If your business has flourished and become too big to manage alone, it might be time to hire your first employee. Hiring an employee can allow you to shift your focus from managing every aspect of the business to fostering growth and generating revenue. Before you start looking for a new employee, figure out which tasks you can delegate to another person. Then, look for a skilled employee who can manage those tasks. On average, it costs about $4,000 to recruit, hire, and train a new employee; a skilled employee will need less training and will be able to help you more quickly than an unskilled employee.
In addition to these preliminary considerations, there are several legal steps you must take during the hiring process.
1. Obtain an Employer Identification Number. This number, also referred to as an Employer Tax ID or FormSS-4, is obtained from the IRS. It is required in order to report taxes and other documents to the IRS or when reporting information about your employees to state agencies.
2. Set up records for withholding taxes. The IRS requires employers to keep records of employment taxes for at least four years. You should keep records of Federal Income Taxes withheld; Federal State Wage and Tax Statements, which are filed using a W-2 form; and the State Income Taxes withheld, if applicable.
3. Employee Eligibility Verification. Employers are required to verify their employees’ eligibility to work in the United States. You must complete an I-9 form for each employee and keep it on file for three years after the date of hire or one year after the date of the employee’s termination, whichever comes later. You can also register with E-Verify, which will use the information from the I-9 form to verify an employee’s eligibility to work in the U.S.
4. Register with your State’s New Hire Reporting Program. Within 20 days of hiring an employee, you must report your new hire to your state’s New Hire Reporting System.
5. Obtain Workers’ Compensation Insurance. All employers are required to carry workers’ compensation insurance, either through a commercial carrier, through a state program, or on a self-insured basis.
6. Post required notices that inform employees of their rights and of your responsibilities as an employer.
By following these steps, you will be legally prepared to hire an employee. Remember that in addition to these requirements, you should also stay informed about the laws and regulations that you have to follow. Additionally, you need to file IRS Form 940 every year to report your federal unemployment tax for any year in which you paid wages of $1,500 or more in any quarter or for any year in which an employee worked for you for at least 20 weeks out of the year. Following these steps and staying organized will ensure a smooth transition for you as you expand your business and bring on more employees.