Know Your Obligations Before Hiring an Employee

Business is good and you are thinking of bringing on some help to keep up with demand.  That’s a healthy step for any business.  Before you begin your search for that perfect employee, take some time to familiarize yourself with the obligations you will incur as an employer

A great place to start is the website for the U.S. Small Business Association.  There you will find a detailed list of the legal, regulatory and tax requirements you must comply with as a new employer.  These include obtaining an Employee Identification Number (EIN) for your business if you don’t already have one, setting up withholdings for federal and state taxes (including Social Security taxes), validating the employee’s eligibility to work legally in the United States, and registering your new hire with your state.  You should also consult the website for the U.S. Internal Revenue Service to understand what are your obligations to ensure the employee reports their income properly as well, including completing and submitting the necessary W-2 and W-4 forms.  Check with your accountant or tax advisor if you are uncertain about the tax implications of hiring and employee.

Federal law requires you to provide workers’ compensation insurance. Depending on your state, you may also be required to pay unemployment insurance tax and/or provide disability insurance.  You are not required to provide health insurance (except in Hawaii); however, you may limit your pool of applicants if you don’t.  As a small business with fewer than 25 employees you may be eligible for a federal tax credit on health insurance premiums for your employees. Again, consult your tax advisor before making a decision. Nor are you required to offer vacation, personal or sick leave.  You must, however, provide leave under the federal Family and Medical Leave Act for the reasons stated therein.

Beyond taxes and benefits, your other legal obligations include avoiding discrimination due to race, gender, nationality, age, religion or disability in the employment process and the workplace.  You must also abide by minimum wage laws and payment of overtime, depending on the employee’s status (exempt or non-exempt).

Bringing employees into your firm can be highly rewarding, but it creates a whole new role and realm of obligations for you as the employer.  If all this seems overwhelming, you might consider outsourcing or teaming with other sole practitioners.  Should you decide hiring is the way to go, take time to put all the systems and policies in place before you begin seeking applicants.  It will make the process smoother for the both of you.