Hiring Your First Employee
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Continuing the conversation about hiring your first employee, you might be wondering about the recommendation to hire a payroll service. I mean, paying an employee can be a pretty significant expense and cost management is a priority.
But let's just say, on his or her first day of work, your employee asks about tax withholding. You learn, from poking around on IRS.gov that they need to complete a Form W-4 so that you can determine how much federal income tax to withhold. Your employee completes the form and claims 11 exemptions. Is that normal? Is the form then filed the same as if they claimed 1 exemption? Do you just keep the form in your files or does it have to be sent to the IRS?
Are these the kind of questions you want to have to think about? That's where a payroll service can be a very helpful partner.
The time that you save and peace of mind just might justify the cost of the service.
Understanding your tax obligations
For a basic understanding of your tax obligations, get a copy of IRS Publication 15 Circular E, Employer's Tax Guide. This publication is a very helpful guide for anyone who is considering hiring an employee. To download Publication 15, go to IRS.gov.
Contact your home state and city taxing authorities to retrieve a copy of the local version of Publication 15.
Better yet, ask your payroll service provider to send you a copy.
Form I-9, Employment Eligibility Verification
You're also required to verify that your employee is legally eligible to work in the United States. This means completing INS Form I-9, Employment Eligibility Verification, and keeping it on file. You have to establish your employee's identity and eligibility for employment by reviewing certain documents, such as a driver's license and Social Security card, or a U.S. passport. The instructions for Form I-9 also list a number of other acceptable documents. It's a good idea to photocopy these documents, but you are not required to. You can find Form I-9 and instructions at www.uscis.gov, or call (800) 870-3676.
A lot. Remember, you can't exclude any job candidate from consideration on the basis of race, religion, gender, national origin, age, or disability. Be sure to keep records of all phases of the hiring process, from the advertisements that you place to the reasons why you made your ultimate selection.
State law may require you to purchase workers' compensation insurance to protect full-time employees in case of work-related injuries. You should also think about purchasing insurance to protect yourself if you are held liable for the actions of your employee.
It's a good idea to seek the advice of an expert. Attorneys, accountants, insurance agents, employee screening consultants are all resources that help to make sure that you are taking all of the required steps in hiring your first employee.
IMPORTANT DISCLOSURE The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.