initially hire new staff through informal arrangements.
You may not execute any kind of work contract when someone first starts. However, as your business continues to grow, you will likely want the protection that a good employment contract can offer your business. Understanding how to convert your contract or informal employee to a formal contracted staff member will make the process simpler for both of you.
Create rules and expectations for the job that can transfer to the next employee
While you might want to imagine that the person working with you now will stay with your company forever, employees are less likely to commit multiple decades of their lives to a single business now than they were in years past. Chances are good that you will eventually need someone else to fill the role, so taking steps now to make it easier to do so will benefit you and the business.
Creating a standard employment contract, description of the position and compensation range will make it easier to negotiate with your current employee and move someone else into that position at a later date. It will also help you address any performance issues with your existing staff as they arise.
Remember that staff members should receive compensation for concessions
When you hire someone as a full-time, permanent member of your staff, you will likely expect them to sign certain documents, such as non-disclosure and noncompete agreements. These critical contracts protect your company from the theft of your intellectual property or from a former staff member who tries to use the information gleaned while in your employ to start their own business.
Whether you are now offering them paid time off or a severance package, you need to be able to point to some kind of compensation for the additional agreements you will expect from them as an employee rather than a contractor. An increase in their pay rate may also be sufficient. However, if you want the contract to stand and the person has already worked for you, you need to be able to prove that they received something of value for signing the contract after beginning employment with your company.
The potential pitfalls of informal hiring are one of many considerations that people too often overlook when starting a new business. Getting the right advice early on can help you avoid mistakes that can hurt your business' success and profit margin in the future.