Starting a business is not always simple. Being an employer carries with it a number of obligations and it is important to know the ropes prior to even hiring your first employee. Below is a condensed HR checklist that employers should complete before hiring their first employee.
Obtain your Employer Identification Number (EIN)
Before hiring your first employee, you need to get an EIN from the IRS. EINs are often referred to as an Employer Tax ID or 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. You can apply for your EIN online or contact the IRS by telephone.
Register with your state's labor department
Once you hire employees, you must pay state unemployment taxes. In Iowa, such payments will go to the unemployment compensation fund, which will be used to provide unemployment benefits to Iowa workers who have lost their jobs. You should register to make payments through myIowaUI and will be required to submit quarterly reports.
Buy workers' compensation insurance
All businesses with employees are required to carry workers' compensation insurance coverage through a commercial carrier or on a self-insured basis (if the employer qualifies under Iowa law). You should not engage in business without first obtaining workers' compensation insurance. A person who willfully and knowingly does so is guilty of a class "D" felony in Iowa.
Set up a payroll system to withhold taxes and keep records for withholdings
You should be withholding a portion of each employee's income and depositing it with the IRS, including making Social Security and Medicare tax payments to the IRS.
- Federal Income Tax Withholding. You must obtain a signed withholding exemption certificate (W-4) on or before each employee's first date of employment. You must submit the W-4 to the IRS.
- Federal Wage and Tax Statement. You must also report wages paid and taxes withheld for each employee for whom you pay a salary, wage, or other compensation, via a W-2 wage and tax statement.
According to the IRS, employers must keep records of employment taxes for at least four years. Make sure you have a document retention plan in place and ensure it is followed.
Per Iowa law, you must also withhold state taxes. For more information, consult your attorney, or visit the Iowa Department of Revenue.
Complete Form I-9, Employment Eligibility Verification, for each new employee
Federal law requires that employers verify each employee's eligibility to work in the United States. Therefore, employers must complete an I-9, employment eligibility verification, within the first three days of employment, to confirm a new employee's citizenship and/or eligibility to be employed in the United States.
In order to confirm citizenship and eligibility for employment, the employer may request the documentation specified on the I-9 form. Employers do not need to submit the I-9 form to the federal government, but must keep the form on file for three years after the employee's date of hire, or for one year after the date of the employee's termination, whichever is later.
Report each new employee to your state's new hire reporting agency
Employers must report information on all new hires to the state's new hire reporting agency. The policy behind this requirement is for the purpose of locating parents who owe child support. In Iowa, employers must register with the Iowa Department of Human Services.
File your taxes
Generally, 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. However, some small employers (those whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less for the year) may file form 944, Employer's Annual Federal Tax Return.
Employers must also file form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. Do not collect or deduct FUTA tax from your employees' wages. For more information, consult your attorney, or visit www.IRS.gov.
Post required notices
Employers are required to display certain posters in the workplace informing employees of their rights and employer responsibilities under labor laws. For more information on notices required for your particular business, consult your attorney, or visit the U.S. Department of Labor's website. Please also note that Iowa labor laws require posting of certain notices as well; visit the Iowa Workforce Development website for these posters.
Adopt workplace safety measures
Most employers must comply with the Occupational Safety and Health Act (OSHA). OSHA may require you to: provide a safe workplace, train your employees on safety, notify the government regarding workplace accidents, and keep safety records, among other things. For more information on your specific duties under OSHA, consult your attorney, or visit OSHA's website.
Create an employee handbook
It is advisable to create an employee handbook describing your business's specific employee expectations and policies and setting forth that employment is "at will" (meaning that an employee can be terminated without "just cause" or warning) unless a separate, signed employment contract exists.
Set up employee personnel files
For each new hire, employers should create personnel files. In each personnel file, the employer should plan to keep documents, such as job applications, offer letters, IRS W-4 forms, I-9 forms, performance evaluations, disciplinary actions, employee benefits forms, among other items.
Set up employee benefits
Consider the benefits you plan to offer your employees, for example, health insurance or enrollment in a 401(k) plan. Depending on what you plan to offer, you will need to create a sign-up process so that employees can enroll, name dependents, and select options.
Following these 12 steps will help your business set sail in shipshape. In the following weeks, we will provide more blog posts for those just starting out in business and/or human resources. Anchors aweigh!