What do I need to hire an employee? (Employee Series Intro)
First of all, congratulations on hiring your first employee!! It’s a big step in your business!
Hiring an employee is different from paying an independent contractor because there is a lot more compliance to follow. But there are great benefits to working with an employee over an independent contractor, like level of control or offering benefits to great help that you’ve found.
This can seem like a daunting task full of unknowns, but we are here to help guide you through the process, and hopefully make these steps a bit easier. There are 5 things we'll need to cover here:
Insurance
Cost to your business
Of course, there are probably many more avenues to discuss when hiring an employee, but these are going to be the top 5 immediate items that you will need to either take care of or know when starting payroll for your company.
In this article, we’ll touch on the top 5 items, and then we’ll deep-dive into them in separate articles.
Opening Government Accounts
You’ll need to make sure you have accounts set up with a number of government jurisdictions in order to process and submit proper payroll for your company and employees.
Depending on where you’re located, you may have state tax withholding, unemployment tax withholding, and local tax withholding; while everyone will have federal tax withholding.
It’s important to know what you are subject to with your employee, so researching this information is critical.
If you’re hiring a remote employee and they live and work in a different state than your company, you’ll have to look at the state they’re a resident of. If they cross state lines to work, you’ll need to research specific rules and see if there are any reciprocity agreements.
We go into more depth in our article that focuses on setting up your government accounts.
Legal Compliance/HR
All states have their own Department of Labor that manages the workforce on a state level. Some of these will defer to the US Department of Labor for some rules. This is the organization that imposes minimum wage laws, age requirements for working, overtime and break rules, and now, state mandated sick time.
As mentioned in the previous section, each state has and even different cities have different laws, so it’s important to know the laws where your employees are working.
These are usually based on where the employee is working, not where they live or where your company is located.
We go into more depth in our article that focuses on legal compliance and HR items.
Insurance
There are a number of different types of insurance when it comes to owning a business, but the one you need to know about when hiring employees is called Workers Compensation insurance. Purchasing Workers Compensation (work comp) insurance is required in all states except Texas.
This insurance is for work-place injuries for your employees and is based on the payroll that you pay.
Depending on where you and your employee are located, you can either shop around to get the best rate, or you will be part of your state’s mandatory state fund (North Dakota, Ohio, Washington, and Wyoming). You can get quotes online, or you can contact your current insurance broker for your business insurance for quotes.
Payroll Software
Let me just say this plainly, you’re going to want to use a payroll software.
I know that it costs extra money each month, but I promise you that the time and energy it will take you to do it manually, make sure it is error-free, everything is paid and filed on time, and you’re up to date on all of the compliance is going to be more work than it’s worth to pay for a software.
A lot of software options are also much more affordable for small businesses these days. The software is going to calculate the withholding taxes properly for each employee, and they will generally send those withholdings off to the proper government jurisdiction and file any returns required. They will direct deposit the paychecks to your employees and provide paystubs with legally mandated information included. Usually time off policy tracking is also included in the standard subscription.
You can pay for higher services that can include time tracking, HR support, health insurance and retirement deductions and remittances, and local jurisdiction reporting.
We’ll go into more depth on different options available in our article that focuses on payroll software options.
Cost to Your Business
It goes without saying that having employees cost money. But the benefit to having employees is that hopefully they will help your business generate more money than you have to pay to employ them, they can help your company grow, and they can take work off your shoulders.
The big question that we hear from clients is whether they can afford to hire an employee.
While we can answer that question for you, we can help you identify the potential costs so you’re aware of everything that’s involved. We’ve gone through most of the costs in this article – there are taxes that your company will need to pay, workers compensation insurance, and payroll software fees. If you’d like someone like your accountant or bookkeeper to process your employees’ payroll for you, that would be an additional fee to keep in mind.
We’ll walk through each of these costs in our article that focuses on the cost to your business.
There are many things you need to hire an employee, and we hope that this series will help you feel confident in your next steps on your business journey! Please check out the other articles in this series, linked throughout, and best to you on your next steps!
No assurance is given that the information provided in this blog is comprehensive in its coverage or that it’s suitable in dealing with each individual’s particular situation. This blog article exists to provide general information only and does not constitute tax or legal advice, and cannot be used or substituted for tax or legal advice. Savvy Bird Consulting, LLC is not responsible for the implementation or outcomes this material may have.