Your business is taking off. That's good news. But you've had to work 14-hour days for months on end just to get there. You're starting to run ragged and you're beginning to think it's time to hire your first employee.
Hiring your first employee isn't as simple as just posting a job ad and assigning tasks. To start, there are state and federal rules and regulations apply that you haven't yet had to worry about. The U.S. Small Business Association provides guidance on making sure you’re complying with state and federal regulations.
Here's a checklist of 9 things you need to do to make sure you’re compliant with state and federal regulations when hiring your first employee:
1. Get an Employer Identification Number (EIN)
In order to hire employees, you need to obtain an employment identification number (EIN) from the Internal Revenue Service (IRS). You can apply for an EIN at the IRS website.
2. Set up a payroll system to withhold taxes
Every business with employees must withhold payroll taxes from an employee's paycheck. The typical payroll taxes withheld are state, federal and local income taxes as well as Federal Insurance Contributions Act FICA taxes (i.e. Social Security and Medicare contributions). Some states have additional withholding requirements. It's a good idea to seek the advice of an accountant when hiring your first employee to ensure you are compliant with tax requirements.
3. Obtain a completed I-9 Form for each new hire
Federal law requires employers to obtain an Employment Eligibility Verification Form I-9 to verify an employee's United States work eligibility status. Employers must obtain the completed form within three days of the employee's hire date.
4. Acquire workers' compensation insurance
Another requirement for a business that has employees is to obtain workers' compensation insurance. Workers' compensation insurance provides wage and benefit replacement compensation to employees injured during work in exchange for their surrender of the employee's right to sue for negligence.
5. Determine if you need to obtain disability insurance coverage
Certain states, such as California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico require employers to purchase disability insurance for partial wage insurance coverage in the event of a non-work related injury or sickness.
6. Register with the workforce agency of your state
Under some conditions, businesses are obliged to pay state unemployment taxes. Check with your state's agency, found on your states taxes website, to determine if you're required to pay state unemployment taxes.
7. Report all new hires to your state's directory
All employers must report new hires to their state's directory within 20 days of hire date, according to the Personal Responsibility and Work Reconciliation Act of 1996.
8. Display required notices
As required by federal and state laws, employers are required to prominently post in the work area employees rights and employer obligations with respect to labor laws. State and federal labor agencies provide posters free-of-charge. Information on poster requirements can be found on the SBA's website.
9. File Taxes Quarterly
Employers who withhold income taxes, Medicare, and Social Security taxes from their employees' paycheck are required to file Form 941: Employer's Quarterly Federal Tax Return. You may also need to file Form 940. Speak to your accountant to understand your particular requirements.
From obtaining an EIN to withholding payroll taxes, a new set of rules, laws, and regulations kick in when you hire your first employee. By following these steps, your new hire will come on board without a slip!