Hiring your first employee is exciting but knowing how to hire your first employee is crucial. It means your business is growing and you need someone with special skills to help take it further.
But, hiring your first employee can be overwhelming. There are many forms, taxes, and laws to follow. If you don’t hire your employees legally, you can face fines and penalties.
If you’re not sure where to begin with hiring your first employee, check out the sections below. You can put the tasks together as an employee hiring checklist.
Get an EIN
All employers need an Employer Identification Number (EIN), which is also referred to as a Federal Tax ID Number. You’ll use this unique number to identify your business on documents, such as tax forms. The EIN format is XX-XXXXXXX.
Make Payroll Decisions
Before you hire an employee, you should make decisions about their wages and how you will pay them.
Determine how much you are willing to pay the employee. Consider the real cost of an employee, as it is often more than the hourly wages or salary alone.
When setting a wage for the employee, research average wages for your industry, the position, and the geographic area. This will help you set a fair and competitive wage that will attract candidates.
Exempt vs. nonexempt
You must determine if your employee is exempt or nonexempt according to the Fair Labor Standards Act (FLSA). If the employee is nonexempt, you must pay overtime wages when the employee works more than 40 hours per workweek. If the employee is exempt, you do not have to pay them overtime wages.
You can use U.S. Department of Labor Fact Sheet #17A to determine if the employee is exempt or nonexempt.
A workweek is a fixed, regularly recurring period of 168 hours (seven consecutive 24-hour periods). A workweek can be different than a calendar week.
You need to set a workweek for your employees. This is particularly important for determining overtime wages, as you must pay overtime wages when a nonexempt employee works more than 40 hours in a workweek.
The pay period determines how often you will pay the employee. Common pay periods are weekly, biweekly, and semimonthly.
Federal laws don’t require a certain pay period. However, your state might require you to use a certain pay period.
Hiring the Employee
At this point, you’ve done a lot of preparation to hire an employee, but haven’t actually hired anyone yet.
To find your employee, you need to write an enticing job description and post it. The description might include the job title, job summary, job duties and responsibilities, hours the employee will work, qualifications needed, and any special demands (e.g., heavy lifting, prolonged walking).
After you receive applications, you can interview the best candidates. Once you select a top candidate or group of candidates, you might do reference and background checks and drug screenings.
Once you pick a person to hire, make an offer. Explain the compensation plan, expected start date, and any other important information about the job. If the person verbally agrees, give them a formal offer letter. The person should sign the letter to formally accept.
Before the Employee Starts
You still have work to do before the employee starts their first day of work. All employers must hang federal and state labor law posters. These posters inform employees about their labor rights.
You should also prepare the paperwork you and the employee will complete on the first day.
Fill Out Forms
There are several forms you and the employee must fill out during the onboarding process.
The employee should fill out Form W-4 at the beginning of their employment. This form lets the employee claim federal withholding allowances to reduce their federal income tax withholding.
The employee might also need to fill out a state withholding certificate.
New Hire Reporting
You must report all new hires to your state using its state reporting system. Federal law says you have 20 days to report the hire, but state laws might require you to report sooner.
You must use Form I-9 to verify that the employee is eligible to work in the U.S.
The employee must fill out the first section of the form no later than the first day of work. You must fill out the second section within three days of the employee starting work.
E-Verify is another way to verify that an employee is eligible to work in the U.S., in addition to Form I-9. Use of the E-Verify system is voluntary for most employers. But, some state and federal regulations require employers use it. Whether or not you use E-Verify, you must still fill out Form I-9.
Run payroll based on the pay period. Be sure to pay the employee on the designated day.
When you run payroll, make sure you include all compensation, including the salary or hourly wages, tips, commissions, and bonuses. Then, make sure you withhold all deductions and taxes.
Deposit and File Employment Taxes
You must regularly deposit and file employment taxes. These include:
- Federal, state, and local income taxes
- Medicare tax
- Social Security tax
- Federal and state unemployment taxes
You can learn more about federal taxes in IRS Publication 15. You can get information about state and local taxes from those governments.
You also have to pay certain insurance. These insurances are handled like an employment tax, but they aren’t a tax. Instead, you withhold or contribute to an insurance premium.
Employers must have workers’ compensation insurance. Each state sets rules on this insurance.
Employers in five states also have to pay disability insurance. These states are California, Hawaii, New Jersey, New York, and Rhode Island.
As an employer, you must keep certain records.
Employment Tax Records
You must keep records related to employment taxes for at least four years. These records include your EIN, amounts of wages subject to withholding, taxes withheld from wages, and copies of Forms W-4 and W-2.
You must keep payroll records for at least three years. These records include the employee’s name, the regular rate of pay, and dates of pay periods and payments.
Wage Calculation Records
You must keep records related to wage calculations for at least two years. These records include the employment application, time cards, wage rate tables, and job evaluations.
This article has been written by a guest blogger for CorpNet.com
Kaylee Riley is a content writer for Patriot Software Company, the parent company of Patriot Software, LLC and Top Echelon, LLC. Kaylee writes about payroll, accounting, software for recruiting companies, and other small business topics.