When hiring a new employee, it is important to start off on the right foot as an employer by making sure you follow all of the legal rules that now apply to you. From tax forms to government registrations to insurance requirements and more, being an employer carries a number of obligations.
You'll find our to-do list for new employees below:
Obtain an employer identification number. When you hire employees, you must get an employer identification number (EIN) to use on tax returns and other documents you submit to the IRS. To get an EIN, you must file IRS Form SS-4. In addition, the EIN is necessary when reporting information about your employees to state agencies. Apply for EIN online or contact the IRS at 1-800-829-4933. You can download the form from the IRS website at www.irs.gov.
Register with your state's labor department. Once you bring on employees, you will have to pay state unemployment compensation taxes. These payments go to your state's unemployment compensation fund, which provides short-term relief to workers who lose their jobs. Go to https://eddservices.edd.ca.gov/index.html to register with the California Employment Division Department.
Get workers' compensation insurance. You should have workers' comp coverage to protect workers who might suffer on-the-job injuries. Workers' comp insurance is required in the vast majority of states, although some make an exception for very small employers.
Set up a payroll system to withhold taxes. You'll need to withhold a portion of each employee's income and deposit it with the IRS, and also make Social Security and Medicare tax payments to the IRS. For more information, get IRS Publication 15, Circular E, Employer's Tax Guide from the IRS website at www.irs.gov. (You may also have to withhold taxes for your state.)
Have each employee fill out IRS Form W-4, Withholding Allowance Certificate. On the W-4 form, employees tell you how many allowances they are claiming for tax purposes, so that you can withhold the correct amount of tax from their paychecks. According to the IRS, you must keep records of employment taxes for at least four years. Keeping good records can also help you monitor the progress of your business, prepare financial statements, identify sources of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns. You can find this form at www.irs.gov. You should ask employees to fill out a new W-4 form each year if they want to change their allowances.
Below are three types of withholding taxes you need for your business:
Federal Income Tax Withholding. Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS.
Federal Wage and Tax Statement. Every year, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2, wage and tax statement. Employers must complete a W-2 form for each employee who they pay a salary, wage or other compensation.
Employers must send Copy A of W-2 forms to the Social Security Administration by the last day of February to report wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of W-2 forms to their employees by Jan. 31 of the year following the reporting period.
State Taxes. Depending on the state where your employees are located, you may be required to withhold state income taxes.
Fill out Form I-9, Employment Eligibility Verification for each new employee. U.S. Citizenship and Immigration Services (USCIS, formerly known as the INS) requires employers to use this form to verify that every employee they hire is eligible to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee's citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form.
Employers do not need to submit the I-9 form with the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later. You can obtain the form online at www.uscis.gov. Note that these filled out forms should be kept in a separate I-9 folder for all employees -- not in each employee's personnel file.
Report each new employee to your state's new hire reporting agency. The new hire reporting program requires employers to report information on all new employees for the purpose of locating parents who owe child support. All employers are required to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date. To find the name and address of your state's new hire reporting agency, see the State New Hire Reporting page at the Administration for Children & Families website (www.acf.hhs.gov).
Method of Transmission
Reporting Independent Contractors
E-mail: Submit form at http://www.edd.ca.gov/About_EDD/Contact_EDD.htm
contractor information must be reported within twenty (20) calendar days of either making payments totaling $600 or more, or entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier.
Post required notices. Employers are required to display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws. For information on required federal posters, go to the Department of Labor website at www.dol.gov/elaws/posters.htm. The DOL's "Poster Advisor" will help you determine which posters you must display in your workplace. For California, please visit http://www.dir.ca.gov/wpnodb.html to determine which posters are appropriate for your particular workplace.
File IRS Form 940 each year. Generally, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer's Quarterly Federal Tax Return. You must file IRS Form 940 to report your federal unemployment tax for any year in which you paid wages of $1,500 or more in any quarter or for any year in which an employee worked for you in any 20 or more different weeks of the year. You can find the form at www.irs.gov.
Adopt workplace safety measures. Virtually every employer must comply with the requirements of the Occupational Safety and Health Act (OSHA) by, among other things, providing a workplace free of hazards, training employees to do their jobs safely, notifying government administrators about serious workplace accidents, and keeping detailed safety records. For information on these rules, go to website of the Occupational Safety and Health Administration at www.osha.gov.
Create an employee handbook. Although not required, it is an excellent idea to have a handbook describing your business's employee policies and making it clear that employment is at will unless an employee has signed a written employment contract.
Set up personnel files. For each employee you hire, create a file in which to keep job-related documents, such as job applications, employment offers, IRS Form W-4, performance evaluations, and sign-up forms for employee benefits. Medical records should be kept in a separate, confidential file, in a locked cabinet. And you should store I-9 Forms, which document an employee's immigration status, in a separate file as well.
Set up employee benefits. If your business has established employee benefit programs such as health insurance or a 401(k) plan, you'll need a sign-up procedure so employees can enroll, name their dependents, and select options.
Additionally, California requires notices be provided to newly hired employees:
DE-4, California Tax Withholding – provided during new-hire orientation
DE-5, Notice to Employees -- provided during new-hire orientation
DE 2515, Disability Insurance Provisions – Provided within 5 days of hire
DE 2511, Paid Family Leave Insurance -- provided during new-hire orientation
DFEH-185, Sexual Harassment -- provided during new-hire orientation
DFEH-188 CFRA -- provided during new-hire orientation
Time to Hire/ Workers’ Compensation -- provided during new-hire orientation