Know the rules before hiring your first employee

The decision to hire a full-time employee can be exhilarating, nerve-wracking or both.

On one hand, having to hire your first employee means the business is growing, and you need help. On the other hand, it’s a giant leap in responsibility and should be methodically planned.

There are a few things to consider when you start hiring employees, from tax implications to questions you cannot ask job applicants. Here are three things that should be top of mind.

Considerations before hiring

Tax IDs

Before you hire an employee, you will need to get an Employer Identification Number (EIN), also known as an Employer Tax ID. The easiest way to apply for an EIN is via the IRS website by filling out Form SS-4. Find out whether you also need state or local tax IDs.

Tax implications

Small businesses with employees must follow these and potentially other tax rules:

• Federal government wages and tips paid as well as taxes withheld must be reported to the IRS using Form W-2 wage and tax statement.
• Make sure your new employee returns a signed withholding exemption certificate (Form W-4) on or before the date of employment.
• Keep the records of employment taxes for a minimum of four years.

Employers who pay wages must withhold and deposit income and employment taxes, which generally includes federal, state, and local income taxes, as applicable, as well as Social Security and Medicare taxes, and they must file IRS Form 941, Employer’s Quarterly Federal Tax Return. For more information, visit IRS.gov and check out the state and local tax page for specific tax filing requirements for employers. Note that some states and local governmental agencies have additional withholding obligations on employee wages related to certain state mandated coverage, such as state disability insurance.  

Employee eligibility

It is your responsibility to verify an employee’s eligibility to work in the U.S. Within three business days of hire, employers must complete Form I-9, employment eligibility verification, which requires you to examine documents to confirm the employee’s citizenship or eligibility to work in the U.S.

You must keep Form I-9 on file for at least three years after the date of hire or one year after the date of the employee’s termination.

Employers can electronically verify the employment eligibility of newly hired employees by registering with E-Verify.

Payroll taxes

Outsourcing the management of your payroll can help you navigate the many city, state and national regulations employers must follow. Consider partnering with a payroll management provider.

Employee benefits

You will also be required to cover certain employee benefit costs. These, too, vary by city and state, on top of federal requirements, and examples may include:

Workers’ compensation

Certain employers are required by state law to carry workers’ compensation insurance. This may be offered through a commercial carrier, on a self-funded basis, or through your state’s Workers’ Compensation Program.

Disability pay

Certain states and other jurisdictions require employers to provide disability benefits coverage to employees for an off-the-job injury or illness. Examples include California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico.

Unemployment insurance

Requirements vary by state. Check applicable state and local laws and your state workforce agency to find out if you must register.

Social Security taxes

Employers and employees must each pay Social Security tax on employee earnings.

Finding employees

Where do you find your first employee?

The Internet has certainly made this step easier, so take advantage. Before you start, create your list of must-have requirements, nice to have requirements and what levels of experience you seek. This will help you choose candidates more efficiently.

Here’s where to look

• Online job boards. Indeed.com is the largest, but you may have to pay to promote your listing so that it doesn’t get lost in the vastness of that site. Also, check out ZipRecruiter and Monster, among others.
• If your business is operating remotely, that opens your employee search pool to more locations. These job boards specifically focus on virtual workers: FlexJobs and JustRemote.
• Perhaps a new college graduate would be a good starting point. Contact local colleges, universities, or trade schools to post opportunities or host job fairs (virtual or in person).
• And, of course, LinkedIn remains the top site for professional talent and is a great place to post jobs and gain trusted leads among your established business contacts.
• Similarly, if your business has an active social media following, consider posting on those sites as well.

Keep in mind that job candidates will be looking at your business, too. Make sure your website accurately reflects your company and your “About Us” page offers background and highlights your mission and/or vision.

If you don’t want to review hundreds of resumes, niche job boards can be a better option. Targeted to specific industries, they can deliver more focused results. Popular niche job boards include:

• For sales jobs: SalesJobs.com
• For entry-level employees: CollegeRecruiter.com
• For retail jobs: All Retail Jobs
• For advertising, marketing, and creative jobs: TalentZoo

Choosing the right interview questions

When you finally reach the job interview stage, develop a list of questions to help you learn more about the job candidate. SCORE has a template you can use for guidance.

There are, however, questions federal laws and regulations prohibit you from asking to prevent discrimination in hiring. You should be aware because many of these may seem mundane yet asking them can open you and your business up to legal risk.

Here’s what not to ask job seekers