Finding and hiring the right employees is one of the most critical steps in the process of creating a successful company. Very little is more important than having the right people, with the right skills, in the right jobs, and that's where much of the focus goes during the hiring process. Unfortunately, another equally important element to this process is often misunderstood or neglected. There are a few other very important steps that should happen to ensure that legal, regulatory and tax obligations are met. Here's a checklist of the things you'll need to do once the right candidate has accepted your job offer:
- 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.
- Set Up Withholding Taxes
Either on or before the date of employment, you'll need to give your employee a copy of federal Form W-4, as well as any state withholding obligations. Have your employee complete and return the form to you, so that you can withhold the correct federal income tax from their pay. To help your new employees figure out their appropriate withholding, refer them to the free paycheck calculators at PaycheckCity, so they can test different scenarios and determine what their appropriate withholding amount is.
- 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.
- 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.
- Obtain Workers' Compensation Insurance
Any business with employees may be required to carry worker's compensation insurance. Check with your state, because those requirements vary. The insurance is available through commercial carriers, on a self-insured basis, or through your state's program.
- Register for Unemployment Insurance Tax
Again, you should check with your state; it varies.
- 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.
- 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.
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).Some Additional Help As an employer, it's often difficult to figure out just what you're responsible for. Here are some good references that will help keep you compliant:
- OSHA (Occupational Safety and Health Administration)
- Health Benefits, Retirement Standards, and Workers' Compensation: Employee Benefit Plans
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.