As a small business owner, growth means more revenue and profit – but it can also mean that you might be in the position to think about hiring employees. This is an exciting step in a growing business whether you are an entrepreneur in an innovative tech startup or an online clothing boutique.
There are a few things to consider before you make the leap to becoming an employer, and most of these revolve around making sure you are ready in terms of payroll and tax, on both a local and federal level.
Before you jump in and post that wanted ad, here are some of the things you should be thinking about.
The IRS and Local Government
On a local and national level, there are certain requirements that you will have to meet before you can legally hire an employee.
- Employee Identification Number – Every employer needs to have a unique identifier provided to them from the IRS. This is used on tax returns and other documentation and can be applied for using IRS form SS-4. There is no cost for this, and it should be the first step in becoming an employer.
- Employment Eligibility Verification – The US Citizenship and Immigration Service (USCIS) requires all employees to verify that they are legally allowed to work in the US, and they need to complete the form I-9 as part of their application. Employers have to keep this information in the employees file for at least three years and make it available to immigration officers when asked.
- Tax withholding – The employee must complete IRS form W-4 to allow you as an employer to withhold a portion of their employee income for tax purposes, including Social Security and Medicare payments. There may be other tax withholding necessary at a state level, too.
- Register with the state labor department – Depending on the state your business is registered in; you are likely to need to register with the labor department to pay state unemployment compensation taxes.
- Federal unemployment tax – In any year where, as an employer you have paid an employee more than $1,500 in a quarter, you will need to complete IRS form 940 regarding your contribution of federal unemployment tax.
Protecting the Workforce
Aside from the contributions to the IRS and state government, employers are also required to put in certain protections for their employees.
- Workers Compensation Insurance – In almost all states, employers are required to hold insurance to protect employees who suffer from on-the-job injuries, although there are some exemptions for certain types of small business.
- Workplace Safety – The Occupational Safety and Health Act (OSHA) requires workplaces to be free from hazards, providing adequate training and maintaining detailed safety records to protect employees from dangerous working conditions.
Pay and Benefits
The payroll system that your business uses should be able to ensure that all employees are paid regularly and fairly, with the right tax withholding taking place. Alongside this, there are certain other things that a new employer should consider:
- Reporting employee wages – IRS form W-2 should be used to report the employee’s wages to the IRS, the state, and other local agencies, with form W-3 as a summary of W-2 filings.
- Group Insurance and Retirement Plans – Providing a group insurance plan that covers employees and their families ensures that they can remain healthy and is considered to be a benefit that employees will look for, and the same can be said about retirement plans.
- Other Benefits – Some employers offer free gym memberships, discounts at popular retailers, subsidised meals, free childcare, extra vacation days and other options, which might also be considered by a new employer.
These are just some of the options that an employer needs to consider before their first hire and ensuring that you have access to the right documents and the right systems will make the transition easier to manage.