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10 Regulatory Steps You Must Follow When Hiring Your First Employee

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10 Regulatory Steps You Must Follow When Hiring Your First Employee

By Caron_Beesley, Contributor
Published: July 24, 2009 Updated: June 17, 2011

If you're reading this post then congratulations! It's likely your business is growing so fast that you need some help.

The shift in role from being your own boss to being someone's boss can be dramatic and challenging. In addition to learning or re-familiarizing yourself with the basic management principles of delegation, mentoring and team work, you will also face a host of federal and state government regulatory requirements, tax laws, and compensation demands.

To help you on your way, the government has broken down achieving compliance into 10 simple steps.

Step 1: Before you Hire, get an EIN

Typically referred to as an Employer Tax ID or Form SS-4, you can get an Employment Identification Number (EIN) online from the IRS. An EIN is needed to report taxes as well as information about your new employee to your state government.

Step 2: Set up Records for Withholding Taxes

The IRS requires that businesses keep records of employment taxes for at least four years. This includes employee wages, tips, and sickness records, as well as employee tax withholding certificates. Two forms that must be completed annually are the Federal Income Tax Withholding (W-4) and the Federal Wage and Tax Statement (W-2).

Rules regarding the withholding of employee state tax vary. Your state tax agency can provide more information.

Step 3: Check that your New Employee is Eligible to work in the U.S.

Unusually enough, eligibility to work is only required to be verified within three days of the hire date and is contingent on you to do it. Be sure to complete anEmployment Eligibility Verification Form (I-9) and examine acceptable forms of employee identification to confirm work status.

The I-9 form doesn't need to be filed, but be sure to hold onto it for three years after the hire date or one year after employee termination, in case of audit.

Step 4: Register with Your State's New Hire Reporting Program

Government regulation requires all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date. Learn how to register here.

Step 5: Get Workers' Compensation Insurance

Any business that hires employees must carry this insurance. It's available through commercial carriers, on a self-insured basis, or through your state's Worker's Compensation Insurance program.

Don't ignore state and local regulations either. Local SBA offices nationwide offer free and low-cost services to help you navigate your area's employee regulations.

Step 6: Register for Unemployment Insurance Tax

Now that your business has employees you may be required to pay unemployment insurance tax. Business.gov's State Taxes page can help you determine whether this applies to your business and includes links to help you register with your state's workforce agency.

Step 7: Check Whether you are Required to Purchase Disability Insurance

Some states require employers to provide partial wage replacement insurance coverage to eligible employees for non-work related sickness or injury. Currently, if your employees are located in CA, HI, NJ, NY, RI, or Puerto Rico, you must purchase disability insurance.

Step 8: Don't Forget your Workplace Posters

Laws require that your business prominently displays posters that inform employees of their rights and your responsibilities to them under labor laws. See this resource for information about Workplace Posters.

Step 9: File Your Taxes - It's Different When You Have Employees

It sounds common sense; of course you must file your taxes. But if you are new employer, there are different and new federal and state tax filing requirements that apply to you.

Take time to read the IRS Employer's Tax Guide to understand all your federal tax filing requirements and visit your state tax agency for specific tax filing requirements for employers.

Step 10: Get Organized and Keep Yourself Informed

Now that most of the form filling bureaucracy is out of the way, you can focus on creating a fulfilling, safe, and fair workplace. Here are some further steps you should take after you've hired your employees:

  • Start Keeping Records - From tax and labor recordkeeping requirements, through secured personnel performance and training records, organized recordkeeping is a must.
  • Adopt Workplace Safety Practices - The Occupational Safety and Health Administration's Quick Start tool can tell you what applies to you.
  • Understand Employee Benefit Plans - Employee Benefit Plans must adhere to minimum standards.
  • Learn Management Best Practices - The SBA offers lots of free guidance on hiring, motivating, and directing employees.
  • Apply Standards that Protect Employee Rights - The Equal Employment Opportunity Commission (EEOC) and Fair Labor Standards Act (FLSA) offer lots of guidance on required standards.

If you are in the process of hiring your first employee, it's also a good time to consider the financial grants and loans available from the government to help you expand. Check out the new SBA Business Gateway Program's grants and loans tool. It's an easy way to find out what funding programs are available from federal and state agencies.

Find more information on employment and labor law at Business.gov.

Message Edited by CaronBee on 07-24-2009 10:51 AM

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

These are very well written steps to take and very easy to follow. Don't be put off hiring your first employee just because you have a few things to comply with, your first employee could be your key to expanding your business.
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Step #7 of purchasing individual disability insurance for your employee can increase operation cost substantially each month. Fortunately, most states don't require employers to provide this to their employee.
Terrific post. The only thing I'd add is for #10, that record keeping starts with an employment application and should incude an employee handbook. Employers do have rights and they need to protect them. It starts with the handbook and application. Thanks again for the great post. TomStaffing & Recruiting Essentials Message Edited by NicoleD on 09-30-2009 11:01 AM
Well done, Just - Brilliant post !!!!  Thank you so much about that nice structured information. Good Luck!

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