Before you hire your first employee, there are some steps to take and some laws, regulations, and taxes to set up and understand. Begin with the first item and work your way through to list, to be sure you don't miss anything important.
If you have employees, you must have an Employer ID Number. An EIN is a unique federal identifier for businesses, like a Social Security number and is issued by the IRS. It's easy to get this number; you can get it online or by phone or fax.
I always suggest that you print out the application form (SS-4), fill it out completely, then go online and file. This will save you from getting started and finding you are stumped. You don't need an attorney to help you complete the form but check with your attorney on which some of the questions. Detailed instructions are provided in the article above.
You will need to go to your state's department of revenue and register as an employer. If your state has an income tax, you will need to find out how employees sign up for withholding (a state W-4 form or equivalent). Then find out how and when your state wants you to pay and report on state income tax withheld from employee pay. Also check on state unemployment and workers' compensation (and disability insurance, if your state requires it).
Here's a listing of the state labor offices in all U.S. states.
Effective January 1, 2011, employers must use the Electronic Federal Tax Payment System (EFTPS) to make payroll tax deposits and file payroll tax reports. It's easy to sign up online; you just provide some information about your business and the bank account from which you will make the payments.
Sign Up for the State New Hire Registration System
Employers must register new hires with their state, and the states have a common system for this registration. The goal is to track people who owe money for child support and other collectible debts, so their pay can be garnished. You can sign up now and use the system for new hires later.
At hire, all new employees must provide verification of their eligibility to work in the U.S. As an employer, you may use one of two methods to verify this eligibility. The standard form for verifying worker eligibility is Form I-9. If you plan to have many employees, or if your state requires it, you will need to enroll in the E-verify system. In each case, you will need copies of the I-9 form to include in employee new hire paperwork.
Worker's Compensation is insurance paid by companies to provide benefits to employees who become ill or injured on the job. The insurance is available through commercial carriers, on a self-insured basis, or through your state's Worker's Compensation Insurance program.
Unemployment insurance is paid by employers to provide unemployment insurance to employees who are involuntarily terminated. Federal unemployment insurance taxes must be paid by employers and some states also require unemployment insurance taxes to be paid. Find out more about unemployment insurance in this article.
Get Required Workplace Posters
All businesses with employees are required to have specific information posters available on premises for employees to read and understand their rights. For more details about workplace posters, see this Department of Labor information page.
Before your first employee begins work and receives his or her first paycheck, there are some forms you are required to have the new employee to complete.
As an employer, you are required to keep excellent records on payroll and payroll taxes, to withhold taxes from employee pay, and to make periodic reports and payments. This article describes the steps necessary to set up a payroll system for your business.
While there is no law requiring you to set up and use an employee handbook/policies and procedures manual, it's a smart thing to do. When you hire a new employee, give him or her a copy of the handbook (signing that the handbook was received). It's a lot easier to prepare a handbook now than deal with "how do we handle this?" issues, misunderstandings, and possible lawsuits later.
More on Employment and Labor Laws
Susan Heathfield at Human Resources has prepared this comprehensive list of payroll and employment laws and regulations.