The economy is booming and unemployment is at record lows.
This means businesses are hiring, but there are some things you need to do before hiring that first employee.
Whether you are an entrepreneur starting a business in their home or a service provider that is expanding you may need to hire employees to help.
There are so many requirements in tax law and employment law that it can be scary and intimidating for employers.
The IRS has provided some information that can help employers prepare to hire workers.
Becoming familiar with the following forms and reporting requirements is the first step that needs to be taken before hiring employees.
If you have a business accountant, they will be able to help you navigate most of this.
12 Things Your Business Needs To Do Before Hiring that First Employee
1. Employer Identification Number (EIN)
Every new employer needs what is called an Employer Identification Number (EIN), also known as Form SS-4 or the Employer Tax ID.
You can get this by filling out an EIN form through the IRS.
The EIN is used to report information about employees to state agencies and for reporting taxes and other documents to the IRS.
2. Financial Records Retention
We all wonder how long we need to keep records, and while this has become easier with digital record-keeping, employers are required to keep employment tax records for at least four years.
Records of financial transactions are to be kept for the purposes of tracking business results, financial statement preparation, identifying sources of expenses, and providing required information for preparation of tax returns.
3. Use of Federal Income Tax Withholding (Form W-4)
One of the employment tax records is the Federal Income Tax Withholding (Form W-4).
This is a withholding exemption certificate (Form W-4) that employees are required to sign before they begin employment and then the employer forwards to the IRS.
4. Federal Wage and Tax Statement
Form W-2 is the Federal Wage and Tax Statement which is used to report compensation, wages, and taxes to the federal government for each employee annually.
Copy A of Form W-2 must be sent to the Social Security Administration (SSA) to report wages and taxes paid to employees for the prior year.
Employers are also required to send copies of the W-2 form to employees no later than January 31 of the following year.
5. State Wage and Tax Statement
State Withholding Taxes vary from state to state.
You can find your state in this directory or visit your local agency to find out your state’s specific withholding requirements.
6. Employee Eligibility Verification (Form I-9)
Employee Eligibility Verification (Form I-9) is used to verify if an employee is a citizen and eligible to work in the United States.
Employers are required to complete Form I-9 within three days of hiring a new employee.
It is not required to file I-9s with the government but employers should keep the I-9 forms on record for three years or one year after an employee leaves the organization.
Employer I-9 audits can be done by the US Immigration and Customs Enforcement (ICE) agency to ensure accuracy and compliance with filling out the I-9 form.
7. New Hire Reporting System
Employers are required to register all newly hired and rehired employees to the state’s New Hire Reporting System within 20 days of employment.
8. Worker’s Compensation Insurance
Employers are required to carry Worker’s Compensation Insurance on employees.
Insurance can be obtained from the state’s worker’s compensation programs, commercial carrier, or as a self-insured plan.
Most employers are required to register their business with the state’s workforce agency and to pay unemployment insurance taxes on employees.
9. State Disability Insurance
Disability Insurance is required by some states and covers some wage replacement for sickness and injuries that are not work-related.
Check with your state’s website to verify your state’s requirements.
10. Employee Rights and Labor Law
There are required notices of state and federal laws that employers are required to display informing employees of their rights and labor law responsibilities of the employer.
These notices are available at state and federal agencies.
11. Social Security
Employers are required to file IRS Form 941 for social security, Medicare, and income tax withholding quarterly.
12. Employee Record Keeping
There are other federal Employment Laws that require employers to keep employee records and/or reporting requirements.
Employment Laws to keep track of: Occupational Safety and Health Act (OSHA), Fair Labor Standards Act (FLSA), and the Family and Medical Leave Act (FMLA).
All of this record-keeping and reporting requirements may seem a little overwhelming but once an internal system for maintaining files and reporting requirements is set up, annual file audits should help keep your organization compliant.