Hiring an Employee

As I mentioned yesterday, it’s time for me to convert my contractor to a full time employee. I decided to devote the full day to focusing on that task, expecting it to be a long, complicated process. While there are a number of things that must be done when hiring, it’s not as complicated and complex as I had expected.

While I don’t intend for this to be comprehensive, for any other small business owners out there getting ready to hire for the first time, I thought I’d relay the list of steps necessary to take when you start hiring. Of course, there is a lot of work when it comes to finding, interviewing, on-boarding and training great employees that I won’t go into here…but I do want to cover the basic legal steps you should be aware of:

1. Get Your Federal EIN: This is your Employer Identification Number, and serves as your tax id for the IRS. You should probably have done this when your business was first created (it was the first thing I did after I got my LLC created), but if you haven’t, now is the time.
2. Register with State DOL: Most businesses are required to pay State unemployment insurance for salaried employees. This is generally administered by your State’s Department of Labor (DOL). If so, you probably need to register your business with the DOL before (or immediately after) hiring your first employee).
3. Register Your New Hire: All states require that you register new employees into a state-wide database within 20 days of employment. Check here for the registration information for your state.
4. New Hire Paperwork: All new hires need to fill out both an IRS W-4 (Withholding Exemption Certificate) and a Federal I-9 (Employee Eligibility Verification).
5. Set Up Payroll: When you pay your employees, you need to withhold various amounts for federal taxes, state taxes, unemployment, Social Security, Medicare, etc. And the company also has to pay it’s own share of these things as well. Then, you need to remit these payments to the appropriate taxing authorities and submit regular returns documenting your payments. While you might be able to do all this yourself, there are several companies that will do it for you, for very reasonable fees. Paychex, ADP, and Intuit are the most popular; in fact, as an “Executive Member” at Costco, I was able to get Intuit Online Payroll services for less than $7/month, plus the first 6 months free! They’ll do all the paycheck, including direct deposit, and all I have to do is mail in the forms when the time comes. For a few extra bucks, they’ll even take care of all the filings and forms.
6. Get Worker’s Comp Insurance: When you have employees, you must have worker’s comp insurance. Check your local laws for the requirements, but don’t forget to cover yourself when it comes to insurance!
7. Get Disability Insurance: While disability insurance may or may not be required in your state (it isn’t in mine, but is in CA, NJ, HI, and a couple other states), you still may want to consider getting it to cover your butt in the case of an accident or other unforeseen circumstance affecting you or one of your employees.

There are plenty of other little things that you should be aware of (like posting required notices in the workplace, creating employee manuals, etc), but this should get your started if you’re looking to hire your first employee…