Finally, all those worries other business owners have about making payroll will be yours to share! (Er… yeah...)
So you’d been successfully running a side hustle for quite a while when it turned into a full-time business, and now you’re at the stage where you know you need to bring on some help. Finally, all those worries that other business owners have about making payroll will be yours to share! (Er… yeah…)
Well, before you bring on that extra help, it pays to do a little legwork up front to get all of the pieces in place so that the first employee doesn’t mean more administrative work than they’re worth. Here’s a checklist of some ducks you’ll want to have in row before you set them to work.
Oh, yeah, and before we dive into some of these issues, by some, we really do mean SOME! As always, we might be telling you that some legal things exist, but we aren’t offering legal advice here. We do strongly recommend, however, that you find an affordable lawyer to get legal advice from whenever questions like this arise. We did, and our lawyers recommended that we kindly ask you to read our legal disclaimer here. (See what we did there?)
If you already have a bank account, then you may have already taken care of this step. An employee identification number doubles as a taxpayer identification number, and you have to have a taxpayer identification number to set up a bank account. If your business is a sole proprietorship or is organized using an entity that’s disregarded for tax purposes, then you might have just used your social security number as your taxpayer identification number. You can check with your bank, and they’ll let you know what you used.
But if you don’t already have an employer identification number, then you’re going to have to get one in order to hire your first employee. To get an EIN, you’ll need to file an IRS Form SS-4 with the IRS. You can download a copy from the IRS here. Submitting it online is the way to go if you need the EIN quickly, but however you file it, you should eventually receive a confirmation letter from the IRS giving you your new EIN.
Check with your particular state’s taxing authority to determine whether they’ll accept a U.S. federal EIN or whether they require you to obtain a state taxpayer identification number.
Every state has a special reporting system for you to report your new hires through, and you’re generally required to report that fact that you hired a new employee, as well certain information about that employee, within a short period of time after hiring that employee. The reason for this is so that people who are entitled to receive child support payments have an easy way to get an income withholding order. But since this concern probably isn’t the first thing you’d think of when hiring a new employee, it’s really easy to miss this requirement. Do yourself a favor and register for your state’s system before you post a job listing and put filing a report on your checklist.
Don’t know where to go to find your state’s new hire registration system? Well, fortunately, the U.S. federal government keeps a not-so-easy-to-find list of state new hire registration systems here.
What’s the one thing that’s worse than worrying about making payroll? Easy. Actually doing payroll. It’s complicated, and it’s time-consuming, and most small business owners would easily rather be doing just about anything else. So reach out to a payroll company to understand their services and their pricing before you post that first job listing so that you don’t have to worry about the logistics of getting that eager beaver new employee paid on time after they start.
There are all kinds of benefits that a business can offer to its employees, and you’ll need to understand what you’re required by law to do and then further decide what, if anything, you want to offer your employees beyond those required minimums.
When you hire your very first employee, you may be exempt from some U.S. federal and state requirements, but those exemptions tend to phase out as your headcount grows. Talk to a lawyer before you hire your first employee so you’ll know what to expect and when.
As you grow, you’ll want to think about group health insurance, parental leave, and retirement plans.
A good employee handbook serves a number of purposes:
For all of those reasons and more, it’s a good idea to prepare an employee handbook, and preferably before you hire your first employee.
Now there are probably a lot of small businesses who skip this step, and some of them probably live to regret it. But even if you decide not to hire a lawyer to help you prepare the first draft of your employee handbook, make sure that you at least review it with a lawyer who specializes in employment law from time to time to make sure that it’s up to date on all U.S. federal and state employment laws. You should also review your employee handbook on your own on a regular basis and update it over time. Think of it as a living document that is never truly done.
Good things to include in your employee handbook from the get-go include an employee code of conduct, dress code, health and safety policies, attendance rules, and leave policies.
We know that as a business owner, you’re probably already a very organized person, right? Convenient, since U.S. federal and state law require employers to keep and retain a number of records on their employees. (We’d give you a link to a convenient list of all of the employee records that U.S. federal law requires you to obtain, but Uncle Sam isn’t exactly known for being helpful…) So make sure that you have an employee filing system set up before you hire your first employee.
A lot of small businesses probably start out keeping these records in hardcopy in a physical filing system, but as you grow, you’ll want to think about digital systems with appropriate levels of security. As for what to keep in these files, an employment lawyer in your state should be able to give you an exact list. But until you go get that qualified legal advice--which you should!--assume that you should keep a record of, well, basically everything. Job postings, employment applications, resumes, tax and payroll documents, immigration documents, performance reviews, drug tests, medical issues and leave requests, disciplinary records, termination records, everything.
When your first employee shows up for his or her first day of work, make sure that you’ve scheduled time to sit down with your new employee and go through all of the administrative paperwork, a lot of which is legal or tax-related in nature. You’ll want to have copies of all documents that you need your new employee to sign printed out and ready to go. Again, an employment lawyer in your state can give you an exact list of documents based on your state’s specific requirements, but at a minimum, make sure that you get your new employee to fill out a USCIS Form I-9 (which certifies that he’s a U.S. citizen or otherwise eligible to work in the United States), an IRS Form W-4 (which will help you and your payroll company determine how much to withhold for U.S. federal income tax purposes), and your state’s equivalent Form W-4 (which will help you and your payroll company determine how much to withhold for state and local income tax purposes).