Hiring your first employee is a huge step. Not only does it mean relinquishing some element of control over your business, it also involves taking care of a host of federal and state government regulatory requirements, tax laws, and compensation demands.
So if your business is growing and you are hiring help or even if you already have employees and are not sure of your obligations as an employer, here are 10 steps you need to follow to ensure you are in compliance with the law.
1. Apply for an EIN
While you may have relied on your own social security number to file taxes in the past, as an employer you will need an Employer Tax Identification Number (EIN). The EIN is used to report taxes, renew your business license/permit, etc. You can apply for an EIN online from the IRS.
2. Set up Employee Withholding Taxes
On or before the date of employment you'll need to provide your employee with a copy of IRS Form W-4. Your employee must complete the form and return it to you so that you can withhold the correct federal income tax from their pay (the IRS provides guidance on how to do this as well as how to report withholdings and taxes at the end of the year here).
3. Check that Your Employee is Eligible to Work in the U.S.
Federal law requires employers to verify an employee’s eligibility to work in the United States. You will need to do this within three days of the hire date by examining acceptable forms of ID and completing the Employment Eligibility Verification Form (I-9).You don't need to file the form, just keep it on file for three years after the hire date, or one year after a termination date. The U.S. Citizen and Immigration Services does conduct periodic audits, so don't overlook this step.
4. 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 in your state here.
5. Obtain Workers’ Compensation Insurance
Any business with employees may be required to carry Worker’s Compensation Insurance. Regulations by state vary, for example most states require you to carry worker's compensation insurance even if you have only one employee, while others make it a requirement for four or more employees. The insurance is available through commercial carriers, on a self-insured basis, or through your state’s program and is considered a cost of doing business.  Check the link above for more information in your state.
6. Register for Unemployment Insurance Tax
Another variable is unemployment insurance tax. Some states require it, some don't. Check Business.gov’s State Taxes page to find out whether this applies to your business.
7. You May Need Disability Insurance
Again, this is dependent on the state you operate in. Some states require employers to provide partial wage replacement insurance to eligible employees for non-work related sickness or injury. Check your state requirements here.
8. Display Workplace Posters
Labor laws dictate that you must prominently display workplace posters that inform employees of their rights and responsibilities.  Most companies display these posters in communal areas of the business, such as the kitchen or break room.
9. Filing Taxes as an Employer
As a new employer your tax filing requirements are different. You must typically report income tax withholding, social security, and Medicare taxes each quarter. If you paid more than $1,500 in wages 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) Tax Return (more info from the IRS on FUTA here).
To see what applies to you read the IRS Employer’s Tax Guide.
10. Be a Responsible Employer for the Long Term
From good record keeping, to providing employee benefit plans, to managing a safe work environment, the responsibilities (legal or otherwise) of being a fair employer are ongoing. Uncle Sam provides many tools and resources to help you do this.
For more in-depth information on this and all other 10 steps covered in this article, check out Business.gov's Ten Steps to Hiring Your First Employee.
Caron Beesley is a writer for the Small Business Matters Blog on the Business.gov Community, a forum for business owners to interact with government, industry experts and each other through discussion boards, idea exchanges, and blogs. Read more about Caron here.
