Congratulations, you’re ready to hire! Now that you’ve determined your new hire is an employee (and not an Independent Contractor), you must satisfy these 8 steps to hire an employee. To ensure that your business and role as an employer goes smoothly, make sure you take the correct measures when you hire a new employee.
1. Obtain An Employer Identification Number (EIN)
Before you even hire your first employee, you should have an employer identification number (EIN). The EIN is used on tax returns and other documents that you submit to the IRS. To get an EIN, you have to file an IRS form SS-4, found here.
2. Verify Employee Eligibility
We’re aware that being an all-inclusive employer means not turning anyone away who is right for the job, but Federal Law does require employers to verify an employee’s eligibility to work in the U.S. within three days of the hire. The employer must complete Form I-9 to do so, found here.
Employers must keep the I-9 form in their files for three years, or one year after the date of employee’s termination (whichever is later) and make it available for inspection by officials of Immigration and Customs Enforcement (ICE).
3. Fill out IRS Form W-4
Employees must fill out an IRS Form W-4 to give to their employer. This form tells the employer the allowances the employee claims for tax purposes, and thus enables the employer to withhold the correct amount of tax from their paychecks. The form can be found here.
4. Carry Workers’ Compensation Insurance
Workers’ compensation insurance protects your employees who might suffer on-the-job injuries. The coverage is not only for employee safety but also for the company’s peace of mind, knowing that your employees are covered if an accident were to occur (which we hope doesn’t happen).
5. Report to State Hiring Agency
It’s important to keep your business up-to-date with all of the relevant governmental agencies. This includes updating your state directory about any newly hired or re-hired employees. Each state has its own reporting agency. Visit the New Hires Reporting Requirements page to find your state’s New Hire Reporting System.
6. Clarify The Employee’s Classification
Classifying employees properly as either exempt or nonexempt (more on that here) determines how the new employee will be paid and how they will be onboarded. For example, exempt employees are paid a salary and nonexempt employees are paid hourly, which affects the method of payroll used and the particular legal protections needed (e.g. minimum wage). Therefore, it’s important to be clear about classification from the start.
7. Set Up Payroll
You’ll need to withhold a portion of your employee’s income and deposit it with the IRS, and also make Social Security and Medicare tax payments to the IRS. You may also need to withhold taxes for your state.
In California, payroll tax requirements are obtained from the California Employment Development Department (EDD) and from California Department of Industrial Relations (DIR). The EDD requires you to withhold personal income tax and state disability insurance from employees’ paychecks. The DIR enforces a range of labor laws including state minimum wage and overtime pay requirements, which are updated on an annual basis. See 2018 Employment Law Updates for more deets.
*Pro Tip*: Some payroll companies offer assistance in handling all of the above filings and requirements for you.
8. Onboard New Hires
Now that you have fulfilled your federal and state duties, you’re ready to onboard! We recommend using an offer letter and job description, an employee non-disclosure agreement (NDA), and an employee handbook to stay compliant. These documents are crucial to keep you as the employer and the new employee on the same page with the laws and policies of the business. If an employer does not use these basic, employment documents, then the employer should discuss their options with their lawyers.
For more more information on these important onboarding tools, check out the following resources: Why Every Employer Should Use Employee Job Descriptions and Why an Employee Handbook is Really an Employer Handbook.
Revised by: Zachary Avina – 05/20/18
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Disclaimer: Although this article may be considered advertising under applicable law and ethical rules, the information in this article is presented for informational purposes only. Nothing should be taken as legal advice. Reading this article does not form an attorney-client relationship with us. An attorney-client relationship is formed through a signed engagement agreement. If you would like further information, wilkmazz pc would love to help you out! Feel free to reach out with any questions.