As the owner of a small business, you know the importance of avoiding unnecessary costs. Because of this, you may have chosen to operate your business on your own during the beginning stages. However, now that your business is growing, you may be feeling the workload has become too great to manage without the help of an employee. Before getting started, there are a few things you should know about the legal rules, required documentation, and administrative duties associated with hiring your first employee.
First, educate yourself on the regulations that are relevant to the hiring of your first employee. Here is a quick look at the important laws you should know about as an employer:
- Obtain Employer Identification Number: According to the Internal Revenue Service, in order to report taxes, you will need an EIN or Employer Identification Number. An EIN is also necessary when reporting information about your employees to the state. You can apply for an EIN through the IRS by visiting their website or calling 1-800-TAX-FORM.
- Set Up Tax Withholding: All employers must keep records of the taxes paid by their employees for a minimum of four years as required by the IRS. It is the employer’s responsibility to withhold, deposit, and report taxes from their employee’s wages. These taxes include: federal income tax, state income tax, social security and medicare taxes. Each year, the employer is required to submit a W-2, or wage and tax statement, according to guidelines provided by the IRS.
- Verify Employee Eligibility: Employers are required by the Department of Homeland Security to verify that potential employees are eligible to work in the United States. This can be done by having employees complete an I-9 form within three days of hire. Employers can also e-verify online on the website of the U.S. Citizenship and Immigration Services. This form must be kept on file for three years after hiring an employee, or one year after terminating an employee.
- Follow Equal Opportunity and Fair Labor Laws: Employers should be diligent in educating themselves concerning equal opportunity and fair labor laws. Understanding laws concerning minimum wage, overtime, and child labor will ensure that you are following fair employment practices and obeying the law.
- Post Required Notices: Employers are required to post notices of state and federal labor laws. These posters are intended to provide employees with information concerning their rights and the responsibilities of their employer as required by law.
- Obtain Worker’s Compensation Insurance: Employers are required by law to carry worker’s compensation insurance. Employers can choose to acquire this insurance through the state or through a commercial provider.
- Pay Taxes: Employers are required to pay taxes on a monthly or semi-weekly basis. Due dates for paying and reporting taxes are provided to small businesses on the IRS website.
Next, small business owners will want to make sure they are keeping the appropriate documentation as is required by law. This information concerning employees is to be kept for up to three years. The United States Department of Labor clearly outlines all required documentation which must be obtained from new employees:
Lastly, know that once you have hired your first employee, your administrative duties are not complete. It is true that the bulk of the paperwork is completed during the hiring process. However, there are administrative duties which must be completed regularly. Creating a system for these records and tasks is helpful to staying organized and ensuring that nothing is missed.
First, the Internal Revenue Service requires employers to keep detail records of income, expense, and taxes paid and provides many resources for doing so on the small business portion of their website.
Secondly, the Occupational Safety & Health Administration requires regular reporting concerning employee safety practices, employee injuries and illnesses. Thirdly, regular records should be kept concerning both voluntary and required employment benefits and worker’s compensation insurance.
Lastly, creating and maintaining an up-to-date Employee Handbook helps employers to ensure they are following fair employment practices, maintaining a safe and fair workplace, and properly informing employees of policies and employee rights.
Hiring your first employee is a big next step for small business owners, but it is also evidence of success in running your business. Educating yourself on employment rules and regulations is an essential aspect of becoming an employer for the first time. Additionally, creating a system for collecting and maintaining employee records is helpful in remaining organized throughout the process. The organization methods used during the hiring process can be carried out in day-to-day operations, simplifying the regular administrative duties required of a small business owner and employer.