Hiring your first employee is a huge milestone, but it can be an intimidating process. You will be expected to know and comply with a variety of laws and regulations. A good way to ensure you’re covering all your employment law bases is to remember that for almost every federal requirement, there will be a state requirement (and even sometimes a local (i.e., county or city-level) requirement).
The four main areas can be broken into: (1) Employee Verification and Reporting, (2) Wages and Taxes, (3) Required Benefits, and (4) Compliance.
Here is a basic employment law checklist to help you navigate these requirements:
Employment Law: Employee Verification and Reporting
- Verify your employees are eligible to work in the U.S.
- Are they a U.S. citizen?
- Are they a noncitizen national (i.e., born in an U.S. outlying possession such as American
- Are they a lawful permanent resident?
- Are they an alien/immigrant authorized to work in the U.S?
- If not yet eligible, apply for work authorization (check out these guides from the U.S. Department of Labor Employment and Training Administration and U.S. Department of Homeland Security’s U.S. Citizenship and Immigration Services (USCIS).
- Fill out and retain USCIS Form 1-9 (there’s no need to file anything, but the forms must be made available for inspection by U.S. government officials upon request).
- Report new hires or re-hires (federal law requires you to report newly hired or re-hired employees to a state directory within 20 days).
Employment Law: Wages and Taxes
- Get an Employer Identification Number (EIN) (also known as a Federal Tax Identification Number) from the IRS.
- Ensure wages comply with the Fair Labor Standards Act (FLSA), such as minimum wage (note that many states (and even local governments) require a minimum wage higher than the federal standard).
- Withhold and pay payroll taxes (e.g., Federal Income Tax, Medicare Tax, Social Security Tax, and Federal Unemployment Tax). To determine the current withholding rates and contribution requirements, see IRS Employer’s Tax Guide (Publication 15).
- Collect IRS Form W-4 (Employee’s Withholding Allowance) from your employees.
- File and distribute IRS Form W-2 (Wage and Tax Statement) for your employees.
- Check your state and local payroll tax requirements as they vary between jurisdictions (a quick internet search should do the trick!).
Employment Law: Required Benefits
- Provide health coverage to employees (if you have 50 or more employees).
- Obtain and carry Worker’s Compensation Insurance coverage.
- Obtain and carry Disability Insurance coverage (required in California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island).
- Provide Family and Medical Leave (see a breakdown of the Family and Medical Leave Act).
Employment Law: Compliance
- Post notices required by the Department of Labor such as the Equal Employment Opportunity poster.
- Ensure that you are complying with the provisions of the Occupational Safety and Health (OSH) Act.
- Implement anti-discrimination and workplace harassment policies.
A good way to stay organized is to create a good recordkeeping system and Employee Handbook. The IRS requires that you keep employment tax records for at least four years. While good recordkeeping will save you a lot of headaches if you get audited, it can also provide a great business advantage as well. Good recordkeeping will help you monitor the progress of your business, identify sources of income and losses, and make filing taxes (and getting deductions) a lot easier. On those same lines, an employee handbook will help you implement policies that will make your business operate more effectively and protect you from liability.
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