How-To Articles

How to Legally Hire Your First Employee

You've been a one-man (or woman) band for a while now, but the business is growing and you've stretched yourself too thin. Your next logical step is to start hiring employees. Unfortunately, if you want to start hiring employees, you're going to have to face government regulations and requirements. There's a ton of stuff that needs to be taken care of, so here is a list of your basic legal obligations.

1. Obtain an employer identification number (EIN).
   This will allow you to submit documents to the IRS. An EIN can be obtained by filing IRS Form SS-4, which can be downloaded on the IRS website.


2. Get worker?s compensation insurance.
   In many states employers are required to buy worker?s compensation insurance, which protects them from lawsuits resulting from work-related accidents. Though it is highly recommended, you may still want to check with your state to see if it's required.


3. Have employees fill out Form W-4.
   Form W-4, which is the Withholding Allowance Certificate, allows employee's to claim a certain number of allowances for tax purposes, which helps employer's to withhold the correct amount from their paychecks. If employee's wish to change the number of allowances they claim, they'll need to fill out a new form.


4. Fill out Form I-9.
   U.S. Citizenship and Immigration Services requires employer's to fill out Form I-9, which is the Employment Eligibility Verification form, for each new hire. This form is used to verify that your new employee's are eligible to work in the United States. This form does not need to be filed with the USCIS, but does need to be kept on file for three years and must be provided upon inspection by the USCIS.


5. Report new hires to your state?s new hire reporting agency.
   The Administration for Children and Families, part of the U.S. Department of Health and Human Services, requires that employer's report all new employee's to their state?s new hire reporting agency. The information is used to locate parents who owe child support.


6. Comply with OSHA.
   All employer's (with few exceptions) need to comply with the requirements of the Occupational Safety and Health Act. You can check out the OSHA website to review the rules.


7. Withhold taxes.
   Set up a payroll system so that income taxes and Social Security and Medicare taxes can be withheld.


8. Deposit taxes.
   Taxes (i.e. income, Social Security, Medicare) paid by the employee, along with your portion of the Social Security and Medicare taxes, must be handed over to the government. You can do this a few different ways.
   1. Larger employers deposit through the Electronic Federal Tax Payment System. (This method is often recommended because of convenience.)
   2. You can mail or deliver these taxes to a Federal Reserve Bank or authorized financial institution.
   3. If quarterly withholdings are less that $1,000, you can pay them through your quarterly tax return (Form 941).


9. File Form 940 annually.
   The Employer's Annual Federal Unemployment Tax Return (Form 940) can be obtained on the IRS website.


10. File Form 941 quarterly.
    The Employer?s Quarterly Federal Tax Return (Form 941), which is due every three months in case you didn't already catch that, can be filed the old-fashioned way, or if you're eligible, it can be filed using the 941TeleFile system.


11. Set up employee benefits.
    This of course is optional and will depend on the type of employee's you are looking to hire. If you?re looking for higher-level, full-time employee's, a benefits package is probably worth creating.