Employees. You may be the brains of your business, but the people you hire will be your company’s backbone.
But hiring employees isn’t just as simple and doing a few interviews and picking the right candidate.
You’ll also need to file some official paperwork. We’ll show you how:
Employee Records, Withholding, and Eligibility Verification
No matter what kind of records you’re keeping, keeping good records is just good business sense. Good records will also make keeping track of employees easier, and may even prove crucial, as employee paperwork can pile up; the IRS recommends that you keep employment records for at least 4 years. The following forms highlight the most important ones:
When you decide to hire a new employee and they accept your offer, one of the first forms they should be filling out is Form W-4. All new employees should fill out Federal Form W-4, Withholding Exemption Certificate when they are hired. This form indicates the amount of income taxes you should withhold from your employee’s pay, as your new hire can claim exemption from income tax withholding on the W-4. You’ll need to keep a copy of this form for your records, as it will remain in effect until the employee gives you a new one.
At the end of each tax year, you’ll need to report wages paid and taxes withheld to the federal government. To do this you need to complete Form W-2, Wage and Tax Statement for each employee you pay wages, salary, or other compensation. On the form, you’ll need to enter your employee’s name and social security number. This is why you’ll want to verify this information by viewing their social security card when you hire them.
For your new hire, you’ll also need to verify they’re eligible to work in the United States. To do this, have them complete federal Form I-9, Employment Eligibility Verification. You aren’t required to submit Form I-9 to any government agency, but you do need to keep it in your records for three years after the employee’s hire date, or one year after the date of the employee’s termination, whichever is later.
New Hire Reporting
Within 20 days of hiring a new employee, federal law requires that you report any and all newly hired or re-hired employees to a state directory. What’s odd is this is a federal requirement but each state has its own reporting system. Fortunately, in most new hires can be reported online, and you can find a list of all state new hire directories on the Small Business Association’s website. The reports are simple and only require the information given to you by the employee on their W-4 form. You are required to report the following information:
- The employer’s name, address, and Federal Employer Identification number (FEIN)
- The employee’s name, address, Social Security number, and date of hire
Meeting State Requirements
You will need to make sure you meet state requirements as well as federal ones. The hiring requirements do vary from state to state. For example California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico all require businesses to pay for temporary disability insurance, while the other states and jurisdictions do not. The SBA has compiled a set of references so you can easily find what your state requires of businesses when hiring employees.
All states will require employers to register with departments of revenue and labor and obtain workers’ compensation insurance and unemployment insurance. In most states, your business’ unemployment insurance tax rate will likely be determined by the department of labor once you register. Similarly, workers’ compensation insurance is required for most businesses; however, this insurance is typically purchased from a private provider, though, depending on your business and the state in which you’re operating, you may qualify to self-insure as an individual business or as a member of a self-insured group. Again, though, each state has different requirements, so check with the link provided above to find what required in your state. Otherwise, failure to comply with state requirements can subject your business to fines and penalties, so it’s definitely worth finding what your state requires.