Is your business ready to make its first hire? Finding and hiring the right employee is a critical step in the process. However, there are a few other steps you’ll need to take to ensure you meet the legal, regulatory and tax obligations of being a new employer.
To help simplify the process, here’s a checklist of the 10 things you’ll need to do once the right candidate has accepted your job offer:
1. Apply for an Employee Identification Number
Many businesses operate without an Employer Identification Number (or EIN), but if you hire employees, you’re going to need one. Think of it as the social security number equivalent for employers. An EIN is used to report the taxes you withhold on behalf of employees. You can apply for an EIN online from the IRS.
2. Set Up Withholding Taxes
Either on or before the date of employment, you’ll need to give your employee a copy of IRS Form W-4. Have your employee complete it and hand it back to you so that you can withhold the correct federal income tax from their pay. To help you figure out what you should be withholding, refer to the IRS’ Employer’s Tax Guide (PDF document also known as “Circular E”). If state income tax applies in your state, you’ll also need your employee to complete a state withholding form or certificate. Most states do have income tax, although some don’t, including Texas, Alaska and Nevada. The IRS has links to state taxation agencies.
3. Verify That Your Employee is Eligible to Work in the U.S.
To ensure your workforce is legal, you are required to verify their legal right to work in the United States within three days of the hire date. Do this by examining acceptable forms of ID and completing the Employment Eligibility Verification Form (I-9), and then verify the data on the form with the U.S. Citizenship and Immigration Services’ E-Verify online tool. You don’t need to file the form; just keep it on file for three years after the hire date, and one year after a termination date.
4. Register With Your State’s New Hire Reporting Program
Within 20 days of the hire date, you must report all new hires to a state directory. You’ll find links to more information about how to report new hires on your state’s government website.
5. Obtain Workers’ Compensation Insurance
Any business with employees may be required to carry worker’s compensation insurance. Check with your state, because some require it if you have only one employee while others make it a requirement if you have four or more employees. The insurance is available through commercial carriers, on a self-insured basis, or through your state’s program and is considered a cost of doing business.
6. Register for Unemployment Insurance Tax
Again, something to check with your state; some require that you pay unemployment insurance tax and some don’t.
7. Check Whether You Need to Obtain Disability Insurance
Again, this is state-dependent. Some states require employers to provide partial wage replacement insurance to eligible employees for non-work related sickness or injury.
8. Display Workplace Posters
Check with the Department of Labor’s “Poster Advisor” online tool to see if labor laws require that you display certain posters that explain employee rights, etc.
9. Filing Taxes as an Employer
It’s a good idea to talk to your accountant or tax advisor about your new tax obligations. Typically, you’ll need to report income tax withholding, social security, and Medicare taxes each quarter on the IRS Form 941. If you paid wages of $1,500 or more in any quarter or had an employee on the payroll for any 20 weeks of the year, you’ll also need to file an Employer’s Annual Federal Unemployment (FUTA) return.
To see what applies to you, read the IRS Employer’s Tax Guide (PDF).
10. Be a Responsible Employer for the Long Term
Once your employee is on board, make sure you maintain good employee records, pay close attention to workplace health and safety laws, and understand what benefits you must establish by law. Each of these links points to useful government guides and tools that can help you stay compliant.
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