Starting your own business has never been easier. However, once you pass the startup phase and begin to scale, you will probably need to hire some employees.
It’s not as simple as just bringing fresh faces into your business. You have a few hoops to jump through to hire employees, such as getting your business taxes set up with a tax accountant, determining employee eligibility, and registering new staff members.
Let’s take a tour through the other non-negotiables that come along with hiring your first employees.
Step 1: Obtain an Employer Identification Number (EIN)
You’re ahead of the game if you already have an Employer Identification Number (EIN)! If not, you must finish this step before hiring your first employee. The EIN is necessary to report taxes and other documents to the Internal Revenue Service (IRS) on behalf of your company. So, it must be at the top of your to-do list.
Step 2: Set Up Tax Records
Keeping your records organized is key to running a business successfully. The IRS mandates all tax records be kept on file for at least four years, but it’s also helpful to have things organized for your tax accountant.
Here are the three types of withholding taxes you need:
- Federal Income Tax Withholding (Form W-4): Employees must complete Form W-4 before their first day of work to determine how much tax to withhold from their paycheck. You must retain this document for the IRS.
- Federal Wage and Tax Statement (Form W-2): You will need to submit a Form W-2 to the Social Security Administration on behalf of paid employees. This form reports the annual wages and taxes withheld from their paycheck in the previous year.
- State and Local Taxes: State income taxes vary from state to state, so research the applicable tax requirements for the relevant state and locality.
Step 3: Confirm Employee Eligibility
Before hiring any candidate, you must verify their eligibility to work in the US with Form I-9. You’re required to check several documents to ensure citizenship. Form I-9 doesn’t have to be submitted to the IRS, but you must keep it on file for three years after the hire date or one year after the termination date, whichever is later.
Step 4: Register with the New Hire Reporting Program
The new hire reporting program is a process for employers to submit information about their newly hired and rehired employees to a state directory. This is necessary for the state to crossmatch open child support cases, locate non-custodial parents, and reduce fraudulent benefit payments.
The requirements vary by state, but you must report new employees within 20 days of the hire date. Be sure to check any other requirements for your state’s reporting program.
Step 5: Get Workers’ Compensation Insurance
Nearly all employers are required to have workers’ compensation insurance to cover any on-the-job injuries or accidents. Depending on the state, you may choose self-insurance, commercial insurance, or your state’s workers’ compensation program.
Workers’ compensation is a necessity for most employers, especially if you will have employees doing manual labor, handling hazardous substances, or otherwise exposed to potentially dangerous situations. Some business insurance policies offer workers’ compensation as part of the policy options, so check with your insurance provider first.
Hire Your First Employee!
A lot of work goes into hiring employees and ensuring your business is protected. Once you check all these boxes, you’re ready to post a job listing and start the interview process! Of course, you should also check for changes to employment regulations on the federal, state, or local level.