Before You Hire Your First Employee in Colorado: A Legal Checklist for Small Business Owners
Before You Hire Your First Employee in Colorado: A Legal Checklist for Small Business Owners
Hiring your first employee is a big milestone. It can mean that your business is growing, you have more work than you can handle on your own, or you are finally ready to hand off some of the responsibilities you have been carrying.
It also changes your legal responsibilities as a business owner.
I have been a small business owner since 2010, and I understand why hiring can feel like a practical decision first: I need help, I found someone good, and I want them to start.
But there are several legal and operational decisions that are much easier to address before your new employee’s first day.
If you are getting ready to hire your first employee in Colorado, here are some of the issues I recommend thinking through.
1. Decide Whether You Are Actually Hiring an Employee
One of the first questions is whether the person should be classified as an employee or an independent contractor.
This is not simply a matter of preference. You cannot make someone an independent contractor just because that arrangement is easier for the business, because the worker prefers receiving a 1099, or because you put “independent contractor” in an agreement.
Worker classification depends on the actual working relationship and applicable law.
Among other things, the analysis can involve how much control the business has over the person’s work, the nature of the work, how the relationship is structured, and other factors required under applicable federal and Colorado law.
Misclassification can create problems involving wages, taxes, unemployment insurance, workers’ compensation, benefits, and other employment obligations.
Before deciding that your first worker will be a contractor instead of an employee, make sure the relationship actually supports that classification.
2. Understand What the Job Is Before You Make an Offer
Small businesses often hire because they urgently need another pair of hands.
That urgency can lead to a vague job description:
“Help me with whatever needs to get done.”
I understand the impulse, particularly in a small company where everyone may wear several hats. But defining the position before hiring can prevent confusion later.
Consider:
- What will this person actually do?
- Who will supervise them?
- What authority will they have?
- Will they communicate with customers or vendors?
- Will they have access to confidential information?
- Will they create intellectual property for the company?
- What hours are they expected to work?
- Will the position be remote, hybrid, or in person?
- How will performance be measured?
These questions help with more than recruiting. The answers can affect compensation, wage-and-hour compliance, confidentiality obligations, intellectual property protections, and the agreements and policies you may need.
3. Determine Whether the Employee Is Exempt or Nonexempt
Another important classification question involves overtime.
Calling someone “salaried” does not automatically mean that the employee is exempt from overtime requirements.
Whether an employee qualifies for an exemption depends on the applicable legal requirements, which can include compensation and the employee’s actual job duties.
This is an area where employers can get into trouble when they rely on job titles instead of examining what the employee actually does.
For example, giving someone “manager” in their title does not necessarily make the position exempt.
Before setting compensation, determine which wage-and-hour rules apply to the position and make sure your payroll practices are designed accordingly.
4. Know Colorado’s Pay and Leave Requirements
Once you become an employer, you take on responsibilities that did not exist when you were working by yourself.
Colorado employers may be subject to requirements involving matters such as:
- Minimum wage
- Overtime
- Meal and rest periods
- Paid sick leave
- Payroll and wage statements
- Wage deductions
- Final pay
- Required notices and posters
- Recordkeeping
Colorado employment requirements can change, including wage thresholds and other annually adjusted amounts. That makes it important to check the rules that are in effect when you hire, rather than relying on an article, template, or advice you received several years ago.
Build compliance into your payroll and employment processes from the beginning. Fixing a system after several employees have been paid incorrectly is generally much more complicated than setting it up correctly for employee number one.
5. Put the Important Terms of the Offer in Writing
A written offer letter can help make sure you and the employee have the same understanding about the position.
Depending on the circumstances, an offer letter may address:
- Position and title
- Start date
- Compensation
- Expected work schedule
- Work location
- Benefits eligibility
- Reporting structure
- Conditions that must be satisfied before employment begins
- At-will employment, when applicable
The goal is not to turn every offer letter into a complicated legal document. It is to clearly document the important terms and avoid making promises you do not intend to make.
Be particularly careful about copying an offer letter from another business or downloading one from the internet. Employment laws vary by state, and language that makes sense for one employer may not make sense for yours.
6. Decide Whether You Need a Separate Employment Agreement
Not every employee needs a lengthy employment agreement.
Some businesses, however, have legitimate reasons to use additional agreements, particularly when employees will have access to sensitive information, customer relationships, proprietary processes, technology, or intellectual property.
Depending on the position, you may want to address issues such as:
- Confidentiality
- Ownership of intellectual property
- Protection of trade secrets
- Return of company property
- Outside business activities
- Conflicts of interest
- Use of company systems and information
Restrictions on what employees may do after leaving a company are heavily regulated, including under Colorado law. Do not assume that a noncompete or nonsolicitation provision you found online is enforceable.
This is an area where getting legal guidance before using an agreement can be particularly valuable.
7. Protect the Company’s Confidential Information and Intellectual Property
This issue is especially important for businesses that rely on technology, proprietary information, creative work, customer information, or internal processes.
Ask yourself what the employee will be able to access on day one.
Customer lists? Pricing information? Passwords? Source code? Marketing plans? Financial information? Vendor terms? Product designs? Internal procedures?
Then determine what protections make sense.
Legal agreements are one part of that protection, but operations matter too. Consider who actually needs access to particular information, how passwords are managed, what happens when someone leaves the company, and how company information can be stored or transferred.
A confidentiality agreement is much more useful when it is supported by sensible business practices.
8. Create Basic Employment Policies Before You Need Them
You may not need a fifty-page employee handbook when you have one employee.
You do need to think about the rules that will govern the workplace.
Depending on your business, that might include policies concerning:
- Work hours and timekeeping
- Meal and rest periods
- Paid leave
- Remote work
- Expense reimbursement
- Company equipment
- Technology and cybersecurity
- Confidentiality
- Anti-harassment and discrimination
- Workplace conduct
- Attendance
- Use of artificial intelligence tools
- Handling customer or company data
The policies should reflect how your business actually operates. A handbook copied from a larger company can create unnecessary rules or promises that do not fit your organization.
Start with what your business needs, and build from there as you grow.
9. Set Up a Consistent Onboarding Process
Your first employee is the beginning of an employment system.
That is worth remembering.
It is easy to treat the first hire informally because there is only one person. Then employee number two arrives. Then number five. Eventually, the business has different employees who received different documents, different instructions, and different explanations of company policies.
Creating a simple onboarding checklist now can prevent that.
Your process might include completing required employment documentation, providing policies, signing applicable agreements, setting up payroll, providing required notices, documenting equipment, establishing system access, and explaining expectations.
Consistency becomes increasingly important as your business grows.
10. Think About Termination Before You Hire
This may sound pessimistic when you are excited about bringing someone onto the team, but it is really about planning.
Before hiring, ask what documentation you will maintain regarding performance, compensation, policies, discipline, and changes to the employee’s responsibilities.
If the relationship does not work out, good records can help you understand what happened and make better decisions.
It also helps to establish a culture in which expectations and feedback are documented rather than relying entirely on informal conversations.
The goal is not to operate your business expecting a dispute. The goal is to run the business in a way that gives you reliable information if a difficult decision eventually needs to be made.
What Changes When You Hire Employee #2, #5, or #10?
Employment compliance is not something you set up once and forget.
As your workforce grows, different laws may begin to apply. Your informal practices may also stop working well.
A policy that was easy to communicate verbally when you had one employee may become confusing when you have ten. A manager you hire later may need guidance about interviewing, discipline, leave requests, accommodations, or performance management.
I recommend reviewing your employment practices periodically as the company grows rather than waiting for a particular employee count to trigger a complete overhaul.
The Best Time to Address Employment Issues Is Before the Employee Starts
One of the patterns I see in working with small businesses is that legal questions often arise after an important decision has already been made.
The employee has already started.
The compensation structure has already been promised.
The contractor has been working like an employee for a year.
The confidential information has already been shared.
The employee is leaving, and only then does the business owner look closely at the agreement.
At that point, the available options may be more limited.
I prefer helping business owners think through these issues before they become difficult to change. Hiring is a good example of where a relatively small amount of planning on the front end can help create better systems as the company grows.
Before Your First Employee’s First Day
Before your new employee starts, I recommend confirming that you have addressed the fundamentals: correct worker and wage classifications, compensation and payroll compliance, appropriate written documents, confidentiality and intellectual property protections, required policies and notices, and a consistent onboarding process.
You do not need to turn your small business into a corporate HR department overnight.
You do need a foundation that fits your business, complies with applicable law, and can grow with you.
If you are preparing to hire your first employee—or your growing business has reached the point where your informal employment practices need an update—an employment-law review can help identify issues while you still have the opportunity to address them proactively.
About the Author
I am Elizabeth Lewis, a Denver business attorney and owner of the Law Office of E.C. Lewis, P.C. Since 2010, I have helped entrepreneurs and small business owners address legal issues involving business formation, contracts, employment matters, commercial leases, compliance, growth, and exit planning. As a fifth-generation business owner, I understand the practical challenges that come with building and operating a successful business.
Need Help With Your Business?
If you have questions about starting, growing, or protecting your business, contact the Law Office of E.C. Lewis, P.C. to discuss your situation and explore your options.
Disclaimer: This article is provided for informational and educational purposes only. It does not constitute legal advice, does not create an attorney-client relationship, and should not be relied upon as legal advice for any specific situation. Readers should consult an attorney regarding their particular circumstances.
Legal Disclaimer: This article is provided for informational and educational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship with the Law Office of E.C. Lewis, P.C. Employment laws and regulations change, and how they apply depends on the specific facts and circumstances. You should consult an attorney regarding your specific situation before making legal or employment decisions.