Hiring and Managing Employees: Legal Requirements
Hiring and Managing Employees: The Path to Success
Hiring and managing employees impact your business success. Choosing the right person for your business is your priority, but you also comply with state and federal employment laws. You need to set up payroll for paying employees. An employer must follow some steps to set up payroll.
A Guideline to set up payroll:
- Get an Employer Identification Number (EIN)
In our previous blog, we explained why you need an EIN for your business. A federal Employer Identification Number (EIN) is a unique identification nine-digit number the IRS assigns to businesses for mainly tax purposes. It is also known as a Federal Tax Identification Number. According to RSI rules, you have to get an EIN if you have employees and operate your business as a corporation or a partnership. An EIN helps you when hiring and managing employees. You need an EIN if you have employees or are on the verge of hiring employees.
- Get a state or local tax ID number if you need
You also need a state tax ID number if your business must pay state taxes. A state tax ID number can help you protect your sole proprietor business a state tax ID number. Income taxes and employment taxes are the two most common forms of state taxes for small businesses. Each state has its own regulations in terms of tax regulations. It is helpful to consult with a specialized Law Firm whether you need a state tax number.
IRS Employer's Tax Guide is a legal source for hiring and managing employees.
- Decide if you want an independent contractor or an employee. An independent contractor can offer better opportunities than hiring and managing employees.
- Check the eligibility for a new employee. According to IRS Employer's Tax Guide (2020), employers must verify that each new employee is legally eligible to work in the US. It includes completing the U.S. Citizenship and Immigration Services (USCIS) Form I-9.
- Report new hires or ensure new employees return a completed W-4 form. Employers are required to report any new employee to a designated state office. Many states accept the Form W-4. Employers must file Forms W-2 to report wages paid to employees.
Ensure new employees return a completed W-4 form.
- Schedule pay periods to coordinate tax withholding for the IRS. Employers must follow the IRS rules when hiring and managing employees.
Federal Laws Requires Some Benefits for Employees
- Offer employee benefits
The federal government requires every business with employees to have certain insurances. These are workers' compensation, disability, and unemployment insurance. Employers must also pay for social security taxes and leaving benefits. Additionally, some states also require additional insurance, so visit your state's website to find out the requirements for your company. Hiring and managing employees require some insurances and tax payments.
- Social Security taxes - Employers and their employees are required to pay social security taxes at the same rate.
- Unemployment insurance - Unemployment insurance provides cash benefits to eligible workers. It is a joint state-federal program that is administered by each state, but states follow the same guidelines established by federal law. Unemployment benefits vary by state.
- Disability insurance - Disability Insurance allows employers to give partial wage replacement insurance coverage to their eligible employees for non-work-related sickness. Employers located in some states such as California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island are required to purchase disability insurance. Ask your professionals to determine if this coverage is required by your state.
- Workers' compensation - Workers’ compensation covers employees’ compensation for injuries or disabilities sustained as a result of their job. Employers must pay workers' compensation for all staff members. Compensation plans offer coverage of medical fees related to injuries incurred as a direct result of the job.
- Leave benefits - Leave stipulated in the Family and Medical Leave Act (FMLA) is required by law. Other plans are optional.
Optional employee benefits have to comply with federal laws, for which the Department of Labor regulates.
- Create a compensation plan for holiday, vacation, and leave.
Hiring and managing employees require some insurances and tax payments.
Hiring and Managing Employees: Who Will Perform Payroll and Related Tax Duties?
- Designate an internal or external service for administering payroll
Hiring and managing employees bring payroll and tax duties. Employers may contract with third-party payers to perform payroll and related tax duties. Common third-party payers are:
- Payroll service provider (PSP),
- Reporting agent,
- Agent with approved Form 2678,
- Payer designated under section 3504,
- Certified professional employer organization (CPEO).
- Know which records must stay on file and for how long.
Be Careful About Recordkeeping
You must keep all records of employment taxes for at least four years include the following information.
- Your EIN,
- Dates and amounts of all employee payments,
- Amounts of tips,
- Addresses, names, SSNs, and occupations of employees,
- Copies of Forms W-2, W-2c, W-4, W-4P, W-4(SP), W-4S, and W-4V
- Amounts and dates of tax deposits,
- Records of extra fringes.
- Report payroll taxes as needed on a quarterly and annual basis,
- Follow the Occupational Safety and Health Administration’s (OSHA) rules. Under the OSHA law, employers have a responsibility to provide a safe workplace. Hiring and managing employees are well regulated by OSHA rules.
Hiring and Managing Employees: What Information Must An Employer Report?
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) requires all employers to report seven data elements to a designated state agency:
- Employee name.
- Employee address.
- Employee Social Security number (SSN).
- Date of hire (the date the employee first performs services for pay)
- Employer name.
- Employer address.
- Federal employer identification number (FEIN).
Some states require additional data. PRWORA requires employers to report basic information on new and rehired employees within 20 days of hire to the state where the new employees work. Some states require it sooner and have stricter rules for hiring and managing employees.
In summary, if you are looking to hire a new employee, there are some state and federal employment laws to comply with before you get started. They include;
- Get an Employer Identification Number (EIN),
- Get a state or local tax ID number if you need,
- Decide if you want an independent contractor or an employee,
- Check the eligibility for a new employee,
- Report new hire or ensure new employees return a completed W-4 form,
- Schedule pay periods to coordinate tax withholding for IRS,
- Offer employee benefits,
- Create a compensation plan for holiday, vacation and leave,
- Designate an internal or external service for administering payroll,
- Know which records must stay on file and for how long,
- Report payroll taxes as needed on a quarterly and annual basis,
- Follow the Occupational Safety and Health Administration’s (OSHA) rules.
You can protect your business by adhering to labor laws and industry regulations. Hiring and managing employees are regulated by strict state and federal employment laws. Consult your lawyer about applicable laws for hiring foreign workers, household employees, child labor, and people with disabilities to learn advantages.
As A Team, We Are Ready to Help You!
To start and run your business in the USA, you need a lot of documentation to be prepared. When you need to hire an employee, we can help you. You cannot be an expert in every subject you need. An expert consulting firm you can trust will save you time and money.
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