Hiring Your First Employee: Ten Things You Must Do

Start off on the right foot when you become an employer.

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. 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 http://workforcesecurity.doleta.gov/map.asp for a list of state unemployment insurance tax agencies.

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. For more information, check with your state's tax agency; you can find links to each state's agency at the website of the Federation of Tax Administrators at www.taxadmin.org.)

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. For more information on workers' compensation laws, see The Manager's Legal Handbook, by attorneys Lisa Guerin and Amy DelPo (Nolo).

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.

Post required notices.

Several government agencies require employers to post notices providing information on worker rights for their employees. For information on required federal posters, go to the Department of Labor website at www.dol.gov. Use the online "Poster Advisor" to determine which posters you must display in your workplace. In addition, you must comply with your state department of labor's poster requirements. A list of state departments of labor is included on the federal Department of Labor's website.

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. For more information on developing a system for storing and maintaining personnel records, including state-by-state rules about employee access to their files, see The Employer's Legal Handbook, by Fred Steingold (Nolo).

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. A great resource is Create Your Own Employee Handbook: A Legal & Practical Guide, by Lisa Guerin and Amy DelPo (Nolo).

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.

File IRS Form 940-EZ each year.

You must file this form 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 must use IRS Form 940 instead of Form 940-EZ if you paid unemployment contributions to more than one state or if you did not pay all of your unemployment contributions by January 31.) You can find both forms at www.irs.gov.

Addresses for Government Websites Internal Revenue Service www.irs.gov Occupational Safety and Health Administration www.osha.gov Department of Labor www.dol.gov Administration for Children & Families www.acf.dhhs.gov U.S. Citizenship and Immigration Services www.uscis.gov State Government Agencies www.statelocalgov.net State Tax Agencies www.taxadmin.org