Hiring Employees: What You Need to Know
Here are some tips that can help you build your team and comply with federal and local regulations:
Apply for an Employer Identification Number
Before you can hire anyone, you have to set yourself up with an Employer Identification Number (EIN). You'll need this number to…
- Identify your business on tax forms and IRS documents.
- Report information about your employees to state agencies.
You can apply for an EIN online through the IRS for no charge.
Create Detailed Job Descriptions
Once you have your EIN, you're ready to begin the process of hiring employees. To help attract qualified candidates, you'll need to create a job description that sells the open position. Keep the description crisp, concise, and clear, and be sure to include the following points:
- Title of the position.
- Description of the job's scope, objective, and purpose.
- Summary of the general nature of the position.
- Professional level of the job (if applicable).
- List of work duties and expectations.
- Key functional and relational responsibilities.
- Minimum qualifications (e.g., education and work experience) to be considered.
In general, you'll want to write job descriptions in the present tense. Also, be sure to use the he/she construct so you don't inadvertently alienate potential candidates. And lastly, proofread the job listing before you post it.
Before you officially make a job offer, consider running a background check to make sure prospective employees have the qualifications they claim to have.
Create Records for Withholding Taxes
Once you're ready to bring on employees, you'll have to wrangle some tax documents. It's important to know that the IRS requires that you keep records of employment taxes for at least four years. These records will come in handy when you pay your employer taxes, prepare tax returns, or if you ever get audited.
Your business will be responsible for the following three types of withholding taxes:
- Federal income tax withholding. Provide each employee with a withholding exemption certificate (Form W-4) by the time they begin work. You will be responsible for submitting their signed form to the IRS.
- Federal wage and tax statement. If you have employees, you will be responsible for withholding their Social Security and Medicare taxes and reporting those taxes to the Social Security Administration. You'll file this information with a wage and tax statement (Form W-2).
- State taxes. Some states require you to withhold state taxes; others don't. To learn what your state requires, read the SBA 's article, "Determine Your Tax Obligations."
Note: you will use the Employer's Quarterly Federal Tax Return (Form 941) to report your employees' federal taxes and your own.
Screen Your Potential Employees
As an employer, it's your responsibility to ensure your employees are eligible to work in the United States. Within the first three days of hire, federal law requires that you…
- Complete Form I-9 (employment eligibility verification).
- Keep the form on file for three years from the date of hire (or until the employee is terminated – whichever comes first).
Review your employees' paperwork carefully to verify they can work legally in this country. Remember you can only accept documents specified on the I-9 form.
Register with Your State's New Hire Reporting Program
All employers are required to…
- Report new hires (and previously hired employees) to their state's directory.
- Complete the report within 20 days of an employee's hire date.
To find out the information you need to submit, visit the SBA's page, "New Hire Reporting for Your State" and look for your state.
Understand and Follow Labor & Employment Laws
Your state's Department of Labor can give you a full rundown of the labor laws you must comply with. This includes compliance with…
- Occupational Safety and Health Act.
- Fair Wages and The Equal Pay Act.
- Anti- discrimination and workplace harassment laws.
Check out the SBA's article, "Employment & Labor Law" to learn more about these laws. Also, you can use the FirstStep Employment Law Advisor tool, presented by the Labor Department, to learn which regulations apply to your business.
Obtain Workers' Compensation Insurance
In most of the country, part of your obligation as an employer is to carry Workers' Compensation Insurance, a kind of coverage that helps pay for your employees' occupational injuries. The laws vary from state to state, but in most states, business owners must purchase this coverage as soon as they hire an employee (or a certain number of employees).
The coverage can help pay for…
- Medical expenses arising from your employees' on-the-job injuries or accidents.
- Foregone wages for time employees spend in recovery due to work-related illnesses or injuries.
- Disability and support payments to dependents.
- Your legal expenses if an injured employee sues your business for its negligence that contributed to their injury.
Some states have Workers' Comp funds you can pay into, while others only offer the coverage through private insurers. To learn what your state requires and what it offers, check out our guide, "Workers' Compensation Laws by State."
Stay Up to Date with Payroll
Streamline your payroll system and keep it organized to ensure your employees are paid in a timely and systematic fashion. Be sure to…
- Hand out paychecks or make direct deposits at the same time each pay period.
- Use timesheets to keep track of vacations and sick time.
- Use business management software to manage your time.
For more information about organizing your payroll, check out the SBA's article, "10 Steps to Setting Up a Payroll System."
Know Your Legal Obligations for Terminating Employees
So now that you know the ins and outs of hiring a new employee, it's time to face a painful truth: sometimes, your new recruits simply won't work out. And when that happens, you still have certain legal obligations in order to lay off an employee.
For instance, in certain situations, you may be required to offer…
- Advance layoff notice.
- Continuation of health coverage.
To learn more about your legal responsibilities and considerations when terminating employees, read the SBA's article, "Handling Layoffs as a Small Business Owner."