1. Obtain an Employer Identification Number (EIN)
Before hiring employees, you need to get an employment identification number (EIN) form the U.S. Internal Revenue Service. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. To obtain an EIN, you can contact the IRS directly or apply online.
U.S. Internal Revenue Service
2. Set up Records for Withholding Taxes
The IRS states that you must keep records of employment taxes for at least four years. Also, keep good records for your business to help you monitor the progress of your business.
The following describes the three types of withholding taxes:
Federal Income Tax Withholding (Form W-4)
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS. For specific information on employer responsibilities regarding withholding of federal taxes, read the IRS' Employer's Tax Guide .
Federal Wage and Tax Statement (Form W-2)
On an annual basis, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2 Wage and Tax Statement. Employers must complete a W-2 Form for each employee to whom they pay a salary, wage or other compensation.
Employers must send Copy A of Form W-2 to the Social Security Administration (SSA) by the last day of February (or last day of March if you file electronically) to report the wages and taxes of your employees for the previous calendar year.
Depending on the state where your employees are located, you may be required to withhold state income taxes.
3. Employee Eligibility Verification (Form I-9)
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete an Employment Eligibility Verification Form, commonly referred to as an I-9 form. This requires you to examine acceptable forms of documentation supplied by the employee to confirm the employee's citizenship or eligibility to work in the U.S.
The U.S. Immigration and Customs Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms, and that employee information on I-9 forms matches government records.
Download Form I-9 (Employment Eligibility Verification)
Makes Form 1-9 available for easy access and use. All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the U.S., including citizens and non-citizens.
Instructions for Completing the I-9: Handbook for Employers
Offers a comprehensive guide to completing Form I-9, Employment Eligibility Verification.
Small Business Guide to Immigration Regulations
Provides a summary of immigration laws most important to small business owners, including information about completing the I-9 form.
Employers can use information taken from the Form I-9 to verify electronically the employment eligibility of newly hired employees through E-Verify. To get started register with E-Verify to virtually eliminate Social Security mismatch letters, improve the accuracy of wage and tax reporting.
4. Register with Your State's New Hire Reporting Program
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.
5. Obtain Workers' Compensation Insurance
Businesses with employees are required to carry Workers' Compensation Insurance coverage through a commercial carrier, on a self-insured basis or through the state Workers' Compensation Insurance program.
6. Unemployment Insurance Tax Registration
Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state's workforce agency. The state taxes page includes links to your state's agency.
7. Obtain Disability Insurance (If Required)
Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury. Currently, if your employees are located in any of the following states, you are required to purchase disability insurance:
California - Employment Development Department
Hawaii - Unemployment Insurance Division
New Jersey - Dept. of Labor and Workforce Development
New York - New York State Workers' Compensation Board
Puerto Rico - Departamento del Trabajo y Recursos Humanos/Department of Labor and Human Resources
Rhode Island - Rhode Island Dept. of Labor and Training
8. Post Required Notices
Employers are required by state and federal laws to prominently display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws. These posters are available for free from federal and state labor agencies. Visit the Workplace Posters
9. File Your Taxes
If you are new employer, there are new federal and state tax filing requirements that apply to you.
Generally, each quarter, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer's Quarterly Federal Tax Return. Small businesses with an annual income tax liability of $1,000 or less may file IRS Form 944, Employer's Annual Federal Tax Return instead of Form 941.
You must also file IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in any calendar quarter, or you had one or more employees work for you in any 20 or more different weeks of the year.
New and existing employers should consult the IRS Employer's Tax Guide to understand all their federal tax filing requirements.
10. Get Organized and Keep Yourself Informed
Being a good employer doesn't stop with fulfilling your various tax and reporting obligations. Maintaining a healthy and fair workplace, providing benefits and keeping employees informed about your company's policies are key to your business' success. Therefore, it's good practice to set up a sound, organized system for maintaining all personnel records. The following sites provide more information about federal reporting requirements: