Congratulations! Your business is growing, and you’re ready to hire your first employee. You’ve moved beyond the legal netherworld of independent contracting, and it’s time to establish a formal employee relationship. This article will help you answer some common questions that tend to percolate around hiring your first employee.
1. How Do I Obtain An Employer Identification Number (EIN)?
To find your proper peg in our federal tax system, you’ll have to obtain an Employer Identification Number (variously known as an EIN, Employer Tax ID, and Form SS-4) from the IRS for your business. An EIN is a key ingredient in tax compliance and other federal formalities, and can also be used when reporting employee information to state agencies. Apply for an EIN online between 7:00 AM and 10:00 PM Eastern Time. You will receive your EIN instantly upon completion of the process.
2. Do Federal and State Wage & Hour Laws Apply to My Business?
When you hire your first employee, the first step in determining wage and hour legal compliance is deciding whether the Fair Labor Standards Act (FLSA) applies to your business. You are regulated under the FLSA if you:
- Are “engaged in an element of commerce over which the federal government has control” (since you probably make use of phones and mail, you almost certainly are); or
- Have gross yearly sales of $500,000 or more.
Be careful! Even if you don’t meet the “dollar test” of yearly sales, your employees may be individually protected under FLSA. For more information on federal compliance, click here.
In addition to federal laws, California has its own set of wage and hour regulations you need to meet. For a helpful breakdown of “need to know” state requirements, check out this helpful article or visit California’s Department of Industrial Relations.
3. How Do I Withhold Federal And State Taxes?
Record everything (and retain a payroll service)! The IRS requires you to keep employment tax records on hand for four years, and you’ll need good records to keep track of the ins and outs of daily business.
Federal Income Tax Withholding Form (Form W-4)
You should collect a signed W-4 from each of your employees on or before the date they start work. The IRS recommends making the form effective with your first wage payment. Once you’ve collected the applicable W-4s, submit them to the IRS accordingly. For detailed information, consult the IRS’s 2015 Employer Tax Guide.
Federal Wage & Tax Statement (Form W-2)
Once you hire your first employee, you must report yearly figures on wages paid and taxes withheld via Form W-2. You need to submit Copy A of this Form to the Social Security Administration by the last day of February (for paper filings) or the last day of March (for electronic filings) to fully comply with reporting requirements for the previous calendar year. For detailed instructions, check out Social Security guidelines.
If you are a person or legal entity operating in California and paying a wage or salary to one or more individuals (above $100), you need to register with California’s Employment Development Department (EDD). The EDD administers California’s payroll taxes, including Unemployment Insurance, Employment Training Taxes, State Disability Insurance, and Personal Income Tax withholding. The EDD allows you to register, file reports, make deposits, and manage your account online. For more information, click here.
The easiest way to comply with each of these requirements is to retain a reputable payroll service. These services typically handle all withholding and reporting requirements at both the State and Federal levels.
4. How Do I Confirm Eligibility To Work In The U.S.?
For every new hire, you must verify eligibility to work in the U.S. by requiring them to complete Form I-9, provided by the U.S. Citizenship and Immigration Services (USCIS). Form I-9 requires you to inspect certain specified documents, to confirm employment eligibility (be sure to avoid requesting documents that fall outside I-9’s purview). You do not have to file completed I-9s with USCIS, but you must keep them on file for three years after the date you make the hire or one year after employee termination, whichever is later. To streamline the verification process, make use of USCIS’s E-Verify program.
5. How Do I Report My First Employee as a Newly Hired Employee?
You must report all new hires or re-hires within twenty days of their first day on the job. The report must include:
- Employer’s business name
- Contact person name
- Employer address
- Employer phone number
- California employer account number
- Federal employment identification number (EIN)
- Employee’s full name
- Employee’s Social Security Number
- Employee’s address
- Employee’s start-of-work date
For more information on California’s new hire reporting requirements, click here. Most payroll services will handle this for you, but it is a good idea to confirm this before retaining the payroll service.
6. How Do I Obtain Worker’s Compensation Insurance to Cover my First Employee?
Once you’ve hired your first employee, you are legally required to maintain workers’ compensation insurance. You may do this via a private carrier, via self insurance or through your state’s workers’ compensation program.
7. What Employee Notices Are Required, And How Do I Distribute Them?
Proud of your tastefully decorated office space? Get ready… once you’ve hired your first employee, you are required to post notices setting forth employee rights and employer responsibilities under applicable labor law. Click here for more information on which federal and state posters your business will require.
8. How Do I File Quarterly Taxes?
If you’re hiring employees, chances are you will be paying wages subject to income tax withholding, Social Security and Medicare taxes. For many businesses (but not all), this means you’ll be required to file an Employer’s Quarterly Tax Return (Form 941). For more information on all of your federal tax obligations, consult the IRS Employer Tax Guide. For more information on determining your state and local tax obligations, click here.
9. How Do I Adopt Workplace Safety Measures?
The Occupational Safety and Health Act (OSHA) governs workplace safety requirements across the nation. OSHA requires employers to provide adequate job training, keep specific safety records, notify regulatory agencies when serious accidents occur and provide a hazard-free workplace.For more information on OSHA compliance, click here.
Many states have adopted OHSA verbatim, but California is one of a handful who have developed separate Acts, subject to federal approval and oversight. California’s version of OHSA is more strict, covering hazards that the federal government does not. Some differences include:
- A California requirement to establish a written Injury and Illness Prevention Program (IIPP)
- A California mandate that communications surrounding hazardous materials and their potential health risks be in lay terms, and compelling employers to warn of toxic exposure
- A statewide ergonomics standard, requiring businesses with a history of repetitive motion injuries to implement specific programs.
If you are a California business, you need to comply with the California version of OHSA. For more information, click here.
10. How Do I Set Up Personnel Files?
Every employee you hire should have a personal, confidential file containing their job application, employment offer, W-4 form, employee benefits information and other work-related documents such as performance evaluations. You should keep all I-9 forms in a separate file. For more information on California requirements relating to employee access to their file, click here.
For more information on how to comply with employment laws, contact us.
DISCLAIMER: The information in this article is provided for informational purposes only and should not be construed or relied upon as legal advice. This article may constitute attorney advertising under applicable state laws.