What do you do when it’s time to hire?
When you’re ready to hire an employee (especially a first employee),
there are a series of things you’ll need to do first to make sure your
business is compliant with federal and state regulations. Here’s a list,
courtesy of the Small Business Administration:
Verify the Employee’s Eligibility
Within three days of hire, employers are required by federal law to complete
which requires employers to examine documents
confirming the employee’s citizenship or eligibility to work in the
U.S. Employers can only request documentation specified on the I-9
form, and they’re required to keep it on file for three years after the
date of hire. Employers can use the Form I-9 to electronically verify
the employment eligibility of newly hired employees by
registering with E-Verify.
Get an Employer Identification Number (EIN)
Before hiring your first employee, you need to get an Employer
Identification Number (EIN) by submitting an
IRS Form SS-4.
known as a Federal Tax ID Number, an EIN is required for tax purposes
and reporting information about your employees to state agencies. You can
apply for an EIN online.
Set up Records for Withholding Taxes
You’re required to keep
records of employment taxes for at least
four years. Keeping good records can also help you monitor the
progress of your business, prepare financial statements, keep track
of deductible expenses and prepare your tax returns.
The three types of withholding taxes you need for your business are:
- Federal income tax withholding
Every employee (but not contractors) must provide an employer
with a signed withholding exemption certificate (IRS Form W-4)
on or before the date of employment. The employer must then submit Form W-4 to the IRS. See the
IRS Employer’s Tax Guide to get into all the details.
- Federal wage and tax statement
Every year, employers must report to the federal government
wages paid and taxes withheld for each employee. This report is filed using
wage and tax statement. Employers must
complete a W-2 form for each employee who they pay a salary,
wage or other compensation. The exception is independent
contractors, to whom employers must send a
- State taxes
Depending on your state, you may be required to withhold
state income taxes. Visit your state and local tax page for more information.
Register with your State’s New Hire Reporting Program
All employers are required to report newly hired and rehired employees to a
within 20 days of their hire date.
Obtain Workers’ Compensation Insurance
All businesses with employees of virtually any type are required
to carry some form of workers’ compensation insurance coverage
through a commercial carrier on a self-insured basis, or through
Workers’ Compensation Insurance program.
Workers’ compensation insurance provides wage replacement and medical
benefits to employees injured in the course of their work and
protects your business from lawsuits.
Post required notices
Employers are required to display certain posters in the
workplace that inform employees of their rights and employer
responsibilities under labor laws. Visit the
page for specific federal and state posters, and be sure to check out the Bureau of Labor’s handy
File your taxes
Generally, employers who pay wages subject to income tax
withholding, Social Security and Medicare taxes must file
IRS Form 941, Employer’s Quarterly Federal Tax Return.
New and existing employers should consult the
IRS Employer’s Tax Guide
to understand all their federal tax filing obligations.
In addition to requirements for keeping payroll records of your
employees for tax purposes, certain federal employment laws
also require you to keep records about your employees. The
following sites provide more information about federal reporting
Comply with Standards for Employee Rights
Complying with standards for employee rights in regard to equal
opportunity, fair labor standards, minimum wage, overtime and
child labor is a requirement. Here are resources for up-to-date
information on statutes and regulations:
Protect Your Business and Intellectual Property
When hiring new employees, whether full-time or freelance,
consider having them sign legal documents that protect your
company’s interest and intellectual property (IP).
- Employment Agreement/Contract
This is designed to protect both employer and employee
interests and usually includes things like duties, wages,
confidentiality and benefits.
- Non-Disclosure Agreements (NDA)
This is a document specifying what information you want an
employee to keep confidential. You can include this in their
contract or give them a separate one.
- Non-Compete Agreements
This limits employees from going to work for one of your direct
competitors for a set period of time after leaving your company
(typically 1-2 years). It can be a separate agreement or a clause
in a contract. Keep in mind that not all hires will be willing
to sign one since they can sometimes be overly prohibitive
depending on the nature of the work.
Provide a Benefits Plan
If you’re hiring a full-time employee, you’ll need to have a benefits
plan in place that meets federal and state requirements, as well as
your own preferences.
Required benefits for full-time employees:
- Social Security taxes
Every employer must pay Social Security taxes at the same rate paid by their employees.
- Unemployment insurance
In most states, unemployment benefits are funded by a tax imposed on employers.
- Workers’ compensation
Businesses with employees are required to carry Workers’ Compensation Insurance coverage.
- Disability Insurance
This benefit is required in California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.
- Family and Medical Leave
FMLA entitles employees to have 12 weeks of unpaid, job protected
leave during any 1-year period for the birth or care
of a child, the care of an ill family member or to care for the
employee’s own serious health condition.
Additional benefits for full-time employees:
- Health insurance
Small businesses with fewer than 50 employees aren’t required
to provide healthcare under the Affordable Care Act (ACA), although they can
purchase small business health plans
through private insurance companies via ACA. Keep in mind that there
are a variety of small business health insurance plans and that
providing one can offer a variety of benefits, including tax
benefits and the ability to attract top talent.
This allows certain former employees to temporarily continue
receiving their healthcare plan at a group rate. Businesses that
offer health insurance are required to provide COBRA benefits
when workers are terminated or laid off.
- Retirement plans
Small businesses can offer 401(k)s or IRAs with employer
matching for employee contributions.
Consider other benefits like flex time/working from home, company
events, and corporate memberships at gyms or other local businesses.