Making the transition from “solopreneur” to “business owner with employees” brings growth opportunities – along with new challenges. It’s natural to feel intimidated by the prospect of hiring employees. But don’t let that keep you from taking your business to new levels of success.
So You Want To Be The Boss: A Step-by-Step Guide To Hiring Your First Employee, an e-book published by ComplyRight in partnership with SCORE, walks you through the hiring process from start to finish. From creating a job description and screening applicants to making an offer and completing the required paperwork, this handy guide provides clear and practical advice each step of the way.
Let’s take a brief look at what’s covered in steps 7 and 8 related to payroll and its associated paperwork.
Complete the Required Paperwork
Yes, hiring new employees does involve paperwork. Half the battle is knowing what forms you need to complete and what you need to do with them. Fortunately, it’s not complicated.
- Verify Employee Eligibility
Within three days of hiring an employee, you must verify the individual is legally allowed to work in the United States. Federal law mandates that you complete Form I-9 (Employment Eligibility Verification), which asks you to examine certain documents as outlined in the I-9 instructions.
The law doesn’t require that you submit the I-9 form to the government. But you must store the form for three years after the employee’s hire date or one year after the employee leaves your company, whichever comes later. The best practice is to keep all I-9 forms stored together in one place, and separately from employees’ other personnel forms and records.
- Have the Employee Complete a Withholding Allowance Certificate
To determine how much to withhold from an employee’s paycheck to cover federal taxes, have the employee complete Form W-4, which tells you the number of allowances he or she wants to claim. Again, this form is for your reference, and is not to be filed with the IRS.
Set Up Payroll and Tax Withholding
- Establish a Payroll System
As an employer, you’re required to withhold a portion of each employee’s wages for taxes, including:
- Federal income tax
- Social Security and Medicare Tax
- State income tax (Some states do not collect income tax, so check this list of state tax agencies to see what rules apply in your state.)
You also need to send the amount you withhold to the proper tax authorities. Rather than managing this yourself, consider using a payroll service or online payroll app. Doing so can simplify payroll and tax withholding, and ensure the process is completed correctly. Payroll services stay current on tax law changes, and they automatically withhold the proper tax amounts from employees’ wages. Many payroll services offer reasonable rates, so even the smallest businesses can afford them.
For more in-depth information about your responsibilities regarding federal employment taxes, read the Employer's Tax Guide, available on the IRS website.
- Establish a Recordkeeping System
The IRS requires you to keep employment tax records for at least four years after the taxes were paid, so set up an effective recordkeeping system for your employees’ tax information.
Besides W-4 forms, you might also need to keep records of wages and tips. State laws vary about recordkeeping, so make sure you research the rules that apply to you.
Need More Guidance?
Paperwork and payroll are important steps in the process of hiring your first employee, but there’s a lot more to learn. Download our complete guide today, so you don’t miss out on any of the important considerations. And for guidance in navigating all the opportunities and challenges of starting or managing your small business, talk with a SCORE mentor.
ComplyRight creates practical products and services to help small businesses complete essential HR and tax reporting tasks in an efficient and legally sound manner. From hiring to firing, to mandatory employee postings, to 1099 and W-2 processing, our solutions are guaranteed to be 100% compliant with federal and state (and in some cases, local) employment laws. Our direct brands include HRdirectapps.com (simple and smart online HR software), PosterTracker.com (complete range of ComplyRight posting solutions), efile4biz.com (online 1099, W-2 and ACA form processing), and HRdirect.com (leading provider of ComplyRight HR products).
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.