Every entrepreneur is excited when they realize that it is time for their company to grow by adding staff, but it can be a daunting task to learn how to legally employ someone for your small business. If it were only as easy as hiring a good employee and paying them periodically then payroll companies and accounting firms wouldn't have much of a job. The good news is that it is not too difficult to legally employ someone for your small business if you take the time to consider the following points.
- The first step in legally employing someone for your small business is determining whether they will be a contractor or an actual employee. The IRS has certain requirements that specifically define what type of category your new hire will fit into, so it is imperative that you check out the regulations. If the person can be a contractor, then a Form 10-99 simply needs to be filed at the end of the year. No taxes are taken out of a contractor's paycheck and the rest of the article will not apply to your situation.
- After determining that the new hire is going to be a W-2 employee, the next step is to obtain a federal tax identification number commonly referred to as an EIN. The EIN, or employee identification number, is simply a nine digit number that basically can be viewed as a social security number for the business. Any tax filings or documents must contain the EIN for proper recognition by the IRS. The EIN can easily be obtained by simply visiting the IRS website or a payroll company or an accountant can do it for you.
- The next step to follow to legally employ someone for your small business is to decide who is going to be responsible for the payroll and associated taxes. A payroll company or accounting firm will most likely not be very expensive if there is only one employee involved, and the hassle of doing payroll is seldom worth it. If you are going to choose to do it yourself, you need to ensure that you understand all taxes and when they should be withdrawn and filed.
- After taking care of the payroll issues, it is also necessary to check all local, state, and federal regulations. Employees must be reported within 30 days to the Social Security Administration and this is often referred to as New Hire Reporting. In addition to this requirement, there are often other statutes that may involve worker's compensation benefits or unemployment insurance. Some states only require that certain small businesses carry specific coverage, so be sure to ask your Secretary of State how to legally employ someone for your small business.
Adding staff can be exciting, but it is important to realize that there is seldom any leniency given to companies that do not follow the appropriate rules and regulations. If there is any confusion, a professional should be consulted.