You’ve scoured resumes, interviewed applicants and finally found the perfect first employee. But have you satisfied the tax and legal obligations needed to make your first hire? If you’re not sure where to start, follow this checklist to learn how to hire your first employee in six steps.
Hire your first employee in 6 steps
1. Get an Employer Identification Number (EIN)
The EIN is a nine-digit number assigned to businesses for identification and tax purposes. You must get an EIN from the IRS to legally hire employees, report taxes to the IRS and report employee information to state agencies. Obtaining an EIN is simple but should be done before you hire your first employee. The IRS website makes it easy to apply for an EIN online or by fax, mail or phone.
2. Verify your employee’s work eligibility
Verifying your new hire’s eligibility to work in the United States is required by federal law. As the employer, you need to fill out Form I-9 within three days of the hire to verify the citizenship or employment eligibility of the new hire. You don’t need to file the completed Form I-9 with the IRS. But you do need to keep it in your records for the latter of three years after the hiring date or one year after his or her termination.
3. Learn federal and state tax requirements
Both part- and full-time employees need to fill out Form W-4 to designate their withholding exemptions. The employee should provide you with the completed form so that you can withhold the right amount of federal income tax from his wages. Depending on which state you live in, you may also need to withhold state taxes.
You also need to report wages paid and taxes withheld for your employees. Complete and then file Form W-2 for each paid employee. You have until the end of February to send Copy A of Form W-2 to the Social Security Administration for employee wages and taxes for the previous calendar year. You have until the end of January of the year after the reporting period to send W-2 copies to employees.
Lastly, any employer who pays wages subject to tax withholding must file IRS Form 941.
4. Report the new hire to a state directory
The Personal Responsibility and Work Opportunity Reconciliation Act requires employers to report new hire data to a state directory within 20 days. Visit the Department of Health and Human Services website for links to individual state agencies.
5. Get workers’ compensation insurance
Workers’ compensation insurance provides replacement wages to employees injured on the job. As a business with employees, you must carry workers’ compensation insurance for employees through a commercial insurer, self-insurance or a state-specific program.
6. Inform workers about their rights
Labor laws mandate that employers display posters in the workplace to inform employees about their rights. They also inform employers about their responsibilities in complying with these laws. Visit the Department of Labor website to find out which posters your organization needs.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.