What to do Before Hiring Your First Employee

What to do Before Hiring Your First Employee

By Charlie Vance JD, SHRM-CP, Chief Executive Officer, Erigo Employer Solutions

OFTEN TIMES BUSINESS OWNERS ARE ILL PREPARED FOR ALL OF the responsibilities that come along with being an employer. The decision to hire the first employee is arrived at after operating for months as a lean, one-man or woman shop and the business owner has become exhausted by wearing all the hats that entrepreneurs are forced to wear during a business’s infancy. However, the essential judgment of when to pull the trigger and go from an overworked business owner to an overworked employer should not be entered into hastily. There is more to consider than just what tasks can be relieved by adding an extra set of hands to your business. Be aware that becoming an employer brings additional paperwork, liabilities, expenses, training time, and legal obligations once this transition has been made.

Additionally, there are several steps to be taken prior to hiring an employee to be sure your business is compliant and not subject to unnecessary liabilities. Once you have a candidate in mind, here is a non-exhaustive list of items that you will need to check off your to-do list before your new employee’s first day.

OBTAIN WORKERS’ COMPENSATION INSURANCE

I’ve placed this task first because, depending on which state your employee will be located in, you may have to jump through several hoops before coverage is established. I speak from experience when I say it may take some time. All Kentucky employers with one or more employees are required to carry workers’ compensation insurance through either a commercial carrier or on a self-insured basis. It is best to get the process started by contacting one of the many competent and knowledgeable insurance agents in the area.

APPLY FOR A FEDERAL EMPLOYER IDENTIFICATION NUMBER

Commonly referred to as a Federal Tax Identification Number, you’ll need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The EIN will be required when you eventually deposit taxes, file a return, or communicate with the IRS or Social Security Administration (SSA). Most businesses can submit an application online quickly and easily. Once you’ve submitted the SS-4 application, an EIN will be issued immediately during the same online session.

REGISTER FOR UNEMPLOYMENT INSURANCE

In Kentucky, non-exempt businesses are required to register for an unemployment insurance (UI) account if $1,500 or more is paid in gross wages in a single calendar quarter or if the business has at least one worker performing services during any part of 20 different weeks out of a calendar year. In other words, if you plan on hiring someone, it makes sense to register for a UI account and pay the taxes correctly. Most states, including Kentucky, require employers to submit contribution and wage reports on a quarterly basis. Kentucky businesses can register online at kewes.ky.gov.

REGISTER WITH THE NEW HIRE REPORTING PROGRAM

All employers are required to report new employees or rehired employees to their state’s new hire reporting center within 20 days of the employee’s hire date. The new hire reporting program is a state directory that aids agencies in locating parents, establishing child support orders, and enforcing existing child support orders. You must register as a reporting company before reporting your first employee. Registration can be done online (ky-newhire.com) and is quick and easy but will require an EIN number so be sure to complete that step before moving on to this one.

PREPARE THE REQUIRED FEDERAL AND STATE FORMS

Before your new employee’s first day, you should have a few documents printed and ready for him or her to complete: Form I-9, Form W-4, and your state’s tax withholding form. Form I-9 is required to document verification of the new employee’s identity and right to work in the United States. Newly hired employees must complete and sign the employee section of the Form I-9 no later than the first day of employment. Likewise, employers must do their part by completing Section 2 of the form within three business days of the employee’s first day of employment.

Federal and state tax withholding forms must be kept on file by the employer for each employee. Information completed by the employee is used to calculate the correct amount of federal and state income tax to withhold from each employee’s wages.

DISPLAY MANDATORY POSTERS

Employers are required by both federal and state laws to clearly and conspicuously display official labor and employment notices regarding worker rights. The required postings can be obtained at no cost to the employer directly from the applicable agency websites. Alternatively, there are several companies that provide a single, laminated poster that includes all required postings. The posting requirements vary by statute and some employers, particularly those with few employees, may not be required to post notices that other employers are required to. Check the Department of Labor’s website for information about which posters you must display in your workplace.

CREATE A JOB DESCRIPTION

A good job description is detailed and fully explains to employees what you expect from them and what they should expect from you. It should plainly describe the tasks to be performed, how the work is to be completed, and the purpose of the job as it relates to other positions and the overall objectives of the company. Job descriptions commonly include the following sections: job title, duties, requirements, skills, qualifications, and compensation. Please note that job descriptions can have liability implications if a claim is brought under the Americans with Disabilities Act or the Fair Labor Standards Act so consider seeking advice from a professional to be sure you’ve included all of the necessary elements in this important document.

ESTABLISH A PERSONNEL FILE

Start a file for your new employee and be sure to keep his or her signed tax documents, job description, application, and resume. Personnel files should be kept confidential and access should be limited to only those with a legitimate business need to view the files.

In the future you’ll want to keep records of performance evaluations, compensation changes, disciplinary actions, and other documents germane to the employment relationship. The Department of Homeland Security recommends that you keep all I-9 documents in a separate file to facilitate inspection in the event of an audit. Also, if you have the need to keep medical information for your employee(s), please note that special rules apply to the handling of this information and these documents should be kept separately.

BEGIN A RELATIONSHIP WITH AN ATTORNEY AND CPA

If you haven’t established a relationship with an experienced attorney and accountant by this stage in your business, now is the time to consult with these professionals. They will be able to help you ensure that you’ve taken all the necessary steps to prepare for this shift in your business. Additionally, you are likely to have questions and/or problems arise in the near future requiring guidance. If you already have an established relationship then you’ll know exactly who to call when the time comes.

The decision to become an employer is a big step and one that shouldn’t be taken lightly. Make sure you go into this new phase of your business with your eyes wide open and a strong understanding of the preparatory steps you’ll need to take.

The information provided in this article is for general informational purposes only and not intended to be legal advice. Nothing in this article is intended to substitute for the advice of an attorney. If you require legal advice, please consult with a competent attorney licensed to practice in your jurisdiction.