Hi Folks Dave Waring here again with Fitsmallbusiness.com and today's lesson of the day. In our last
lesson we continued our series on how to hire and managing, with a look at how to conduct
initial interviews. In today's lesson we are going to continue that series with a look
at the legalities of hiring employees. So let's get started!
Before we dive in I need to start with the disclaimer that this is not a comprehensive
list and it may have some unintentional inaccuracies or become outdated over time. You should consult
your legal and account advisors when hiring, however we feel the following is a great starting
point.
Now with that out of the way Here are the legal steps you should cover before hiring
your first employee:
#1 Start An Employee File
The Department Of Labor requires that you have a written record of the following information
which is regularly updated.
Personal Information - Full Name, Social Security Number, Mailing Address, Gender,
Occupation, and Date of Birth Compensation - Employee's Hourly Wage
or Weekly Salary, and Frequency Of Compensation payment
Payroll Deductions - What is being deducted from paychecks?
Records Of Hours Worked - Hours Worked and Overtime Hours. Also what is the employee's
work schedule. Records Of Compensation Paid - Date, Amount,
and Period of Time Covered For Payments
Correctly recording and maintaining employee files can be complicated. There are several
great articles on this topic which I have included in the resources link below this
video.
#2, Collect W-4 Forms From The New Employee (so that you can withhold the proper amount
of taxes from the employee's paycheck). I have included a link to the W-4 form as
well as all the other documents mentioned in this step in the resources link below this
video.
Additionally, if your state has an income tax your employee will have to fill out state
income tax forms.
To fill out these forms, you will need to provide employees with your Employer Identification
Number (AKA EIN or FEIN).
Filling out these forms is a first initial step that starts the process of calculating
employee's withholdings, reporting the information to the IRS and transferring funds to the IRS.
Additionally, having employees means the business is paying FICA and unemployment insurance
tax. These issues are discussed in detail in our article on the topic which I have included
a link to in the resources link below this video.
#3 Report Your New Hire To The State
Generally speaking, within 20 days of bringing on a new hire, you must report new hire information
to the state. This requirement has to do with making sure that employees are meeting their
child support requirements and aren't inappropriately getting unemployment checks. You will need
to provide information including the employee's name, address, social security number, hire
date and first day of work.
I have included a link where you can find where to report new hires for your state in
the resources link below this video.
#4 Verify The Employee Is Legally Allowed To Work and Fill Out an I-9 Form
Technically, you are verifying the employee's identity AND their eligibility to work. Unlike
the W-4 form, where you are providing the form to the employee to fill out, a representative
of the company must fill out this form and collect the information from the documents
provided by the employee. In theory, this form can be completed in 5 minutes if the
employee has the right documents ready. You don't submit the I-9 form, but must have
it available for authorities to examine. I have included the documentation the employee
will need as well as a link to the I-9 form in the resources link below this video.
#5 Put Up Federal & State Labor Law Posters
When you have employees, you need to put up notices required by state and federal laws
in areas where all employees can see them. While this might seem like a trivial requirement,
my local laundromat which has 3 employees was fined for not having the poster up. I
have included a link where you can buy these posters in the resources link below this video.
#6 Buy Worker's Compensation Insurance
In all states except Texas you are legally required to buy worker's compensation insurance
when you have employees. In most states, this insurance is bought through the private marketplace.
The same broker that you use to insure your business's property should be able to sell
you worker's compensation insurance as well.
For more great info on the requirements for hiring your first employee see the article
from the SBA which I have included in the resources link below this video.SBA.
For more great free information on how to start and run a successful small business
be sure to visit us at fitsmallbusiness.com today. Thanks for watching!