Hiring your first employee is a big step, but it comes with responsibilities. To stay compliant with federal, state, and local regulations, you’ll need to handle several legal, tax, and administrative tasks. Here’s a quick breakdown of what you need to do:
- Get an Employer Identification Number (EIN): Apply for free on the IRS website.
- Register with State Agencies: Handle unemployment insurance and tax withholding requirements.
- Secure Workers’ Compensation Insurance: Mandatory in most states.
- Set Up Payroll: Calculate wages, withhold taxes, and comply with pay schedules.
- Post Labor Law Notices: Display required posters for federal and state labor laws.
Once you’re ready to hire, complete these forms:
- Form I-9: Verify work eligibility within three business days.
- Form W-4: Determine federal tax withholding.
- State Withholding Forms: Check your state’s specific requirements.
- Health Coverage Options Notice: Provide within 14 days if applicable.
After hiring, meet state and local requirements:
- Report New Hires: Submit employee details within 20 days (varies by state).
- Distribute State-Required Notices: Inform employees about benefits like paid leave or disability insurance.
- Follow Local Rules: Comply with minimum wage, sick leave, and scheduling laws.
Finally, maintain compliance by organizing records, filing taxes on time, and keeping labor law posters up to date. Tools like payroll software or compliance alerts can simplify this process.
Hiring doesn’t have to be overwhelming if you follow these steps. Preparation and organization are key to avoiding penalties and ensuring smooth operations.
Step 1: Get Your Business Ready to Hire
Before bringing on your first employee, you’ll need to take care of a few administrative steps to stay compliant with legal requirements. These steps will help you establish a solid framework for hiring.
Get an Employer Identification Number (EIN)
Think of an EIN as your business’s version of a Social Security number. It’s essential for payroll, tax reporting, and employee-related filings – so even if you’ve been using your personal SSN for your business, you’ll need to switch to an EIN.
The good news? You can apply for an EIN for free on the IRS website. The process takes about 15 minutes, and you’ll receive your EIN immediately after completing the application. All you’ll need is some basic business information, like your legal business name, address, and structure. If you’d prefer professional assistance, services like BusinessAnywhere can handle the application for you for $97.
Make sure to keep your EIN handy – it’ll be required for setting up payroll, opening business bank accounts, and filing taxes.
Register with State Agencies
Most states require you to register with specific agencies before hiring employees. These agencies handle unemployment insurance and state income tax withholding. Registration processes vary by state – some states combine these into one streamlined registration, while others have separate processes.
For example, in California, you’ll register with the Employment Development Department (EDD), while in Texas, you’ll work with the Texas Workforce Commission. Since some states take weeks to process registrations and issue the necessary account numbers, it’s smart to start early.
To find out what’s required in your state, visit your state’s Department of Labor website or contact them directly.
Get Workers’ Compensation Insurance
In most states, you’ll need workers’ compensation insurance as soon as you hire your first employee. This coverage protects both your business and your employees in case of work-related injuries or illnesses. While a few states offer exemptions for very small businesses, these are rare and can leave you vulnerable.
If you’re in a state like Texas, where workers’ compensation is optional, it’s still worth considering for the added protection. To secure coverage, reach out to a licensed insurance agent in your state who can guide you through the process.
Set Up Payroll Processing
Payroll isn’t just about cutting checks. You’ll need a system in place to calculate wages, withhold taxes (federal, state, Social Security, and Medicare), and maintain accurate records. You’ll also need to choose a pay schedule that complies with your state’s laws.
You can handle payroll manually, but for most businesses, using payroll software or hiring a payroll service is a smarter choice. These tools not only simplify the process but also help ensure accurate tax filings, saving you time and avoiding costly mistakes.
Post Required Labor Law Notices
Federal law requires you to display labor law posters – like those for the Fair Labor Standards Act (FLSA), Equal Employment Opportunity Commission (EEOC), and Occupational Safety and Health Administration (OSHA) – in areas accessible to employees. These posters need to be updated annually.
Beyond federal requirements, many states and local governments have their own posting rules. These might include notices about state-specific wage laws, workers’ compensation, or unemployment benefits. Check with your state and local agencies to ensure you’re covering all bases.
Step 2: Complete Required Employee Forms
Once you’ve set up your business, the next step is to handle the necessary employee forms. These forms are crucial for staying on the right side of the law and protecting both you and your employees. Deadlines for these forms can come up quickly, so it’s essential to stay organized.
Form I-9: Employment Eligibility Verification
Form I-9 is required to confirm that every employee is authorized to work in the United States. Both you and your employee must complete this form, and it’s a two-step process.
- Employee’s Role: On their first day, employees fill out Section 1 with details like their name, address, birth date, Social Security number, and work authorization status.
- Employer’s Role: Within three business days of the employee’s start date, you must complete Section 2. This involves reviewing documents that verify their identity and work authorization. Examples of acceptable documents include a U.S. passport, a permanent resident card, or a combination of a driver’s license and Social Security card. Employees choose which documents to provide from the approved list.
Once completed, you’re required to keep I-9 forms for three years after the hire date or one year after employment ends, whichever is longer. Store these forms separately from other personnel files so they’re easily accessible for audits.
Next, let’s look at the tax forms you’ll need to address.
Form W-4: Employee’s Withholding Certificate
Form W-4 helps determine how much federal income tax to withhold from an employee’s paycheck. Employees should complete this form before you process their first payment.
The updated W-4 form uses a five-step process, where employees provide their filing status, note if they have multiple jobs or a working spouse, claim dependents, and make adjustments for extra withholding if needed.
State Tax Withholding Forms
In addition to the federal W-4, many states require employees to complete a state-specific withholding form to calculate income tax withholding. These forms function similarly to the W-4 but are tailored to each state’s tax regulations.
| State | Form Name | Deadline |
|---|---|---|
| California | DE-4 | First day of work |
| New York | IT-2104 | Before first paycheck |
| Illinois | IL-W-4 | First day of work |
If you’re in a state like Texas, Florida, or Washington, where there’s no state income tax, you won’t need additional forms. To ensure accuracy, always check your state’s Department of Revenue website for the latest forms and requirements.
Health Coverage Options Notice
If your business falls under the Fair Labor Standards Act (FLSA), you must provide new hires with a Health Coverage Options Notice within 14 days of their start date. This notice outlines the health insurance options available through the Health Insurance Marketplace.
The notice should include:
- Information on potential eligibility for lower-cost private insurance through the Marketplace, depending on income and employer-provided coverage.
- A reminder that purchasing insurance through the Marketplace could mean losing any employer contribution to health benefits.
This notice is required for all employees, regardless of whether they’re eligible for or enrolled in your health plan. While there’s no penalty for failing to provide it, it’s still a legal obligation. The U.S. Department of Labor offers model notices that meet the necessary standards, or you can create your own. Unlike annual benefit notices, this is a one-time requirement for new hires.
To make the process smoother, consider using digital tools for collecting and managing these forms. Allowing employees to complete and sign documents online can help you meet deadlines and stay compliant.
Step 3: Meet State and Local Requirements
Once you’ve handled federal employee filings, it’s time to tackle state and local requirements. These rules vary widely, and failing to comply can lead to hefty penalties.
Report New Hires to Your State
Most states require employers to report new hires within a set timeframe – typically 20 days from their start date. This information helps state agencies enforce child support laws and combat unemployment insurance fraud.
You’ll need to submit details like the employee’s name, Social Security number, address, and start date. Here’s a quick look at how some states handle this:
| State | Deadline | Submission Method |
|---|---|---|
| California | 20 days | Online, mail, or fax |
| Texas | 20 days | Online preferred |
| New York | 20 days | Online or paper |
| Florida | 20 days | Online, mail, fax, or magnetic media |
Some states require faster reporting – 7 days – if you’re submitting electronically or magnetically on a regular basis. Be sure to check your state’s specific requirements, as late submissions can lead to fines ranging from $25 to $500 per employee.
If your business operates in multiple states, you’ll need to report new hires in each state where employees work. This can get tricky, especially with remote teams spread across different areas.
Once you’ve completed new hire reporting, make sure you’re also providing the necessary notices and benefits required by your state.
Provide State-Required Notices and Benefits
States often require employers to distribute notices about programs like paid family leave, disability insurance, workers’ compensation, or wage laws.
For instance:
- California mandates notices about its paid family leave program.
- New York requires information on paid family leave benefits and disability insurance.
- Rhode Island expects notices about temporary disability insurance to be provided within 30 days of hire.
Paid leave programs are becoming more common. States like Connecticut, Massachusetts, and Oregon now have their own paid family and medical leave requirements, each with specific notice obligations.
In states with disability insurance programs – such as California, Hawaii, New Jersey, New York, and Rhode Island – you’ll also need to inform employees about how to access these benefits and what they include.
Many state labor departments offer downloadable templates for these notices. Be sure to keep them updated, as laws change frequently.
Check Local Employment Rules
State requirements are just one piece of the puzzle – local ordinances often add another layer of complexity. These can include rules around minimum wages, paid sick leave, scheduling, and more.
- Minimum wage: While the federal minimum wage is $7.25 per hour, local rates are often higher. For example, Seattle’s minimum wage for large employers is $18.69 per hour, and San Francisco’s will be $18.07 per hour in 2024.
- Paid sick leave: Dozens of cities and counties mandate paid sick leave. Chicago requires up to 40 hours annually, and Los Angeles mandates up to 48 hours.
- Fair scheduling laws: Cities like San Francisco, Seattle, and New York City have laws requiring advance notice of work schedules, along with compensation for last-minute changes.
- Ban-the-box legislation: Many jurisdictions, including Austin, Philadelphia, and Portland, prohibit asking about criminal history on job applications.
To stay on top of local rules, check your city and county websites or contact their business licensing departments. Local chambers of commerce often provide resources to help new employers navigate these requirements.
If managing these obligations feels overwhelming, tools like BusinessAnywhere’s compliance support can help you track varying regulations across jurisdictions. Staying organized becomes even more critical as your business grows and expands into new locations.
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Step 4: Organize Employee Records
Once employees complete the necessary forms and meet state-specific requirements, the next step is keeping their records in order. Properly organized records not only help with compliance but also make audits less stressful.
Collect Essential Employee Information
Gather key details for every new hire, including their full legal name, Social Security number (matching official documents), current address, phone number, emergency contact, banking information for direct deposit, date of birth, start date, job title, and pay rate (whether hourly or salary). Double-check this information before running payroll to avoid any reporting mistakes.
Understand Document Retention Requirements
Different types of employee records come with varying retention rules dictated by federal and state laws. For example, documents related to employment eligibility, payroll, and taxes often have specific timelines for how long they must be kept. To stay compliant, consult up-to-date regulations or seek advice from a legal professional. It’s helpful to organize files based on their retention periods, making it easier to manage records over time.
Keep Records Secure
Since employee files contain private and sensitive information, securing them is critical. Separate highly confidential documents from general personnel files to maintain privacy. Use a secure storage solution – this could be locked physical cabinets or encrypted digital systems with regular backups.
Consider using a digital or cloud-based HR platform that includes encryption, access controls, and automated retention schedules. These systems often come with audit trails, which can be useful for tracking access. Avoid storing sensitive details like Social Security numbers in unsecured or easily accessible places. Establish clear access protocols, allowing only authorized staff to view these records. This safeguards your employees’ personal information and protects your business from potential risks.
Step 5: Maintain Compliance After Hiring
Once your hiring process is up and running, the work doesn’t stop there. Staying compliant involves regular tax filings, keeping documentation up to date, and adjusting to any new regulations. Skipping these steps can lead to penalties, added interest, or even legal trouble. By keeping your records organized, you can stay on top of these ongoing responsibilities.
Handle Payroll Tax Reporting
For federal payroll taxes, you’ll need to file Form 941 every quarter by April 30, July 31, October 31, and January 31. Additionally, file Form 940 annually by January 31 to report your FUTA (Federal Unemployment Tax Act) liability. If your FUTA taxes exceed $500 in any quarter, you’ll need to make quarterly payments. State unemployment taxes follow similar guidelines, but the specifics vary, so check with your state’s labor department to confirm the rules and rates.
New employers are generally required to deposit payroll taxes monthly, by the 15th of the following month. However, if your total liability for a quarter exceeds $50,000, you’ll need to switch to a semi-weekly deposit schedule. Missing these deadlines can result in penalties ranging from 2% to 15% of the unpaid taxes, so timely payments are crucial.
Provide Year-End Tax Documents
By January 31, you must issue Form W-2 to all employees and submit copies to the Social Security Administration along with Form W-3.
For independent contractors, if you’ve paid them $600 or more during the year, you’ll need to send out Form 1099-NEC by January 31 and file copies with the IRS. Keeping detailed records – like contractor agreements, payment details, and completed Form W-9s – throughout the year can make this process much smoother.
If you’re filing 250 or more forms, electronic filing is mandatory. Even if you’re under that threshold, electronic submissions are typically faster and more reliable. The IRS offers free filing tools through its Business Services Online portal, which can also help you track submissions and receive confirmation of receipt.
Keep Labor Law Posters Current
Labor law posters must be visible to employees in the workplace. Federally required posters cover topics such as minimum wage, family and medical leave, equal employment opportunities, workplace safety, and employee rights under the National Labor Relations Act. The Department of Labor updates these posters periodically, so reviewing them annually is a good practice.
Each state may have additional poster requirements, which can vary significantly. For example, California mandates over a dozen workplace posters covering topics like workers’ compensation and state-specific leave policies, while other states may have fewer requirements.
For remote employees, compliance can be tricky. While physical posters are still required for office locations, you should also provide digital copies to remote workers. This can be done through email, employee handbooks, or an intranet. Some states even have specific rules about digital access to posters for remote teams, so be sure to check the requirements.
Use Compliance Support Tools
With laws and regulations changing regularly, staying compliant requires consistent effort. Compliance alert services can help you stay on top of deadlines, regulatory updates, and new requirements that could affect your business.
For instance, BusinessAnywhere offers compliance alerts that notify you about federal tax deadlines, state filing requirements, and other regulatory changes. These automated reminders make it easier to manage multiple compliance calendars without missing important dates.
As your business grows, professional support can be a valuable resource. Employment law attorneys, HR consultants, and payroll service providers can help you navigate complex compliance issues. While these services come at a cost, they’re often far less expensive than dealing with penalties, legal disputes, or disruptions to your operations.
Regular audits are another way to stay ahead of potential issues. Consider reviewing your processes on a quarterly basis to ensure your tax deposits match filing requirements, employee records are up to date, and workplace posters reflect the most current regulations. This proactive approach not only protects your business but also sets a strong foundation for future growth.
Conclusion
Bringing on your first employee is a big milestone, but it also comes with important compliance responsibilities. Following this checklist helps you stay on track, reducing the chances of penalties or legal complications – from federal registrations to ongoing tax requirements.
Getting organized early is key. Set up essential systems ahead of time and stay on top of quarterly filings, annual reports, and any regulatory updates. Tools like BusinessAnywhere’s compliance solutions can simplify tasks like timely filings and payroll accuracy. As your business expands, consider seeking professional HR advice or employment law expertise to avoid costly mistakes and ensure everything runs smoothly.
FAQs
What steps do I need to take to stay compliant when hiring my first employee in the U.S.?
Before bringing on your first employee, there are a few essential steps to ensure you’re following U.S. regulations. First, you’ll need to get an Employer Identification Number (EIN) from the IRS. This number is necessary for handling taxes and other employer responsibilities. Then, make sure to register with your state’s labor department so you can report new hires and meet any state-specific requirements.
Setting up a payroll system is another key task. This will help you manage employee wages, taxes, and deductions efficiently. Additionally, you’ll need to verify each employee’s work eligibility by completing Form I-9 and keeping it on file for your records. Lastly, take time to review both federal and state labor laws to ensure your business complies with standards for wages, hours, and workplace safety. Staying on top of these steps will help you navigate the hiring process with confidence and compliance.
What’s the best way to handle payroll and tax reporting for new employees to stay compliant?
Managing payroll and tax reporting efficiently is crucial to staying compliant and avoiding penalties. A great first step is to invest in a dependable payroll system. These systems can automate tax calculations and ensure payments are made on time, significantly reducing the chance of errors.
It’s also important to keep track of key deadlines, such as quarterly tax filings, and understand wage caps, like the Social Security wage base. Staying informed about changes in tax laws and labor regulations is essential, so make it a habit to review updates regularly. Conducting periodic audits can help you catch and fix discrepancies early. For added confidence, you might want to consult with a tax professional.
Taking these actions can simplify your payroll processes, ensure compliance with reporting requirements, and help you avoid unnecessary penalties.
What state and local requirements should I consider when hiring my first employee, and how can I stay updated on changes?
State and local employment laws in the U.S. differ significantly depending on where you operate. These laws cover key areas like minimum wage, paid leave, workplace safety, and tax reporting. To stay compliant, it’s crucial to understand the specific rules in your state and city.
A good starting point is to regularly visit your state’s labor department website for updates. Subscribing to newsletters from trusted HR or legal organizations can also keep you informed about any changes. If the regulations feel overwhelming, consulting with an HR professional or legal advisor can provide clarity and guidance. Taking these steps not only helps you stay compliant but also lays the groundwork for a well-managed and legally sound business.
