The long-term goal of every small-business owner is growth. When a company grows, more employees need to be hired to keep up with the increase of work. But the process of hiring is more complex than just finding qualified candidates. There are specific actions you have to take to when adding employees to your company, whether bringing people on at the beginning or going through a sudden expansion.
The first thing you need to think about is what type of employees you plan on hiring. Can you just bring on contract workers or do you need people to work full time?
Employer responsibilities vary depending on how the role is defined. Correct classification of employees is critical, as legal penalties can be assessed if a worker is found to be in the wrong category.
• Contract: Employees who are classified as contractors will invoice you for work completed and don’t have to be offered benefits. That’s because a contractor technically works for himself and runs his own business. The benefits to hiring contractors include reduced labor costs, flexibility in firing and hiring, and fewer tax responsibilities.
• Full-Time: Regular full-time employees work at least 30 hours a week, or 130 a month, and are eligible to receive all benefit plans offered by the company. A hire is considered an employee when you have control over what is done by the person and how. There are greater expenses to the business with a full-time position, as well as liability, but there is also greater control and consistency.
• Part-Time: Employees categorized as part-time generally work a minimum of 20 hours per week, but can technically work anywhere from 1 to 34 hours a week. Part-time workers are eligible for benefits, but the employer has more flexibility in what they choose to offer.
If you determine you are going to hire full-time or part-time employees, follow the hiring process below.
Applying for an Employer Identification Number (EIN)
When you decide to hire employees on staff, you need to first set up an Employer Identification Number. This number is your tax ID and is required when filling out tax returns and other IRS documents. To apply for an EIN, you have to file an SS-4 form with the IRS. Once you have your EIN, you will also use it to report employee information to state agencies.
Setting Up Records for Withholding Taxes
Employers are required to withhold a percentage of an employee’s earnings for federal and sometimes state taxes. These withholdings are required by the government and act as payments for IRS, Social Security and Medicare taxes. Before bringing any new hires on, you need to set up a system that manages payroll correctly and keeps track of withholdings. Employers have to keep records of employment taxes a minimum of four years, per the IRS. While it is a requirement, it’s also a smart business management practice, as it makes it easier to compile financial statements, verify information reported on tax returns, manage deductible expenses and prepare tax forms.
Registering for Employee Eligibility Verification
The U.S. Citizenship and Immigration Services require all individuals to legally prove eligibility for employment in the United States. This means every employee must be a U.S. citizen or approved to work in this country. As an employer, you must verify eligibility of each employee within three days of hire by completing a Form I-9 and keeping it on file for at least three years, or one year after termination. Officials with Immigration and Customs Enforcement may perform inspections of this information, and if eligibility requirements are not met, your business could be in trouble.
Documenting Employees to Your State’s New Hire Reporting System
Within 20 days of hire, employers must register each new employee with the New Hire Reporting System in their state. The New Hire Reporting System is a directory of all workers in the state and is used as a way to locate parents who owe child support. To find out how your state handles its reporting, check with the Small Business Administration.
Abiding by Labor Laws
Employers have certain laws they have to follow when it comes to employee rights. All employers must purchase Worker’s Compensation Insurance to protect their employees in case of an accident on the job. Some states also require businesses to pay unemployment insurance taxes and provide disability insurance. Additionally, once you reach 50 employees or more, the Affordable Care Act requires you to offer health insurance to at least 95 percent of full-timers. Taking time to figure out how and what to provide before hiring employees can save you hassle later when your payroll is much larger.
In addition to following the labor laws of the government, employers must post notices of employee legal rights around the workplace. The federal Department of Labor, as well as the state’s Department of Labor, requires certain posters to be visible to employees on the job.
Making Quarterly Tax Filings
Once you have built a staff, you will be required to report payroll taxes quarterly. The withholdings taken out of each employee paycheck for income tax, Medicare and Social Security have to be filed as a Quarterly Federal Tax Return to the IRS within a specific timeframe. To do this, employers need to fill out a Form 941 within one month of the end of each quarter (the end of April, July, October and January), even if there are no new taxes to report.
If you submitted timely deposits of full payment throughout the quarter, the IRS will give you until the 10th day of the next month (i.e., May 10, Aug. 10, Nov. 10 and Jan. 10).
Complying with the Occupational Safety and Health Act (OSHA)
OSHA was established to set guidelines every employer must follow to ensure a safe work environment for employees. The requirements of this law include creating a hazard-free workplace, notifying the government when accidents happen on the job, providing proper training to employees on how to perform their jobs safely, keeping equipment well
maintained, and filing thorough safety records. Skimping on any of the rules set forth by this act is not a good idea, as the government performs random inspections and violations can result in citations and fines.
To keep your business running smoothly and stay on top of growth, make sure you bring on new employees in the proper way. In addition to these steps, as you continue to grow, hiring a payroll company, HR firm or accounting service are great ways to manage all of the requirements and compliance issues that come with running a business. If you are considering hiring a firm to handle all or any of these issues, check out CoEfficient’s extensive list of services, and contact us anytime.