Getting ready to hire your first employee to work for your company can be a very exciting time. Before finding the right person for the job, you’ll need to create a plan for paying your new employees. There are a lot of very important steps in setting up payroll, taxes and required insurance. Following these steps will help ensure that you set up your company correctly and stay HR compliant.
1. Obtain An Employer Identification Number.
Just as the Social Security Number (SSN) is used to identify individuals in the United States, the Employer Identification Number (EIN) is issued to identify business entities. Your EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) and includes information about which state the business is registered.
Because an Employer Identification Number (EIN) is required for use on tax returns, it is very important to have before employees are hired. To get an EIN, you must file an IRS form SS-4.
You can download the form from the IRS website at www.irs.gov.
2. Register With Your State’s Labor Department.
Once you bring on employees, you will have to pay state unemployment compensation taxes. These payments will go into your company unemployment compensation fund, which provides short-term relief to workers who lose their jobs through no fault of their own. In addition, you will also have to pay Federal Unemployment Taxes which is paid separately from Federal Income Tax, Social Security and Medicare Taxes. Please visit http://workforcesecurity.doleta.gov/map.asp for a list of state unemployment insurance tax agencies.
3. Get Workers’ Compensation Insurance.
Consider this as a way of protecting your business from financial risks whenever one of your employees get hurt or injured. As an employer, one of your biggest responsibilities, is to prevent injuries in your workplace and to report injuries when they occur. Therefore, all employers with at least one employee must carry Workers’ Compensation Insurance coverage.
4. Completing Federally Required I-9 And W-4 Forms
As an employer, you must document the eligibility of new employees to work in the U.S. The document used is to verify a new employee’s eligibility to work in the U.S. is the I-9 Form and must be completed on all new hires within your organization. The new employee must provide documentation of (a) identity and (b) work eligibility. The form must be completed no later than the new hire’s first day of work.
The penalties for improper completion of a I-9 Form may include:
- $250 to $3,000 for improper completion of the I-9 form.
- Knowingly hiring or continuing to employ unauthorized workers fines range from $250 up to $11,000 per violation.
- Improper completion, retention or making it unavailable for inspection fines range from $100 to $1,1000 for each I-9.
All new hires must complete W-4 Form before receiving their first paycheck. This form includes information on marital status, number of dependents, and designated additional withholding amounts. It is used to calculate withholding for federal income taxes. You don’t have to keep copies of all W-4 forms, just the most recent one. Any unauthorized change or additions to form W-4 makes it invalid and any corrections to the W-4 form must be done in a written notice to the IRS.
The penalties for improper completion of a W-4 Form may include:
- $500 civil penalty for employees claiming excess withholding allowances.
- Criminal penalties can apply when an individual willfully supplies false withholding information or fails to supply withholding information.
5. New Hire Reporting.
As an employer, you are required to submit a New Hire Report to your designated state registry. This occurs when you hire or rehires an employee within your organization, as it is your responsibility to report any new hires or rehires to your states registry within the first 20 days of hire. If you would like to get more information on how to file your new hire report to your state or would like the required form to do so, please email us directly at firstname.lastname@example.org and we can guide you through that process.
6. Set Up Payroll To Withhold Taxes.
An employer’s federal payroll tax responsibilities include withholdimg from an employee’s compensation and paying an employer’s contribution for Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA).
The Federal Insurance Contributions Act (FICA) is the federal law that requires you to withhold three separate taxes from the wages you pay your employees. FICA is comprised of the following taxes:
- Federal Income Tax
- Social Security tax
- Medicare tax
To learn more on how to calculate these amounts, please feel free to reach-out to us here at SW HR Consulting at 702-979-2119 as we would be glad to partner with you through these important steps.