As an entrepreneur, you are used to being the one-man-band. You’re in charge of administration, marketing, public relations, sales and a host of other tasks.
But if you’re running yourself ragged to keep up with the demands to the point where the quality of your product or service suffers, it may be time to hire your first employee.
Relax. It’s not a bad thing. It’s a sign of growth. Besides, aren’t you tired of talking to yourself anyway?
Ten simple steps have been provided by the government to guide you through the process of hiring your first employee in meeting regulations and compliance standards.
1. Obtain a Federal Tax ID Number (EIN). An EIN is pretty much a Social Security Number for a business. The Internal Revenue Service (IRS) uses it to identify your business, and this number is a must on all of your business tax filings.
2. Record Employment Taxes. For at least four years, you need to keep records of employment taxes as dictated by the IRS. Keep track of employee wages, sickness, tips and employee tax withholding certificates. There are two forms that you need to complete annually. They are the Federal Income Tax Withholding (W-4) and the Federal Wage and Tax Statement (W-2).
3. Make Sure Your New Employee is Eligible to Work in the United States. An employee must verify that the employee is eligible to work in this country. Use Form I-9, the Employment Eligibility Verification Form, for this purpose. This form does not need to be filed, but make sure to keep it for three years after the date of hire or one year after employee termination – just in case of an audit.
4. Register with the New Hire Reporting Program. Federal law requires all employers to report all new hires, even if you only have one, to the designated state agency. The information is used to help prevent unemployment compensation fraud and to track down those negligent parents who owe child support. The process isn’t very complicated. Learn how to register from business.gov.
5. Obtain Workers’ Compensation Insurance. Designed to protect employees against income loss and medical payments caused by a work-related injury, illness, accident or diseases, workers’ compensation coverage is mandatory. These laws are also administered at the state level. Although most workers are covered in most states, business owners and independent contractors are excluded most of the time. And so are farm, railroad, maritime, domestic and volunteer workers. Learn more about your state’s requirements here or check out the U.S. Department of Labor’s website.
6. Register for Unemployment Insurance Tax. You may be required to pay unemployment insurance tax and as with workers’ compensation insurance, each state operates its own program. Oftentimes state unemployment taxes fall on the shoulders of employers, and you don’t withhold these taxes from your employees’ wages.
7. Find out if you are Required to Purchase Disability Insurance. In your state, you may be required to offer partial wage replacement insurance coverage to eligible employees for non-work related sickness or injury. State-run temporary disability programs are in place only in California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.
8. Hang up the Posters. Not your teen idol posters, but the workplace ones. Laws require that you publicize workplace posters prominently. These posters inform your employees of their rights and your responsibilities to them regarded under labor laws.
9. File Your Taxes. Of course you are already an upstanding citizen who files taxes. But it’s different when you have employees. New federal and state tax filing requirements are applicable. Take some time to read the IRS Employer’s Tax Guide to educate yourself about all the federal tax filing requirements. Also consult your state tax agency for particular tax filing requirements for employers.
10. Consider Incorporation. Now that you have an employee, you have more responsibilities and quite frankly, more to lose. By incorporating your business, you can protect your assets, gain potential tax advantages and write off things such as health insurance premiums. Incorporation also boosts credibility and may help increase your reach for potential new customers and partners.
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With the passage of the Patient Protection and Affordable Care Act in 2010, states were made responsible for setting up their own health insurance exchange programs. According to a column by John Arensmeyer, CEO of Small Business Majority, “if lawmakers set up these marketplaces correctly, this legislation will help small business owners provide quality, affordable health insurance policies just like those of big businesses.”
At the earliest stages of a startup’s development, one of the last things small business owners want to think about is health. The notion of employee wellness programs and health coverage seems like a mere distraction from more urgent work.
