By Bill Landess
Your business is growing, and you need to hire. Here’s what small business owners must do as they grow to stay compliant.
Your first hire is arguably the most important. And if you’ve never done it before, it can be difficult to know where to start. Whether full-time or part-time, employers have several legal responsibilities they must fulfill. Here are four things to keep in mind.
1. Clarify the Role Before Anything Else
Before posting a job opening or researching payroll software, take the time to clearly define the position you’re seeking to fill. Key questions to consider:
- How many hours per week does this role require?
- Do you need seasonal workers, or a long-term commitment?
- Are you looking for a freelancer’s expertise, or a new member of your team?
The final question is most critical because it will determine your legal obligations for taxes and insurance. Remember: The difference between independent contractor and employee depends on the nature of the work arrangement, and each comes with different responsibilities.
Create clear boundaries, follow the common law guidelines, and speak with a legal or HR consultant if you’re unsure.
As for full-time vs. part-time, and seasonal vs. ongoing work? These don’t affect employer requirements as much, but the more clear picture you have of what you need, the better you’ll be able to recruit for that position.
2. Research State and Federal Requirements
Certain employer requirements are dictated by the federal government, such as keeping a completed W-4 form for any new hires. But many of the most commonly known federal requirements, such as those outlined in the Family and Medical Leave Act and Affordable Care Act, apply to businesses with 50 or more employees.
For small businesses, many regulations are set at the state level. So check with your state tax agency for employer filing obligations, and read up on your state’s insurance requirements.
Unemployment Insurance
Employers are required to pay federal and state unemployment taxes to fund unemployment benefits. However, unemployment is a federal-state joint program, so specific eligibility requirements and benefits vary from state to state.
Disability Insurance
Disability insurance covers a portion (typically a percentage) of a worker’s wages if they are unable to work. Disability insurance is often optional and can be offered as a voluntary benefit, but is required for businesses in California, Hawaii, New Jersey, New York and Rhode Island.
Workers’ Compensation Insurance
Workers’ compensation insurance is designed to protect employees from injuries or illnesses they might suffer as a result of their job. Very small businesses may be exempt from workers’ compensation laws, but most businesses with employees need coverage. Workers’ compensation is regulated at the state level, so check your state’s requirements to make sure you comply.
3. Embrace Process to Streamline Compliance
Document all obligations, reporting requirements and deadlines in a single place to streamline new hire onboarding and ongoing reporting. Even basic processes can keep your business compliant and simplify future hires.
Crucial steps to include:
- Determine your pay periods to coordinate tax withholding for the IRS.
- Withhold federal income tax and employees’ share of social security and Medicare taxes.
- Deposit withheld federal income tax, along with withheld and employer social security and Medicare taxes.
- Report payroll taxes as needed (quarterly and annually).
- Record and update business payroll annually to keep your work comp policy current.
4. Leverage Small Business Experts
First-time employers can find all the rules and regulations overwhelming. Fortunately, there are resources that can help.
The IRS offers an Employer’s Tax Guide, which provides guidance on all federal tax filing requirements. The Small Business Administration and your local Small Business Development Center are also valuable resources for advice, tools and tips on managing your business.
Last but not least, consider working with accounting, payroll, tax and insurance experts that specialize in small business. They’ll be best equipped to answer your questions, and help you find the right-sized and right-priced solutions for your business needs.
Want to know more about work comp insurance? Check out The Small Business Owner’s Guide to Workers’ Compensation Insurance.
This is not a comprehensive guide and should not be treated as legal advice or legal recommendation. If you have questions about legal and tax compliance as it pertains to your specific circumstances, consult an attorney or tax professional.
Bill Landess is a partner at WorkCompOne (www.workcompone.com), an online insurance agency that makes it easy for busy small business owners to buy workers’ compensation insurance online. Licensed nationwide, WorkCompOne has helped thousands of small businesses get covered since its founding in 2012. Get a free quote online, on your schedule. @workcompone
Employers stock photo by fizkes/Shutterstock
