Legal steps and considerations for hiring your first employee

woman interviewing a job candidate

Before you post that "Help Wanted" sign, it's essential to know the law

Recent headlines point to an increase in small business growth and entrepreneurial startups during the global pandemic, with new business starts increasing by double-digit percentages. That's according to experts at the U.S. Chamber of Commerce, who reported that in 2021, new business starts were 20% higher than the previous year in some states, and overall nationally, new businesses increased by 24.6%. This included growth in the non-classified sector for businesses that didn't fit within traditional definitions, indicating a high likelihood of innovators creating something entirely new. 

employment law attorney justin petersonWhen business is good, it's good to have help

"If you're among those entrepreneurs who are part of the upward trend in startups, and business has been good, you may be thinking about adding some help," said employment law attorney Justin Peterson. "Despite how eager you might be to onboard that help, there are some legal obligations you have to take when you're ready to hire your first employee."

As you prepare to hire, here are the legal obligations to keep in mind, according to Peterson. 

11 steps to hiring your business's first employee

1. Secure your employer identification number. 
Your EIN is the number you'll need to file IRS forms, including tax returns. To get this number, you will want to fill out the IRS Form SS-4, available on their website.

2. Now contact the State of Wisconsin Labor Department
"With a new employee comes a new set of obligations to the state," said Peterson. "Among them is an obligation to pay taxes into state unemployment compensation."

This fund is intended to provide relief to workers who lose their jobs. You can learn more at the Wisconsin Department of Workforce Development website. 

3. Purchase workers' comp insurance. 
Workers' comp coverage is vital, as it protects employees who are injured on the job. And in Wisconsin, unless you're self-insured or qualify for an exemption, you're required to carry workers' compensation insurance. 

4. Prepare to pay taxes. 
"As an employer, it will be your responsibility to pay a portion of your employee's income to the IRS and make payments to Social Security and Medicare," Peterson said. "Setting up a payroll system is an important part of this responsibility."

You can learn more via the IRS Employer's Tax Guide on their website. You may also have obligations for the state, which you can research through the State of Wisconsin Department of Revenue. 

5. Get inFORMation. 
It's time for your new hire to fill out some forms. 

  • Have your hire fill out the IRS Form W-4 (also available at irs.gov, which helps you determine the correct amount of money to withhold from their paychecks. The W-4 should be filled out yearly to determine whether their allowance changes. 
  • Fill out the Employment Eligibility Verification, Form I-9. "This is required by the U.S. Citizenship and Immigration Services and helps you verify that your employee can legally work in the U.S.," Peterson said. "Keep this form on file for three years; you must make it available if Immigration and Customs Enforcement request it." 

You can get the Employment Eligibility Verification form on the USCIS website. Keep the completed form in your staff's I-9 folder (not their personnel file). 

6. Tell Wisconsin.
You must report each new hire to the Wisconsin New Hire Reporting Center. This helps locate parents who owe child support. 

7. Get posting. 
As an employer, it's your responsibility to post several notices related to worker rights. You can find the federally-required posters at the Department of Labor site. Additional posters may be required by Wisconsin and can be found via the Department of Workforce Development. 

8. Report your unemployment tax to the IRS.
Every year that you pay at least $1,500 in wages in any quarter or have an employee work for you for 20 or more weeks, you must file Form 940 with the IRS to report federal unemployment tax. 

9. Create a safe workplace. 
Compliance with the Occupational Safety and Health Act is essential for most employers. Read up on the regulations on the OSHA website, which may include training you're required to offer for safety, incident reporting requirements and recordkeeping. 

10. Establish personnel files. 
It's important to keep files for each employee that include their IRS forms, their job application and job offer, employee benefits forms and performance review records. Certain files, including those related to immigration status and medical records, should be kept in a separate, confidential file under lock and key.  

11. Get the benefits. 
Benefits often serve as a carrot during the hiring process, so you'll want to set up those benefits and the process for signing up for them, which will enable your new staff member to enroll. 

Final steps to hiring your employee

Though it's not legally required, developing an employee manual can help clarify expectations and responsibilities for your new hire. And of course, posting the job and properly conducting the interview process are essential to finding the right talent for the role. 

"With all of these legal steps underway, and your new hire in place, you can prepare to innovate and perform better than ever before with your small business," said Peterson. "If you have questions along the way or run into sticky hiring situations, our employment and labor law attorneys at Johns, Flaherty, & Collins in La Crosse and Holmen, Wisconsin, are ready to help."
 


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