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Congratulations, you're about to hire your first employee! Deciding to bring on your first employee is an exciting time. Chances are if you need to hire someone, your business has flourished to the point where you can no longer remain a one-person show, a good problem to have. But what happens now? Do you cruise over to one of the many job boards, post your opening and begin interviews? Not exactly. While there are a few boxes to check before you bring on your first employee, it gets more comfortable with each new addition. Let’s get hiring!
Your employer identification number, or EIN, is required for hiring employees. If you have not yet obtained one, visit the IRS's webpage to fill out an ss-4 to get yours.
2. State Labor Department
You want to make sure your business is set up with your state labor department. Once you begin bringing on employees, you will have to start paying state unemployment compensation taxes. Your payments go into the pool of money your state uses for unemployment compensation for those who have lost their jobs. For more info, visit the Department of Labor Employment & Training Administration.
3. Salary & Classification
Before we begin, rest assured that the Federal Government has clear and specific guidelines surrounding the issue of salary and classification- so if you are lost, know there are resources. Let’s start with salary; you should be familiar with the federal minimum wage, which is currently $7.25. This dollar amount represents the lowest rate of pay you can offer someone. Additionally, many states have their minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage, the employee receives the higher of the two minimum wages. Remember, for non-agricultural work the FLSA has set a minimum age of 14 along with limiting the number of hours worked by minors under the age of 16.
For tax purposes, you must classify your employees. They may be either independent contractors, common-law employees, statutory employees or statutory nonemployees. So what do all of these options mean?
- As long as you retain the right to control their activities (such as when and where the person works, the tools and equipment they use, and where they purchase supplies), your workers are considered common-law employees. This is typically a common classification.
- A statutory employee is one who's an employee by statute and is allowed to report income and expenses as a business.
- A statutory nonemployee is treated as self-employed for all federal tax purposes, including income and employment taxes.
- An independent contractor works for himself or herself, often for more than one company. This person typically works offsite, is paid on a per-job or commission basis, and sends invoices for his or her services. Employers aren't required to deduct taxes on their behalf or extend them the same benefits that they do for standard employees.
Read next: How to Give HR a Good Reputation
It may seem exciting that we have gotten this far already, but before you have an employee log a single hour of work, you need to ensure you have the proper paperwork filled out. The paperwork applies to the employee side as well as the tax side.
According to the Department of Labor, there are 12 records kept on your employees for the duration of their employment:
- Employee's full name and social security number
- Mailing address, including ZIP code
- Birthdate, if the employee is younger than 19
- Sex and occupation
- Time of day and day of the week when employee's workweek begins, hours worked each day, and total hours worked each workweek
- How wages are paid (weekly, bi-weekly, monthly, etc.)
- Regular hourly pay rate
- Total daily or weekly "straight time" earnings for each workweek
- Total overtime earnings for each workweek
- All additions to or deductions taken from employee's wages
- Total wages paid each pay period
- Date of payment and the pay period covered by the each payment
According to the IRS, there are additional documents that must be furnished to satisfy the tax side of the house:
- W4 form to withhold the proper amount of federal income tax from a full- or part-time employee's pay
- W2 form to the Social Security Administration
- I-9 Employment Eligibility Verification form for every new hire
- Proof of worker's comp insurance.
For a complete list of fees and additional documentation, please visit the IRS’s website.
5. Consider Disability Insurance
Presently, California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico require employers to provide income to disabled employees who get hurt off the job. There are two basic types of disability coverage: short-term (which covers anywhere from 12 weeks to one year), and long-term (which includes anything over a year). One of the most significant factors with disability coverage is the waiting period before benefits are paid. Be sure to gather all facts before making a determination on what is best for yourself and your employees.
6. Know What You Can (and Cannot) Say
Not everyone has an HR background, but that cannot be an excuse. Whether on a written employment application or in person, it's unlawful to ask about an applicant's age, sexual orientation, marital status, religious affiliation or race. Questions about the nature of a physical, emotional or mental handicap are relevant only if an applicant will need special accommodations for performing a specific job. Before you write your vacancy announcement or begin the interview process, take the time to be familiar with the laws surrounding the topics of discrimination. If you are unsure where to begin, The Equal Employment Opportunity Commission is a good place to start.
7. Check References
Aim to have three references in total submitted; two on the professional front and one on the personal. The goal of a personal reference is to help you get a glimpse at the applicants' character. Be sure to ask questions not only about how they know the applicant as well as for how long but questions about their overall work ethic and demeanor. On the professional scope, you want to touch on their overall performance and things mentioned in their application. Know that some companies will not provide you with anything more than confirm dates of employment. Remember, forms of discrimination that apply to interviews and hiring apply to conversations with references.
8. Consider Outsourcing Your Payroll
Of all the things you have the opportunity to delegate to others, payroll is one of them. With the tax laws at the state and federal level continually changing, take the pressure off yourself and consider having an outside company process your payroll. Services such as ADP or Paychex will run you about three bucks per check.
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This communication is provided for informational purposes only. It is an informative piece that should not be relied upon when making HR and/or tax decisions for your business. It is not intended to be an advertisement, a solicitation, or constitute professional advice, including legal, financial, or tax advice, nor is StreetShares providing advice on any particular situation. It does not replace any due diligence that should be done by the business owner.