7 steps to hiring your first employee

Avantar’s Co-founders, Adrian Ochoa and Michael Alvarez, know what it means to be busy … and need some help.
A leader in local mobile search, the Provo company utilizes mobile devices’ GPS technology to facilitate users’ search for local stores, businesses, movie show times and more. So when exactly did they know they needed to hire?
“Our business is development intensive,” he says. “We started hiring three months before we opened this business. We wanted to find individuals with fresh minds and no preconceived notions.”

But finding the right employee to join the team was only part of the equation. Like all successful endeavors, it takes preparation and paperwork to hire your first employee. Understanding your regulatory requirements as an employer is crucial to the success of your business.
Here are seven basic steps to take when hiring your first employee.

1. Create a business plan that outlines your company’s hiring needs.
“Recruiting can be extremely complex when you consider the factors that play into the appropriate timing of when to hire. There are many opportunity costs that employers face when they do NOT hire and find they have more work than they can handle,” says Dalynn Jones, human resources consultant for Employer Solutions Group in Provo. “However, employers who cannot sustain the workload for a new employee may end up facing difficult employment decisions such as hour reductions and layoffs that hurt employee morale.”

For employers who do not currently have a long-term growth plan, a good option is to use a staffing company to help them through the short, busy workload.

2. Obtain an Employer Identification Number
Before hiring, you must get an employer identification number from the IRS. The EIN is used on tax returns and other documents. To obtain an EIN you can apply online or contact the IRS directly.

3. Obtain a workers’ compensation policy
Have in place a workers’ compensation policy before the employee actually starts working. Businesses with employees are required to carry the insurance through a commercial carrier, on a self-insured basis or through their state Workers’ Compensation Insurance program.
“Without workers’ comp, employers are not only out of compliance with the law but also run several risks to both their companies and their employees,” Jones says.

4. Set up records for withholding payroll taxes.
On or before the first date of employment, new employees need to fill out Form W-4, which is a signed withholding exemption certificate. This form then needs to be submitted to the IRS.
Every year employers must complete a Form W-2 report to the federal government that details wages paid and taxes withheld for each employee.
Take Jones’ word for it —
“Ignorance isn’t bliss when it comes to the government fining those who do not pay appropriate taxes within specified deadlines.”

5. Complete the I-9 (employee eligibility verification) form.
Within three days of hire, employers must complete an Employment Verification Form, also known as an I-9. This form allows the employer to confirm the employee’s citizenship or eligibility to work in the United States by verifying specific forms of documentation. Employers do not file the I-9 with the federal government, but they are required to keep the form on file for three years after the date of hire or one year after the date of termination.

6. Report the new employee to the state’s new hire reporting agency

Within 20 days of the hire or re-hire of any employee, The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires that all employers report the employees to a state directory.

7. File your taxes (FICA, FUTA and SUTA)
Now that you’re officially an employer, you have some taxes to file.
Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act, or FICA. This act mandates that an employer withhold a set percentage of an employee’s salary each pay period. FICA also requires that the employer match the employee’s amount and contribute the money to a government account known as the Social Security Trust Fund.
The Federal Unemployment Tax Act, with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays FUTA tax. It is not deducted from the employee’s wages.

Employers also must pay state unemployment taxes, commonly referred to as SUTA. SUTA tax rates and caps are usually different in each state but costs are always charged to employers rather than employees. Tax amounts are calculated for each employee based on the actual wages paid to the employee and the unemployment experience rate of the company. Taxes due for each employee are usually capped at a max wage amount called the cutoff amount.