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People (HR, Cofounders, Advisors)

HR & Corporate Basics

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Compliance

  • OSHA Compliance - Occupational Safety and Health Administration is a US Govt Agency. Learn more here. OSHA posters for print or download are here.
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Documentation

  • HRIS - Connects people and workflows in ways that support daily operations and improve productivity. Aids in the collection and management of data necessary for regulatory compliance.
    • Short term: Many startups opt for using Google Drive as a means to store documents such as offer letters, NDA’s, policies etc.
    • Long term: As you scale, a full HRIS platform is suggested. This will be helpful during audits and due diligence
    • Note: Regardless of the process you use, it is suggested that you document and save everything!
  • Offer letter - Formal document sent to a candidate offering them a job at a company
    • First, make an offer to the candidate over the phone or by email
    • Then, send the offer letter as a written confirmation that an employer is selecting the candidate for the job
    • You have a right to set contingencies before employment begins, like a completed background check
    • Be sure to include basic information about the position like start date, title, salary, onboarding information
      • Job offer templates can be found here
  • Employment agreement - In addition to the offer letter, an employment agreement outlines the rights and responsibilities of both you and the employee. It’s more detailed than an offer letter and will also include any special obligations such as NDA’s or non-competes.
    • While you can find free templates online, we suggest you consult with an employment attorney to create an agreement that is suited to your business.
    • Retention obligation - You must keep the Employment Agreement on file for at least three years after termination.
  • Termination - As a normal part of your business’ employee lifecycle, employees will inevitably depart from your business. In the offboarding process, termination letters, exit interviews, and proper documentation is important.
    • Termination letter - A document to help employers keep records of termination decisions, and provide employees the clarity they need to start the transition to the next stage of their career
      • Termination letter examples can be found here
    • Exit interview - Opportunity to ask employees about their reasons for leaving and gain feedback about their experience while working in the organization
      • Exit interview resources can be found here
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New Hire Basics

  • Form I-9 - Verifies a new employee’s identity and their eligibility to work in the United States
  • W-4 - Tells the employer how much to withhold from an employee’s pay for the correct federal income tax
  • State New Hire Tax Forms - Many states have their own form for withholding state income tax
  • New Hire/Out of State Reporting - You need to let your state government know that you’ve made a new hire to stay compliant with the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). Additionally, given the widespread adoption of a remote environment, you must register in every state where you have an employee
  • Direct Deposit Authorization - If you’re paying employees by direct deposit (as most employers do), you’ll need to gather your employees’ bank account information so you know where to send their paychecks
    • Your payroll provider may provide you with a standard form or handle this for you, but if you’re creating your own, it should at a minimum include bank name, type of account (checking or savings), account number, routing number
    • Retention obligation - You must keep the direct deposit records on file for at least four years after termination
  • Employee Emergency Contact Information Form - Collect the basic emergency contact information for your employees (contact name and details)
  • Policy acknowledgments - If you have any other policies not documented in your handbook, new hires will need to review and sign off on their first day
    • Examples - Commissions, data, asset policies
    • Retention obligation - You must keep the policy acknowledgment records on file for at least three years after termination.
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Employee Handbook

  • The goal of an employee handbook is to detail your mission, vision and values, outline and enforce company policies and expectations for conduct and performance, and minimizes risks and conflict.
    • While you don’t need to write one from scratch, you do need to tailor one to the culture of your company
      • Sample template here
      • Additional resources here
    • Be mindful of international laws and regulations when creating a handbook outside of the United States (i.e. policies vary across different provinces in Canada). We suggest consulting with legal counsel in these situations.
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Employee leave

  • Most startups offer unlimited leave to avoid the burdensome task of tracking time off
  • Additionally if you offer unlimited PTO, you do not need to pay out an employee for their unused PTO if they leave the company
  • If you choose to track PTO, best practices are to use a software
    • PTO tracking and approval software:
    • Regardless of which PTO policy you choose, you should outline approval and tracking (if required) workflows, as well as guidelines in your employee handbook
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Parental leave

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Corporate Insurance

Insurance and risk management is a good way to mitigate and transfer risk off of the company. This is also a way to make a company more attractive to business partners, clients, and investors.

Questions to Ask your Insurance Broker

  • What type of insurance best fits your startup?
  • What is the appropriate amount of coverage?
  • What is a fair value for insurance?
  • Who should you consult before buying?

Non-Exhaustive, But Common Types of Startup Insurance

  • Directors & Officers Insurance (D&O): Protects your board and organization leaders if named in lawsuits alleging a breach of fiduciary duties. The policy also extends coverage to the business entity itself
    • Industry estimate: For every $1mm coverage, pay additional ~$5k annual premium
  • Employment Practices Liability Insurance (EPLI): As soon as your business starts hiring, you need to start thinking about EPL insurance. EPLI can protect your company from employment-related lawsuits such as sexual harassment, discrimination (gender, religion, pregnancy, age, etc.)
    • Cost is dependent on size of company, HR procedures and claims history
  • Technology Errors & Omissions Insurance (E&O): Protects against claims that allege damages arising from technology services a company has provided
    • Industry estimate: $500 to $1,000 premium per employee, per year
  • Cyber Liability Insurance: Can provide liability protection from data breaches, cyber thefts, and phishing attempts. Cyber liability and tech E&O are often combined to create broader coverage for tech companies
    • Industry estimate: $1.5k per year for $1 million in coverage, with a $10,000 deductible
  • Fiduciary Liability Insurance: Protects your business (person or team overseeing benefits) from claims of mismanagement and the legal liability arising out of their role as fiduciaries
    • Industry estimate: $500 to $2.5k per year
  • Commercial General Liability (CGL): Protects your business assets from any claims of injury related to your business and responds to claims of negligence made by a third party
  • Workers Compensation Insurance: Required coverage for most businesses in every state except Texas. It covers employee injuries, rehabilitation costs, lost wages, and legal costs in the case of an employee claim related to a workplace injury
  • Key Person Insurance: Essentially a life insurance policy for a person in your startup who is virtually irreplaceable
  • Commercial Crime Insurance: Will reimburse your startup if money, securities, or any other tangible property is lost as the result of a criminal act. It covers crimes such as employee theft, robbery, wire transfer fraud, and more

Online Brokers

Employees & Contractors

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Benefits

While there are only some benefits that are legally required, an easy way to boost employee morale, retain employees, and attract better talent is through a generous benefits package

  • Legally required benefits - Social security and medicare, workers compensation insurance, and unemployment insurance
  • Benefits required for businesses with 50+ full-time employees - Health insurance, family and medical leave insurance
  • Additional benefits - If you do not use a PEO and choose to provide your employees with benefits, you will need to find your own benefits provider
  • When onboarding employees, provide them with plan summaries and enrollment instructions upfront as well as who to go to for answers to their benefits questions
  • Retention obligation - You must keep the benefit forms records on file for at least three years after termination
  • 401k - A very attractive benefit is access to 401k plans. You do not need to provide any match; in fact, many startups choose not to provide a match until they are profitable or because they value the future value of the equity they offer
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Founder Salaries

  • Can founders work for free for their startups?
    • Under the Federal Fair Labor Standards Act, (FSLA), founders who qualify as employees, must be compensated with minimum wages and overtime pay unless an exemption applies
    • The most common FSLA exemption is the so-called “business owners’ exemption”. This exemption is available for founders who own at least 20% of their business and are actively engaged in managing it
    • Additional state exemptions and regulations may apply
  • When do founders start paying themselves?
    • Aside from the FSLA regulations above, a founder should pay themself if they are on their startup’s payroll (i.e. CEO, COO, CFO, CMO, CTO)
  • What should founders set their salary at?
    • Talk to your board upfront about salary
    • Leverage the amount you have raised to set your salary - 2022 Average Startup Founder Salaries
      • <$2 million raised: $106,000 avg. founder salary
      • $2 million to $5 million: $135,000 avg. founder salary
      • $5 million to $10 million: $171,000 avg. founder salary
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Employee Salaries

Setting startup compensation can be difficult as it is very fine balance of equity and salary. We tend to see four common problems: The founder’s offer is too generous, the founder’s offer is too stingy, the employee’s expectations are too high, the employee’s expectations are too low.

The Golden Rules for Startup Compensation:

  • No one is ever happy with compensation, and compensation has never made anyone happy.
  • People always find out what everyone else is making.
  • Create a system that revisits compensation only 1-2x a year.
  • On the spectrum between formulaic and discretionary compensation, be as formulaic as you can.

That being said, doing the research and then setting and following benchmarks will be pivotal in this process!

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Salary Bands
  • Salary bands are how you define the target pay for employees within job grades
    • For each level, a company should decide the low-end and high-end of pay that level will command. Salary bands help when making offers, retaining employees, and planning for future growth.
      • Software to aid in compensation setting - Pave
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Market mapping
  • Market mapping is the collection of information about competitor employee salaries and then using that information to compare to yours
    • Helps your company stay competitive, hire and retain the best talent
    • This data will be used in your salary bands and should be formally updated at least 1x per year
  • Be mindful of state by state minimum wage guidelines - Minimum wage chart by state
  • How much does an employee cost?
    • Employees cost more than their base salary and compensation
    • For purposes of budgets and forecasts, the employer should take an assumption that additional costs are 1.25-1.4x the employee base salary
    • Factors associated with employee cost are software, IT assets, taxes, benefits, etc.
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How do I pay my employees (PSP vs PEO)?

You will pay your employees for the work they perform through either a payroll service provider (PSP) or a professional employer organization (PEO). The decision to use a payroll software versus a PEO is not one that should be taken lightly, especially since the time frame to make the switch into a PEO in the future is limited. As a startup evolves, their needs may change, so it is common to start with a payroll software and then switch to a PEO. However, a large part of the decision is based on your willingness to assume risk and your base understanding of state by state compliance and laws.

PSP

  • What is a payroll service provider?
    • A payroll service provider (PSP) will handle your payroll administration and a slight level of compliance, without any shared legal burden
    • Examples - Gusto, Remote.com, QuickBooks Payroll
  • PSP Distinctions
    • Responsibilities are limited to payroll and sometimes taxes/benefits and other HR services - If you have someone on your team with HR and compliance knowledge, you should be able to use a PSP rather than a PEO
    • Lower fees but potentially higher overall costs if you do not manage your payroll properly
    • No risk management or shared legal burden; a PSP may assist with tax and payroll compliance on a case by case basis
    • Can prepare, file, and pay taxes on your behalf (federal unemployment tax return, quarterly business tax return, W-2, W-3) for extra costs
    • As you scale, you may decide to switch to a PEO, however the best time to do so is at the beginning of a new tax year (Jan 1). Be mindful that it can take up to 3 months to prepare the switch
    • You will need to seek out your own benefits provider (see benefits section)

PEO

  • What is a PEO?
    • A professional employer organization (PEO) allows small and medium sized businesses to offer the benefits of a large company, while sharing the legal burden
    • Examples - Rippling, Justworks, Deel, TriNet, Sequoia One
  • PEO Distinctions
    • Provides full-service HR outsourcing - managing all aspects of payroll, benefits, compliance, tax filing and remittance
    • Higher fees but potential overall cost savings since legal burden is shared
    • Thorough risk management and compliance assistance
    • Always prepares, files, and pays taxes on your behalf
    • The PEO acts as your benefits broker, so while you will not have to worry about handling this yourself, you will be subject to the benefits provided by the PEO and don’t have as much flexibility

Comparison of PEO’s

  • PEO Matching Tool - Compare various PEO’s that are currently available on the market based on your company’s state, size, industry, and needs
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How do I recruit my team?

The most valuable assets in any organization are the people. Attracting and retaining great talent is critical to the success of the business. The means by which you attract talent has a direct impact on eNPS and the fit of the employee in your company.

  • Job Description - Defines the role and the responsibilities for your startup job opening. Most importantly, it sets expectations. Templates here.
    • Key elements of a job description:
      • Job Title - One that reflects your industry’s standards and the organization’s culture. Use standard titles like “data analyst” because it will help surface your job post.
      • Roles and Responsibility - Define the skills and competencies needed to perform the function in a non-boring way. Paint a picture of the day-to-day responsibilities and long term goals.
      • ‍Performance Goals - When applicants know how they would be measured for success, they can better judge whether they would be a good fit for the position or not.
      • ‍Company Information - Briefly describe the company mission, work environment (remote, hybrid, in-person), culture, strengths, and what makes it a great place to work.
      • Salary - Include benefits such as 401k, vacation days, health insurance. In some states, new legislation has come into effect which makes it mandatory to provide salary ranges. Refer here.
  • Recruiting methods
    • Promote on your socials - Twitter, Facebook, LinkedIn
    • Recruiting software - LinkedIn Recruiter, AngelList, Greenhouse
    • Leverage your communities - Founder groups, accelerators, networking events
    • Employee referral programs - Encourage employees to refer qualified people within their networks with rewards if the candidate is hired
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How do I pay my contractors?

  • Classification Compliance
    • Categorization of someone as a 1099 contractor is based on them being hired to complete a short-term project, they provide their own tools for work, do not receive benefits such as health insurance, paid sick leave, and paid time off
  • Pay Rates
    • Similar to full-time employees, you will enter an agreement which outlines start date, project milestones, and pay rates
    • Remember that independent contractors will pay taxes out of whatever you pay them - federal and state income taxes can quickly add up to 30% of their total pay, so consider paying them more than what you would pay an employee who also gets benefits
  • Pay Frequency
    • It’s common practice that contractors send their invoices once a month
    • Pay frequency should be agreed upon in the contractor agreement
  • Ways to Pay
    • You can process contractor payments through your payroll software or PEO
    • External contractor payment systems are also available - Deel, Upwork, Remote.com
  • Documentation
    • Form W-9 - Used to collect important tax information including your taxpayer identification number (TIN) or Social Security number, entity structure, name and address
    • Form 1099 - Contractors receive form 1099’s, rather than W-2s as a way to record income earned for the applicable tax year

Advisors

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How do I choose my advisors?

Advisors for early stage companies can be helpful with branding, advice, avoiding common mistakes, recruiting, closing deals, and fundraising. But they also can be an expensive use of equity capital. Here are some articles and advice to help along the way:

  • What to be mindful of when choosing an advisor?
  • Should I focus on brand or experience?
    • Depends - There is no right answer, as it depends on what you are optimizing for
    • If they are advising the founder, Joe Procopio says "Preferably, your advisors are people who have been through building the kind of company you want to build, several times, with both successes and failures"
    • But if you are trying to close candidates, sales, or branding, opening up doors is what matters, and focus on networks and logos
  • It's my first time bringing on an advisor. What should I do before making it official?
    • You should consider why you are making them an advisor (advice, sales, branding, etc) and set a few objectives to the value they are going to add to the company. It is pretty common to work with them a few times before actually signing a contract and giving them equity.
    • Advisors should be helpful over a few meetings and value-add sessions, whether it is problem solving, seeing if they help close sales, or are able to open up their network with a few introductions. This could feel awkward if you are a first time founder, but this is very common practice, so both sides can get to know eachother better.
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How do I compensate my advisors?

  • Startup advisor equity advice from Y-Combinator here.
  • Startup advisor equity advice from Carta here.
  • How much equity do advisors get?
    • Dependent on role and experience of the advisor
    • Most common advisor arrangements in 2022 for pre-seed companies - here:
      • Median advisor grant was 0.24% of company shares
      • 70% of advisor grants were for less than 0.5% of the company
      • 40% of advisory grants had a two-year vesting schedule, while 26% had a four-year vesting schedule
    • Additional resource - here.
  • Should advisors vest?
    • Yes - Make sure Advisors vest over a period of time, typically 2 years
  • Should advisors have a cliff?
    • Maybe - It is generally advised to make sure you are getting value out of your advisors, who typically start much more involved, and taper off over time. A 3 month cliff ensures advisors are aligned for the long term, rather than provide advice one time as if it is a transaction

Co-Founders

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Why should I have a Co-Founder?

  • Productivity - Divide and conquer with someone who has complementary skills
  • Moral Support - Have someone to balance you out during the emotionally taxing journey
  • Pattern matching to success - Most successful startups in history, have had co-founders when they started
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What should I look for in a Co-Founder?

While everyone is different, Y-Combinator’s advice remains that one-person startups are tough and you're more likely to succeed with a co-founder. But which cofounder? How do you find one? What do you look for? Here are a few helpful resources:

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Ability to build an intentional foundation

Why do this:

Founding a business is emotionally and relationally challenging, in addition to being strategically and tactically challenging. Taking the time to set an intentional relationship foundation will:

  • Reduce the frequency of miscommunication and conflict
  • Increase efficiency and agility
  • Build trust and relationship skills that will become increasingly important as the stakes get higher
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50 questions for cofounder dating (First Round Review)

The search for a co-founder often conjures up comparisons to dating. It’s become a well-worn metaphor because from fights to marriage to divorce, parallels abound.

“Finding a co-founder can feel like a more intense version of dating. One key difference though is that most people have at least some experience with real-life dating. And there’s certainly tons of self-help books for tips as well as apps that make it easier to meet people. But when it comes to figuring out how to find a co-founder, it’s hard to know where to begin,” says Lin.

“That’s a huge problem because two of the most common causes of startup failures are not finding product/market fit and co-founder issues. The former is top of mind for every budding entrepreneur, but I don’t think people consider the latter as much when they’re crafting their pitches," she says. "We just finished our fundraising process and I can’t tell you how many seasoned investors told us about how a co-founder situation blew up one of their companies. But even so, there’s not much guidance out there on how to pick the right co-founder.”

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How do I find a Co-Founder?

Leverage the following resources: