Small Business Basics: Hiring Employees

Running a small business brings with it unique challenges:successfully managing your time, cultivating (and keeping) client relationships, and managing the growth of your business. If your business is growing to the point where it’s difficult to meet client demands, it might be time to hire an employee or two.

Here are five key things you will need to know about hiring employees.

Obtain an Employee Identification Number (EIN)

Your EIN will not only identify your business to the IRS, but will also allow you to pay taxes on behalf of the business and to deal with other business-related matters.

An EIN also reduces your risk of identity theft. You’ll need to complete form SS-4. Follow all instructions carefully and submit it to the address specified on the form. Processing will be delayed if any of the provided information is missing or inaccurate.

Register with your state labor board

Before you hire your first employee, you will need to register with your state’s labor board. Doing so will ensure your business is complying with state and federal labor laws.

Verify employee eligibility

While screening employment candidates can be time-consuming for a new business owner, it’s an important step to ensure that your business is complying with employment eligibility regulations:

  • Your employees are generally required to be legal residents of the U.S. or U.S. citizen, have a social security number, and be of legal age to work in your industry.
  • If you own a nightclub that will serve alcohol for example, your employees must be at least 21.
  • You will need to complete an I-9 form for every employee within three days of their hire date. The I-9 also specifies which documents are required to verify a person’s eligibility to work in the United States.

Establish tax withholding records

Each of your employees will be required to complete a W-4 form on or before their employment date. Many businesses choose to include this form in their new hire paperwork, also known as onboarding documents in some industries.

For more specific information, you can refer to the IRS Employer’s Tax Guide or consult a tax professional.

State employee tax requirements vary by state. The Small Business Administration has an excellent resource for state-by-state tax requirements.

Additionally, at the end of each year you are required to furnish a W2 form to each employee that received hourly wages, salaries or other compensation from your business.

Register with your state’s New Hire reporting program and obtain worker’s compensation coverage

You are required to report any new hires (or re-hires) to your state’s New Hire program within 20 days of the hire or re-hire date.

Lastly, business who have employees need to purchase and maintain a Worker’s Compensation policy. You may purchase a policy though a commercial carrier or you can self-insure through your state’s Worker’s Compensation insurance program.

Managing a growing small business means not only additional client and customer demand for your product or services, but it also means you may have to hire employees to meet the increased demand. By following the steps above, you can ensure your business complies with IRS and state tax board regulations.

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