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Everything You Need to Know About Hiring Your First Employee

Key Points

  • Hiring your first employee requires a lot of backend work, like registering with state agencies and creating an employee handbook.
  • Some onboarding forms need to be filed with federal and state agencies, while others will be kept in employee personnel files.
  • Hiring your first employee is often the hardest. Once you have policies and procedures established, you can easily bring on more talent.

Table of Contents

  1. Apply for an Employer Identification Number
  2. Register with Your State’s Labor Department
  3. Obtain Worker’s Comp Insurance
  4. Invest in a Payroll System
  5. Have New Employees Fill Out a Form W-4
  6. Fill Out an I-9 For Each New Employee
  7. Report Employees to Your State’s New Hire Agency
  8. Post Necessary Notices
  9. File Quarterly and Annual Payroll Forms
  10. Set Up Personnel Files
  11. Create an Employee Handbook
  12. Establish Employee Benefits
  13. Getting Started

First off, congratulations! Hiring your first employee is a new and exciting step in your journey. As you enter the realm of being an employer, you need to be sure you are following all of the rules and regulations established by the IRS and state agencies.

From annual tax forms and new hire reporting to insurance and employee benefits, becoming an employer comes with a number of new obligations. In this article, we’ll outline everything you need to know about hiring your first employee.

1. Apply for an Employer Identification Number

When you hire employees, you need to have an Employer Identification Number (EIN). If you are currently operating as a sole proprietorship using your own Social Security Number, it might be time to consider changing your business structure.

Nevertheless, applying for an EIN is fast and free on the IRS website. Once you receive your number, you can use it to file payroll tax forms and apply for different types of insurance.

2. Register with Your State’s Labor Department

Once you bring in employees, you will have to pay unemployment taxes to your state agency. These payments provide short-term relief for workers who are laid off. Registration varies based on your state, but the process is usually straightforward. Check out your state’s website for more information.

3. Obtain Worker’s Comp Insurance

Although worker’s compensation insurance isn’t always required, it is a good way to protect you and your business from unnecessary liability. Worker’s comp insurance pays out claims for on-the-job injuries. This type of insurance is more common in industries with more opportunities for injuries, like manufacturing and construction.

The amount you can expect to pay in worker’s comp insurance depends on your coverage. However, most policies are affordable if your business only has a few employees. Remember, a worker’s comp plan can also cover you in the event of a workplace injury, making it beneficial.

4. Invest in a Payroll System

Processing payroll by hand is time-intensive and opens the door to errors. With the rise of technology, there are dozens of payroll systems for you to choose from. Additionally, most accounting software programs have built-in payroll processing capabilities, helping you save money on costs.

When you invest in a payroll system, it’s important to set everything up to withhold taxes and benefits according to your employee’s wishes. Take the time to set up your controls and choose a payroll schedule and a payment method. The upfront time spent will save you hours of work throughout the year and reduce your risk of making mistakes.

5. Have New Employee Fill Out a Form W-4

Each new employee should fill out a Form W-4, which outlines how they want taxes withheld from their paycheck. This form does not get filed with the IRS and is only used to set up your internal controls. Request a new W-4 each time an employee wants to change their withholdings.

If your state has an income tax, you should also have your employees fill out a state withholding form. These will vary by state, so be sure you check your state’s website for the most recent form. Also, keep all withholding forms on file for a few years.

6. Fill Out an I-9 For Each New Employee

The U.S. Citizenship and Immigration Services requires employers to verify that their employees are eligible to be working in the United States by filling out Form I-9. Although you don’t need to file this form officially, you do need to keep it for at least three years and furnish the information if you were inspected by Immigration and Customs Enforcement.

Due to the sensitive information, you should keep these forms in a separate folder, not in the employee’s personnel files. Also, be sure that these documents are securely stored, not in the open, for everyone to see.

7. Report Employees to Your State’s New Hire Agency

The new hire reporting program is used to locate parents who owe child support. Each time you hire an employee, you will be required to submit identifying information to federal and state agencies, including their name, address, and date employed.

Each agency will have slightly different reporting requirements. You can find a complete list of your reporting requirements by state on the Administration for Children & Families website. Even if your employee requests that you don’t submit any new hire information, you are still obligated to do so. You don’t want to have any compliance issues.

8. Post Necessary Notices

Numerous government agencies require certain employment information to be posted for employees to read. These include information on workers’ rights, pay rates, and unemployment insurance. The Department of Labor’s website has information about which posters are needed for your area. Your state agency might also require certain notices.

These notices need to be in an accessible location, such as in the breakroom or kitchen. Although it’s very unlikely that your office will be the subject of an inspection, it’s best to comply with all regulations to avoid any issues down the road.

9. File Quarterly and Annual Payroll Forms

One of the primary obligations of an employer is to file timely payroll forms. The frequency and amount of your payroll will dictate your filing obligations. For example, you might need to remit federal and state withholding on a semi-weekly or monthly basis. On the contrary, certain obligations have quarterly or annual due dates, like unemployment.

When you register your company for tax filings, you will receive a payment schedule. However, certain forms have set due dates. The quarterly federal reconciliation, known as Form 941, is due quarterly, along with state reconciliations and unemployment.

At the end of the year, you will need to file an annual unemployment reconciliation, known as Form 940. Be sure your business mailing address is up to date to receive current information surrounding your filing obligations.

10. Set Up Personnel Files

Each employee will have a personnel file. This is where you will keep job-related documents, such as applications, time-off requests, W-4s, performance reviews, and sign-up forms for employee benefits. Any type of request or document your employee submits will be stored in their file.

These files should be stored in a secure location, such as a locked file cabinet. Personnel files contain sensitive information that other employees should not have access to. All documentation should be kept for at least three years.

11. Create an Employee Handbook

An employee handbook outlines all the information your employees will need to abide by, including time off, best practices, and general expectations. When there was just yourself in the company, you might not have needed an employee handbook. However, once you bring on your first employee, it’s important to establish this document.

An employee handbook can help you reduce the risk of being sued for discrimination and unlawful terminations. Be as detailed as possible in your employee handbook. It could be helpful to work with a lawyer or other payroll specialist to create this document. Once your employees are in the onboarding phase, be sure they have a copy and sign a form saying they read and understand every policy.

Here are some examples of what employee handbooks include:

  • Equal employment opportunity (antidiscrimination) policy
  • Workplace anti-harassment (including sexual harassment) policy
  • Employee leave policies (vacation, sick leave, other paid time off)
  • Pay policies
  • Benefits eligibility policies
  • Holidays and other annual office closures
  • Communications policies
  • Family and medical leave policy (if 50 or more employees)
  • Safety and security policies
  • Employee code of content
  • Employee review process and assessments for raises and promotions
  • Disciplinary process
  • Complaint filing process
  • Termination policy

12. Establish Employee Benefits

If you’re hiring your first employee, you might not be offering employee benefits yet. Nevertheless, as your business grows, adding employee benefits can be a great way to attract and retain employees. Employee benefits include retirement plans, health insurance plans, disability insurance, childcare options, and reimbursement policies.

Although you don’t have to offer a full list of benefits, it can be helpful to establish basic benefits, like health insurance and a retirement plan. Before offering these items to your employees, be sure you have all of the backend work complete, like registration.

13. Getting Started

Are you ready to get started with the hiring process? Before you begin your search for your first employee, there are numerous steps you need to take to set your business up to process payroll. It can take time to get everything in place, so be sure you factor in enough lead time before hiring. If all requirements are overwhelming to you, reach out for expert guidance.


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