You've started a small business, and everything's going great. In fact, it's time to hire help. Use this checklist to ensure you follow federal and state regulations as you hire your first employee.
Obtain an Employer Identification Number (EIN)
Apply online or call the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). It's also known as an Employer Tax ID or Form SS-4, and you'll use it when you file taxes and other documents with the IRS and when you report employee information to state agencies.
Prepare a Recordkeeping System for Tax Withholding
As an employer, you are required to withhold taxes from your employee's paychecks. The IRS also requires employers to maintain employment tax records for four years, and you can use the records to prepare financial statements, track expenses and file your tax returns.
- Federal income tax withholding — Employees must complete a withholding exemption certificate (Form W-4) that you keep on file.
- Federal wage and tax statement — File an annual Form W-2 that details the wages you paid employees and the tax you withheld.
- State taxes — If your state requires withholding of state income tax, follow that state's guidelines for reporting and payment.
Verify Employee Eligibility
Federal law requires you to verify that a new hire is eligible to work in the United States. Have the employee complete Form I-9 within three business days of hire and keep the form on file as required.
Register with Your State's New Hire Reporting Program
You must report new employees to your state's new hire directory. Complete this reporting step within your state's required time frame after hiring someone.
Purchase Workers' Compensation Insurance
When you were the only employee of your small business, you might not have needed workers' compensation insurance. Once you hire, most states require a policy. Purchase it from a commercial carrier or through your state's workers' compensation program.
If you operate a staffing or placement business, consider reviewing Employment Temporary Services Agencies Insurance to understand common coverages for those operations.
Post Any Required Notices
Labor laws require employers to post certain workplace posters that describe employee rights, responsibilities and safety information. Make sure required notices are visible to all employees.
File Your Taxes
Employers who withhold income tax generally must file quarterly federal tax returns and make timely deposits of withheld taxes. Discuss specific filing and deposit requirements with your accountant or payroll provider.
If your business is part of recruiting or executive-search services, you may find resources specific to that industry in Insurance for Employment Executive Search Agencies.
If you have questions about coverage or compliance, talk to an agent who can help review your obligations and insurance needs.
Frequently Asked Questions
When should I get an EIN?
You should get an EIN before you hire your first employee since you need it to report taxes and submit payroll documents to state and federal agencies.
How long do I keep employment tax records?
The IRS generally recommends keeping employment tax records for at least four years, but check state guidelines that may have different retention periods.
Do I have to carry workers' compensation for one employee?
Most states require workers' compensation once you have employees, but specific thresholds and rules vary by state.
What forms do new hires need to complete?
New employees must complete Form W-4 for tax withholding and Form I-9 to verify work authorization, and employers must retain these forms as required.