1. Get an Employer Identification Number
An employer identification number, known simply as an EIN, must be obtained before you hire employees. You get it through the IRS by filling out Form SS-4. You can do this online, or you can call the IRS at 1-800-829-4933. You can think of an EIN as a social security number for your business. You'll need it to file for taxes and many other business activities, including withholdings and payroll taxes for employees. Learn more about applying for an EIN.
2. Establish Records for Taxes
The IRS requires you to save all employment and tax records for a minimum of four years. These records form an essential component of your paper trail. Be prepared to withhold federal, state, and local taxes, and to fill out the forms appropriate for each one. All your employees must provide Form W-4, and you must keep copies, and submit them to the IRS if and when they request copies. You must also file the W-2 forms as well as the tax statements for each level, which you can do online with the Social Security Administration. The W-2 forms are due on January 31.
3. Submit Employee Eligibility
According to federal law, you must verify your employee's eligibility to work. You need to do it within three days of hiring your employee, using form I-9 or the E-Verify system online with the office of US Citizenship and Immigration Services. To complete this task, you need to verify that the documents provided by the employee show that person's citizenship or ability to work legally in the US. Keep in mind that you can only request this information from your employee if you fill out the I-9 form. Otherwise, the employee is under no obligation to comply.
4. Report Your New Hires
All businesses need to report their new hires. Your individual state will have its own reporting process, and it can be found by searching online for your state's name and the term "New Hire Reporting System." Make sure that you do this within 20 days of hiring a new employee—and that's 20 actual days, not 20 business days. This is a common error, and the government can fine you for being late.
5. Establish Workers' Compensation Insurance
According to the Small Business Administration, all businesses must get workers' compensation insurance when they start hiring employees. However, this only applies to employees and not to independent contractors—so it's important to understand the difference. Once you're clear on what type of worker you're hiring, put it in writing with an Employment Contract or an Independent Contractor Agreement so your relationship is crystal clear.
If you're hiring employees, workers' compensation insurance can be obtained from either a commercial carrier, the state Worker Compensation Insurance program, or a fund that you establish on your own, as long as you meet your state's requirements.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.