Small businesses hiring an employee for the first time need to take steps to comply with federal and state labor laws.
Whether you're a small business owner hiring your first employee, or you already have a small team and want to make sure all of your ducks are in a row, here are eight things you need to do when hiring your first employee.
1) Get an Employer Identification Number (EIN)
Apply online at the Internal Revenue Service (IRS) for this number, which is necessary for reporting taxes. The EIN is often referred to as an Employer Tax ID or as Form SS-4.
2) Set Up Records for Withholding Taxes, and File/Pay Taxes
Businesses that pay wages subject to withholding of income, Social Security and Medicare taxes have to file IRS Form 941, Employer’s Quarterly Federal Tax Return.
The IRS also requires that employers keep federal tax-withholding certificates and wage and tax statements for at least four years. Keep organized tax records to easily prepare financial statements, identify receipts, track deductible expenses and prepare tax returns.
There are three types of withholding taxes:
- Federal Income Tax Withholding
- Federal Wage and Tax Statement
- State Taxes
Visit the IRS.gov for more information about tax withholdings and filings.
3) Verify Eligibility to Work in the U.S.
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification. Employers do not need to submit the I-9 form to the federal government, but are required to keep I-9's on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later.
The forms are available on the U.S. Immigration and Customs Enforcement agency’s I-9 website (www.uscis.gov/e-verify).
4) Register with Your State’s New-Hire Reporting Program
Employers are required to report new or rehired employees within 20 days of their first day of work. The Small Business Administration (SBA) maintains a state-by-state list of new-hire reporting agencies on their website (www.sba.gov).
5) Get Workers' Compensation Insurance
All businesses are required to be covered. Small businesses can self-insure or get coverage through a broker or state workers’ comp program.
6) Post Labor-Law Notices
Depending on the line of business, employers need to display workplace posters outlining their responsibilities and employees’ rights under labor laws.
There are several online vendors who, for a minimal cost, will provide state and federal required notices to post. Or, visit the Department of Labor website (www.dol.gov).
7) Get Organized and Know Your HR Must-Do's
In addition to requirements for keeping payroll records for tax purposes, certain federal employment laws also require you to keep records about your employees and create a fair workplace. Read more about Small Business HR Basics.
8) Retaining Your First Employee
Congrats! You've hired your first employee and they're a great addition to the business. Now how do you keep them from jumping ship? Your business is small (right now), but that doesn't mean it's too early to start thinking about retention strategies.
One way to be competitive in the labor market is to start offering employee health benefits. A common way for small businesses to offer health benefits is not with a traditional group health insurance plan, but rather with healthcare allowances (aka a defined contribution health plan).
Read more about healthcare allowances for small businesses.
Sources: SBA, IRS, and DOL.
Photo credit: Flickr, Glen_Wright