10 Regulatory Steps You Must Follow When Hiring Your First Employee: Part 1

If you’re reading this post then congratulations! It’s likely your business is growing so fast that you need some help.

The shift in role from being your own boss to being someone’s boss can be dramatic and challenging. In addition to learning or re-familiarizing yourself with the basic management principles of delegation, mentoring and team work, you will also face a host of federal and state government regulatory requirements, tax laws, and compensation demands.

The good news is that there are plenty of free government resources and tools available that can help small business owners comprehensively navigate this new regulatory territory.

To help you on your way, the government has broken down achieving compliance into 10 simple steps. Here’s a summary of the first five:

Step 1: Before you Hire, get an EIN

Typically referred to as an Employer Tax ID or Form SS-4, you can get an Employment Identification Number (EIN) online from the IRS. An EIN is needed to report taxes as well as information about your new employee to your state government.

Step 2: Set up Records for Withholding Taxes

The IRS requires that businesses keep records of employment taxes for at least four years. This includes employee wages, tips, and sickness records, as well as employee tax withholding certificates. Two forms that must be completed annually are the Federal Income Tax Withholding (W-4) and the Federal Wage and Tax Statement (W-2).

Rules regarding the withholding of employee state tax vary. Your state tax agency can provide more information.

Step 3: Check that your New Employee is Eligible to work in the U.S.

Unusually enough, eligibility to work is only required to be verified within three days of the hire date and is contingent on you to do it. Be sure to complete anEmployment Eligibility Verification Form(I-9) and examine acceptable forms of employee identification to confirm work status.

The I-9 form doesn’t need to be filed, but be sure to hold onto it for three years after the hire date or one year after employee termination, in case of audit.

Step 4: Register with Your State’s New Hire Reporting Program

Government regulation requires all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date. Learn how to register here.

Step 5: Get Workers’ Compensation Insurance

Any business that hires employees must carry this insurance. It’s available through commercial carriers, on a self-insured basis, or through your state’s Worker’s Compensation Insurance program.

Don’t ignore state and local regulations either. Local SBA offices nationwide offer free and low-cost services to help you navigate your area’s employee regulations.

Tomorrow I’ll post the next five steps to getting you on your way to employee regulatory compliance. In the mean time you can find more information on employment and labor law at Business.gov.