Employees Bring Financial Reporting Responsibilities

By: Michael Gallagher, Deputy District Director
North Dakota District Office

According to SBA’s Office of Advocacy, which tracks information on small business firms, employer firms have the lion’s share of receipts and payroll, while nonemployer firms are far more numerous. This leads us to realize that, although small businesses have a significant impact on the economy as a group, if an individual small business is to grow it will generally have to do so through the hiring of employees. This brings with it a host of regulations and reporting requirements.

Generally, the process begins with the small business owner applying for an Employer Identification Number (EIN) with the IRS. You can do so through the IRS website at www.irs.gov.

Most states also have a similar requirement. The employer identification number is used in a variety of ways, but is primarily used to report withholding for state and federal income tax and federal Social Security and Medicare payments. Application and information for the State of North Dakota withholding can be found at www.state.nd.us/businessreg/employees/tax.html.

When you hire your first employee, you will be required to verify their ability to be employed in the U.S. This requires the employer to complete a Form I-9 provided by the U.S. Citizenship and Immigration Services (USCIS). You can secure a copy of the I-9 in PDF format with additional information, by visiting the USCIS website at www.uscis.gov/files/form/i-9.pdf.

With the I-9, the employer will be required to secure two types of verification information from the employee. This includes things like driver’s license and birth certificates as well as U.S. Passport or Certificate of U.S. Citizenship.

Prior to employment, you will also have to secure a W-4 Form from your employee. This should list their complete name and social security number as you will have to provide these when you report on withholding and social security matching to the IRS. Employers can be penalized if they report incorrect information and the name and social security number do not match. You can verify that the name and social security number match by using the Social Security Business Services On-Line at www.ssa.gov/bso/bsowelcome.htm. This site is also helpful for small employers wishing to electronically file their W-2 Forms at the end of the year.

Once the employee starts working and is paid for their efforts, you will have to report this new hire to the state. The state Department of Human Services will then match the employee's name and social security number to a list of those who have required child support payments to be made. If the employee has a court ordered child support payment, you will be required to report information on the benefits provided to the employee including such things as medical insurance and workers compensation. Social Services will then contact you to provide information on any amount that you must withhold from the employee’s checks for present and past child support payments and you will be required to submit this amount to Social Services.

You will also be required to secure workers compensation coverage on your employees. Information on ND Workforce Safety and Insurance can be secured at  www.workforcesafety.com/employers/wsirole.asp. You will also have to register for unemployment insurance and report quarterly for state unemployment and annually for federal unemployment.

All employers are bound by labor laws which include provisions on minimum wage, breaks and types of activities employees can be engaged in depending on their age. If you have federal contracts, you may also be subject to provisions of the Davis Bacon Act.

As you can see, having employees brings a host of responsibilities and reporting requirements to the employer. These regulations and reporting requirements are applicable whether you employ one or more employees. These reporting requirements and regulations apply if you hire an individual for even a minimum number of hours. It is your responsibility to be aware of and comply with the laws. A little research and time can save time and dollars as failure to follow regulations often includes penalties and additional costs when employees suffer a loss or attempt to initiate a claim.