Expanding your small business by staffing up? Here are important things you should have in place before hiring your first employee
If you’re reading this because you’re ready to hire your first employee, congratulations! This is an exciting and momentous milestone in your business’s history! That said, there are a whole host of things you must to do before you bring anyone on board. There are now a number of legal rules that apply to you, and you need to follow them to start your hiring process on the right foot.
Here’s what you need to do to avoid problems down the line:
Get an Employer Identification Number
Every business with employees is required to have an Employer Identification Number (EIN). This unique nine-digit number — which is essentially a Social Security number for a business — is needed for tax returns and other documents you submit to the IRS. You can get an EIN by applying online on IRS.gov.
Register With the Labor Department
Next you will need to go to your state’s labor department and register as an employer. If your state requires employees to pay income tax, you will need to find out how they can sign up for withholding. Then ascertain how your state wants you to both pay and report on income tax withheld from your employees’ wages.
Obtain Workers’ Compensation Insurance
Workers’ compensation insurance is required in almost every state, with few exceptions. It’s important to carry workers’ comp insurance in order to protect any employee who suffers an on-the-job injury. There are multiple types of workers’ compensation insurance, and the kind you choose depends on numerous factors, including state regulations. Most states use the National Council on Compensation Insurance (NCCI) class code system. Insurance is available through commercial carriers or through your state’s workers’ compensation insurance program.
Set Up a Payroll System
When hiring your first employee, it’s incredibly important to take taxes into account. Your responsibilities as an employer are to:
- Keep impeccable records on payroll and payroll taxes
- Withhold federal and state taxes from employee pay
- Make periodic reports and payments to the IRS
Using a payroll service will not only make this process a lot easier, it will also ensure your employees are paid accurately and on time.
Sign Up for the State New Hire Registration System
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires employers to supply information on new hires to the state within 20 days of the employee’s hire date. The aim of this database is to identify and garnish the pay of people who owe money for child support (or other collectible debts). Sign up for the system now so you’re ready to use it for new hires later.
Get Ready to Verify Employment Eligibility
Employers must complete an Employment Eligibility Verification Form (Form I-9) within three days of hiring an employee to confirm said employee’s eligibility to work in the U.S. The I-9 must be kept on file for three years after hire or one year after termination, whichever is later. If you intend to hire multiple employees — or if it’s required by your state — you will need to enroll in the E-Verify system.
Sign Up for Unemployment Insurance
Once you start hiring employees, you’re obligated to pay state unemployment compensation taxes. These payments are made to your state’s unemployment compensation fund, which provides short-term relief to employees who are involuntarily terminated.
Get Required Workplace Posters
Federal law requires all businesses with employees to display posters containing specific information on employee rights. These posters must be displayed in an area frequented by all employees. For details on which posters you’re required to put up, check out the U.S. Department of Labor’s website.
Create an Employee Handbook
Although this is not required by law, it’s one of those things you’ll be glad you did later. It’s far easier to do this now than to try to figure it out when you have multiple employees — and multiple misunderstandings. Create a manual that details all of your business’s policies and procedures. When you hire a new employee, give them a copy of the handbook and have them sign a document saying they received it. Update the handbook at least one per year with new or updated policies.
Develop a Dedicated Plan for Proper Work-Life Balance
Did you know that employees who feel a greater sense of control over their own lives tend to be more productive and loyal? Companies who have a reputation for supporting work-life balance are extremely attractive to workers and draw in some of the best candidates. Millennials in particular flock to workplaces that value work-life balance and offer flexibility. To give your employees the best chance at maintaining a proper work-life balance, put systems in place for flexible scheduling, PTO, and remote work.
Make Sure Your Workplace Is Safe
It’s one thing when you’re the only one tripping around the office, but when you have employees, it’s time to get serious about workplace safety. The Occupational Safety and Health Act requires all employers to comply with multiple requirements, including keeping the workplace free of hazards, informing government administrators when there are major workplace accidents, training employees on how to safely do their jobs, and keeping detailed safety records.
Hiring your first employee is a truly exciting event, but it’s imperative you comply with state and federal laws to keep this moment from being tainted. From government registrations and tax forms to payroll and insurance, being an employer carries a number of responsibilities (and a few too many headaches). Nonetheless, it’s ultimately one of the most rewarding things you’ll ever do.
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