Tips before posting a help wanted sign: 11 hiring considerations

Dustin Johnson
By Dustin Johnson

Hiring your first employee is a big step for your business. As your business grows, you can begin delegating tasks and hiring employees with skills you lack. Every company that’s significantly impacted the world or their community hits this milestone.

You’re here because you know hiring isn’t easy. Not only do you have to find the right candidate, but you have to meet the legal requirements set by your local, state, and federal government. You must know about every requirement, so your business isn’t blindsided.

This blog post will cover all the legal requirements you must meet when hiring your first employee so your business stays compliant.

Apply for an EIN

Ready to hire employees? Then you need to apply for an EIN with the IRS. You’ll use your EIN on tax returns and documents you submit to the IRS. To obtain an EIN, you must file IRS Form SS-4. If you run a corporation or partnership, you already have an EIN. However, in most situations, LLCs and sole proprietors are not required to have an EIN.

Registered with your state's labor department

The federal government isn’t the only compliance body you need to work with when hiring employees. You’ll likely need to register with your state's labor department. All employers are required by federal law to report newly hired employees to a state directory within 20 days of their hire. After registering, you can remit unemployment compensation wages, which provide relief for workers who lose their jobs.

Get workers' compensation insurance

You will need worker’s compensation insurance to protect workers who might suffer on-the-job injuries. Every state except for Texas requires companies to have workers' compensation insurance before hiring employees. And yes, this includes if you hire remote employees.

Setup a payroll system

Setting up a payroll system will help streamline your legal and regulatory responsibilities. You should still set up a payroll system even when hiring only one employee. Aside from the initial and ongoing paperwork, here are a few things you can manage with your payroll system:

  • Decide on a pay period
  • Document your employee compensation terms
  • Choose a payroll system (in-house or outsourced)
  • Practice safe and accessible record management
  • Report payroll taxes

Prepare for payroll taxes

You’ll need to withhold a portion of each employee’s income and remit it to the IRS. Those federal contributions include social security, medicare, and income tax. This accounts for 7.65% of your employees' wages at the federal level. On top of that, your employees will owe payroll taxes to the state as well. If this all sounds intimidating, we recommend speaking with a tax accountant to ensure you stay compliant.

State and local tax IDs

At the federal level, your tax ID number is called an EIN. You must also acquire an ID at the state and local levels if you owe taxes to the state and local tax authorities. Tax IDs are how state and local tax authorities identify tax reporting entities and facilitate accurate tax administration. You need a state tax ID to apply for a sales tax permit if your business collects sales tax. 

Have your employees fill out form W-4

The W-4 form is how employees tell you the allowances they’ll claim for tax purposes so you can withhold the correct amount of tax from their paycheck. Tax withholdings get complicated when the filer has dependents or a spouse that works as well. This form accounts for that, so tax withholdings are as accurate as possible.

Verify your candidates' eligibility to work 

The U.S. Citizenship and Immigration Services requires employers to use Form I-9 to verify that new employees are eligible to work in the United States. You are not required to file this form but must keep it in your files for three years.

Set up employee benefits

If you wish to offer an employee benefits program like health insurance or a 401(k), you’ll need procedures so employees can enroll themselves and their dependents.

Set up personnel files

The last two things to consider are not mandatory but help organize everything we mentioned. Create a file for each employee that contains their job application, offer letters, IRS forms, and other miscellaneous forms. The state and federal government requires employers to keep certain documents for at least four years.

Regardless of requirements, keeping certain information handy in a secure location is helpful.

Employee handbooks: Are they required in your state?

Also not a requirement, employee handbooks are an excellent idea to help onboard employees into your company’s culture and policies. Having your expectations in written form can save you from trouble in the future and get candidates started on the right foot. Beware that some states have requirements for how your employee handbooks are written if you choose to create one.

New tax obligations, no problem 

Are you considering hiring your first employee? Then know that the first time is always the most difficult. You’re doing yourself a favor if you set up your hiring process correctly the first time. You may sometimes feel like you have no idea what you’re doing. As long as you follow the directions laid out for you and get help when you need it, you have nothing to worry about. 

Organization is the cornerstone of good business. When you’re well organized, you’re more efficient and stress-free. One tool business owners use to stay organized is ComplYant. Whether you’re managing employment taxes with your first employee or hiring your 100th, ComplYant can help you keep track of tax deadlines. 

Dustin Johnson
By Dustin Johnson
Dustin Johnson is a Senior Tax Research Specialist at ComplYant. Prior to joining ComplYant, he spent over eleven years performing tax research at the world’s largest tax preparation company. Dustin holds a Bachelor of Business Administration and a Juris Doctor. Outside of work, Dustin enjoys biking and spending time with his family.

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