Your business is expanding, and you finally need a bit of extra help. Hiring your first employee is an exciting milestone for a business owner, but it’s also a complicated process. To ensure everything goes smoothly and that you cover your bases from a legal, tax, and safety perspective, you should work through the following steps before hiring your first employee.
- Get an Employee Identification Number (EIN)
Employers need an EIN, and you should apply for this federal tax ID number before hiring your first employee. When you have employees, you are required to withhold Social Security contributions, Medicare premiums, and potentially personal income tax from their paychecks, and when you report this information to the Internal Revenue Service (IRS), you need to put your business’s EIN on the forms.
In some cases, you may already have an EIN. For instance, businesses need an EIN to pay excise tax, withhold taxes for foreign-based freelancers, become a corporation, change their business structure, open a business bank account, and for a variety of other purposes. If you already have an EIN for your business, you can use that on your employee tax forms.
- Research Labor Requirements for Your State
Most states have a labor board, and when you hire your first employee, you should notify the department of labor in your state. Generally, you need to alert the state within about 20 days after your employee starts working, so to be on the safe side, you should research these requirements before hiring your first employee.
Your state labor board can also give you information on worker’s compensation insurance and unemployment insurance requirements for your state. In most cases, you have to pay both worker’s comp and unemployment insurance premiums when you hire an employee, but in some states, you may not have to get worker’s comp until you have a certain number of employees.
Many states require employers to report new hires for child support purposes. You should also make sure that you are compliant with these regulations.
- Make a Payroll Plan
Taking care of payroll can be slightly complicated. You need to track employee hours, calculate payroll taxes, remit taxes to the government, withhold state income tax and make remittances if applicable in your state, and issue payments to your employees. In some cases, you may also have to deal with 401(k) contributions and other benefits.
To ensure you’re prepared, make a payroll plan before hiring your first employee. Depending on your needs, accounting acumen, and time constraints, you may want to handle payroll on your own or outsource your payroll needs to a bookkeeping or accounting firm. Alternatively, you may want to consider investing in software that syncs to time keeping software, automatically calculates payments and withholding amounts for your employees, and uploads the numbers to your accounting records.
- Complete Required Employment Forms
When you hire an employee, you need to fill out an I-9. This form helps you establish that your employee is able to work in the United States legally. You don’t have to show the government the I-9 unless requested, but you do have to keep a copy in your personnel files.
Additionally, new employees have to fill out a W-4. This form requests details about the employee’s tax situation, and it gives you the information you need to start to calculate income tax withholding. Again, you don’t need to send this form to the government, but you need to keep it on hand.
At the end of every year, you have to generate a W-2 form for your employees, detailing payments and withholding amounts,and you have to send this information to the IRS. If you pay over $1500 in wages, you also have to fill out and file Form 940 to alert the government about the federal unemployment tax. You don’t have to worry about these forms when you hire your first employee, but you should be aware that you need to meet these filing obligations during tax season.
- Review OSHA Rules
The Occupational Safety and Health Act (OSHA) requires businesses to meet a number of health and safety requirements for their employees. The rules vary from industry to industry, and they cover everything from employee breaks to safety and training requirements.
To ensure you’re legally compliant with the rules for your industry and to safeguard your employees from accidents and fatalities, review OSHA rules before hiring your first employee. Keep in mind that you may also be required to hang safety notices in your workplace, and you should invest in posters and hang them as required before bringing in new employees.
- Consider Salary and Benefits Packages
Finding quality employees can be challenging, and as a business owner, you’re competing with other businesses to attract the hardest, smartest workers to your business. Salary and benefits play a big role in this process. To make sure your offerings are competitive, look at the salaries and benefits packages offered by similar businesses in the same industry in your area. You may also want to customize your offerings based on the experience of prospective employees.
- Draft an Employee Handbook
Finally, you may want to draft an employee handbook before you hire your first employee. Whether you create a whole book or just a list of bullet points, you should cover expectations related to dress codes, performance reviews, and employee relationships. Ideally, your rules should reflect your business’s mission statement, but keep in mind that you may want to review and revise your handbook as you learn more about your employees and as your business grows.
Your first employee can benefit your business in numerous ways, but to ensure you get the most advantages possible, you need to be ready. When you work through the above steps, you can start to recruit, interview, and onboard easily and successfully.