A Guide for Businesses on How to Hire an Employee in California.

1. Conduct a background check

An employer is free to gather certain background information on a potential new hire.  As a general rule, a pre-employment background screening firm should not provide an employer any information that an employer could not ask about at a face to face job interview such as sexual orientation, age, religion, race, gender, national origin, or disability. Asking any of these questions could be considered a form of discrimination and is illegal.  Yes, even startups can be subject to such lawsuits under these standards.

An employer in California can only request your credit report for certain positions. If the position falls into one of the categories that allow a credit check, the employer must give notice that a credit check will be obtained, along with an explanation of why the check is allowed. For more on credit checks for California jobs, see privacyrights.org for more information

2. Execute employee offer letter

An employee offer letter is a must have for both young and mature companies. It is a letter from the employer to the potential new hire describing the terms of the proposed employment.

The offer letter sets the expectation of the employment and lays out some basic ground rules. For a young company, who probably does not have an employee handbook in place with extensive office standards and rules (which is arguably preferable until you reach 10-20 employees), the offer letter is a great opportunity to lay the basic expectations of the employee in and around the office.

Some important features that should be included in any Employee Offer Letter are 1) salary and work hours, 2) an at-will employment clause, 3) a benefit summary list (if applicable) and 4) a confidentiality section.

3. Employee eligibility verification form I-9

All U.S. employers must complete and retain a Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. On the form, the employer must examine the employment eligibility and identity document(s) (passport, drivers license, social security card, to name a few) an employee presents to determine whether the document(s) reasonably appear to be genuine and relate to the individual and record the document information on the Form I-9. The list of acceptable documents can be found on the last page of the form.

Do not file the Form I-9 to a government agency. Form I-9 must be kept by the employer either for three years after the date of hire or for one year after employment is terminated, whichever is later. The form must be available for inspection by authorized U.S. Government officials (e.g., Department of Homeland Security, Department of Labor, Department of Justice).

4. Execute a confidentiality and invention assignment agreement

This is an agreement between the company and founder which assigns to the company any future intellectual property related to the company developed by the signing employee while that employee is at the company.

It is a common practice for all founders, officers, managers, employees and consultants to sign this agreement. Once the agreement has been drafted and reviewed it will be sent along with the offer letter and other employment materials for signature.

5. Grant options or issue stock to employee

As part of a compensation package to an employee you may wish to give the employee equity in the company. You can sell them restricted stock or grant stock options (not paid for until they are sold).

Download UpCounsel’s Free Option Agreement
Download UpCounsel’s Free Restricted Stock Agreement

6. Provide non-exempt employee with wage theft act protection notice

Employees whose jobs are governed by the FLSA are either "exempt" or "nonexempt." Nonexempt employees are entitled to overtime pay but exempt employees are not.  See the Fair Labor Standards Act for more information.

Non-exempt employees must be provided with a notice regarding the wage theft after. A copy of the notice is provided on the California Department of Industrial Relations website.

7. Report new hire with California Employment Development Department

All California employers must report all their new or rehired employees who work in California to the New Employee Registry within twenty (20) days of their start-of-work date. The start-of-work date is the first day services were performed for wages. Reporting can be done in three ways:

1) E-File With California Business e-Services
2) Mail a completed DE 34 “Report of New Employee” form to the address below: OR
3) Mail a copy of the employee’s W-4 to the address below.

Employment Development Department
Document Management Group, MIC 96
P.O. Box 997016
West Sacramento, CA 95799-7016

8. File a W-4 federal withholdings form to the IRS

A W-4 is a form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck.

Related Legal Forms and Guides:

Employee Offer Letter
Confidentiality and Invention Assignment Agreement
Employee Eligibility Verification Form I-9
California Employee Development Department New Employee Report Form
IRS Form W-4 for Federal Withholdings

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