The Green Sheet Online Edition
April 4, 2014 • 14:04:01
Hiring employees - Part 3
In writing this article, I'm assuming you were guided by Parts 1 and 2 of this series, published in The Green Sheet, Feb. 10, 2014 and March 10, 2014, in issues 14:02:01 and 14:03:01, respectively. That means you already:
- Made the decision to hire a new employee
- Completed the decision-making, evaluation and recruitment processes
- Prepared yourself by understanding the laws governing the hiring process, then screened the prospects, conducted the interviews and made a tentative offer subject to background checks, drug screening, and reference checks
- Made the official offer
Next, the prospect accepted the position and you agreed to terms including salary, hours, location, etc. You finally have a new employee. If you are hiring your first employee, congratulations! It is important to start off on the right foot as an employer by making sure you follow all of the legal rules that now apply.
From tax forms to government registrations to insurance requirements and more, being an employer carries a number of obligations. Be sure to check with your local accountant and attorney for specific information about your state and local laws and tax requirements, as these may vary state-by-state.
In addition, many laws are designed to cover businesses of a minimum size. Your business may not be required to meet all of the standards described in this article if your number of employees falls below the minimum designated.
Before your new employee reports
Here are the preparatory steps to take before your new employee reports for work:
- Contact the IRS to obtain an employer identification number (EIN). When you hire employees, you must use the EIN on tax returns and other documents you submit to the IRS. You can now obtain an EIN online by visiting www.irs.gov.
- Register with your state. Once you bring on employees, you must pay state unemployment compensation taxes. These payments go to your state's unemployment compensation fund, which provides short-term relief to workers who lose their jobs. Determine if you need workers' compensation insurance. Most states require companies with employees to obtain workers' compensation coverage to protect workers who might suffer on-the-job injuries. Some exclusions exist for companies with only a small number of employees.
- Set up a payroll system to withhold taxes. If you have not had employees previously, you will need to either set up your own payroll system or outsource this function. The laws are rigid, and the timelines are strict and narrow. You will need to withhold a portion of each employee's income and deposit it with the IRS, as well as make Social Security and Medicare tax payments to the IRS within a specific timeframe. You must make federal tax deposits on a structured schedule based on the amount of your payroll. For more information on federal tax rules and regulations, see IRS Publication 15 Circular E, Employer's Tax Guide on the IRS website.
- You may also have to withhold taxes for your state. For more information, check with your state's tax agency.
- Post the required legal and employment notices. Several government agencies require employers to post notices providing information on their employees' rights as workers. For information on required federal posters, go to the Department of Labor website at www.dol.gov/elaws/posters.htm. The Poster Advisor accessible at that site will help you determine which posters you must display in your workplace. In addition, you must comply with your state's poster requirements.
- Create a personnel file. For each employee you hire, create a file to keep all job-related documents, such as resumes, applications, employment offers, IRS Form W-4s, performance evaluations, and sign-up forms for employee benefits and any other items related to the individual employee. These files contain confidential information and should be maintained in an area that is not accessible to other employees or staff members.
First report date
Here are actions to take the first day employees arrive for work:
- Have each employee fill out IRS Form W-4, Withholding Allowance Certificate. On the W-4, employees indicate how many allowances they are claiming for tax purposes, so you can withhold the correct amount of tax from their paychecks. (You don't have to file the form with the IRS.) You can find this form on the IRS website. Also, ask employees to fill out a new W-4 form each year if they want to change their allowances.
- Complete Form I-9, Employment Eligibility Verification for each new employee. U.S. Citizenship and Immigration Services (USCIS, formerly known as the INS) requires employers to use this form to verify that every employee they hire is eligible to work in the United States. (You don't have to file this form with the USCIS, but you must keep it in your files for three years and make it available for inspection by officials of U.S. Immigration and Customs Enforcement.) You can obtain the form online at www.uscis.gov. Note that these filled-out forms should be kept in a separate I-9 folder for all employees - not in each employee's personnel file. There is a section on the form for the employee to complete and a section for the employer to complete.
- Report each new employee to your state's new hire reporting agency. The new hire reporting program requires employers to report information on all new employees for the purpose of locating parents who owe child support. Each state has a different new hire reporting agency. To find the name and address of your state's new hire reporting agency, see the State New Hire Reporting-page at the Administration for Children & Families website (www.acf.hhs.gov) .
- Verify the new employee's eligibility to work in the United States. U.S. law requires companies to employ only individuals who may legally work in the United States - either U.S. citizens or foreign citizens who have the necessary authorization. The Department of Homeland Security developed the E-Verify system as an Internet-based system to allow businesses to determine the eligibility of their employees to work in the United States. E-Verify is fast, free and easy to use - and it's the best way employers can ensure a legal workforce. Visit www.uscis.gov for the E-Verify system.
Vicki M. Daughdrill is the Managing Member of Small Business Resources LLC, a management consulting company. E-mail her at vickid@netdoor.com or call her at 601-310-3594.
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