Written by Marc R Barnes EA
September 14, 2012
The good news is that business is booming. The bad news is there's only one of you. Perhaps it's time to take the plunge and hire some help.

There are many good sources of information about finding the right people, writing job descriptions, interviewing candidates and managing people once they are on board. In addition, you'll need to understand your regulatory requirements as an employer because it is crucial to the success of your business. These 10 easy steps will help you ensure you are compliant with key federal and state regulations when hiring.

Steps for Hiring Employees

1. Obtain an Employer Identification Number (EIN) and Withholding Number

Before hiring employees, you need to get an employment identification number (EIN) form the U.S. Internal Revenue Service and an Arizona account number from the Arizona Department of Economic Security. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. To obtain an EIN, you can contact the IRS directly or apply online. To obtain an Arizona account number, you can fill out a Joint Tax Application (JTT-1) by hand or online.

U.S. Internal Revenue Service
Phone: 1-800-829-4933
Guide to the Employer Identification Number
Apply for an EIN Online

Arizona Department of Revenue
1-800-843-7196
A Guide to To Taxes for Arizona Businesses
Joint tax application: Download or apply online.

2. Set up Records for Withholding Taxes

The IRS states that you must keep records of employment taxes for at least four years. Also, keep good records for your business to help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.

The following describes the types of withholding taxes:

Federal Income Tax Withholding (Form W-4)

Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer will then use Form W-4 to set up the employee Federal tax withholding. For specific information on employer responsibilities regarding withholding of federal taxes, read the IRS' Employer's Tax Guide.

State Taxes

Depending on the state where your employees are located, you may be required to withhold state income taxes. In Arizona, every employee must provide an employer with a signed withholding exemption certificate (Form A-4) on or before the date of employment.

3. Employee Eligibility Verification (Form I-9)

Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete an Employment Eligibility Verification Form, commonly referred to as an I-9 form. This requires you to examine acceptable forms of documentation supplied by the employee to confirm the employee's citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form. Employers who ask for other types of documentation not listed on the I-9 form may be subject to discrimination lawsuits.

Employers do not file the I-9 with the federal government. Rather, an employer is required to keep an I-9 form on file for three years after the date of hire or one year after the date of the employee's employment termination, whichever is later. The U.S. Immigration and Customs Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms, and that employee information on I-9 forms matches government records.Employers can use information taken from the Form I-9 to verify electronically the employment eligibility of newly hired employees through E-Verify. To get started register with E-Verify to virtually eliminate Social Security mismatch letters, improve the accuracy of wage and tax reporting, protect jobs for authorized workers and help maintain a legal workforce.

4. Register with Your State's New Hire Reporting Program

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date. You can fill out a new hire form and fax to 1-888-282-0502 or you can register online.

5. Obtain Workers' Compensation Insurance

Businesses with employees are required to carry Workers' Compensation Insurance coverage through a commercial carrier, on a self-insured basis or through the state Workers' Compensation Insurance program.

6. Unemployment Insurance Tax Registration

Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state's workforce agency. In Arizona this was taken care of in step 1 on your Joint Tax Application (JTT-1).

7. Obtain Disability Insurance (If Required)

Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury. Currently, if your employees are located in any of the following states, you are required to purchase disability insurance:

California - Employment Development Department
Hawaii - Unemployment Insurance Division
New Jersey - Dept. of Labor and Workforce Development
New York - New York State Workers' Compensation Board
Puerto Rico - Departamento del Trabajo y Recursos Humanos/Department of Labor and Human Resources
Rhode Island - Rhode Island Dept. of Labor and Training

8. Post Required Notices

Employers are required by state and federal laws to prominently display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws. These posters are available for free from federal and state labor agencies. Visit the following pages for the specific federal and state posters you'll need for your business.

Department of Labor Workplace Posters
Workplace Poster Requirements for Small Businesses and Other Employers

9. File Your Taxes and Report Wages

If you are new employer, there are new federal and state tax filing requirements that apply to you.
  • Generally, each quarter, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer's Quarterly Federal Tax Return. Small businesses with an annual income tax liability of $1,000 or less may file IRS Form 944, Employer's Annual Federal Tax Return instead of Form 941.
  • You must file IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in any calendar quarter, or you had one or more employees work for you in any 20 or more different weeks of the year.
  • You must file Federal Wage and Tax Statement (Form W-2) on an annual basis. Employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2 Wage and Tax Statement. Employers must complete a W-2 Form for each employee to whom they pay a salary, wage or other compensation. Employers must send Copy A of Form W-2 to the Social Security Administration (SSA) by the last day of February (or last day of March if you file electronically) to report the wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of Form W-2 to their employees by Jan. 31 of the year following the reporting period.

10. Get Organized and Keep Yourself Informed

Being a good employer doesn't stop with fulfilling your various tax and reporting obligations. Maintaining a healthy and fair workplace, providing benefits and keeping employees informed about your company's policies are key to your business' success. Here are some additional steps you should take after you've hired your employees:

Set up Recordkeeping

In addition to requirements for keeping payroll records of your employees for tax purposes, certain federal employment laws also require you to keep records about your employees. Therefore, it's good practice to set up a sound, organized system for maintaining all personnel records. The following sites provide more information about federal reporting requirements:

Tax Recordkeeping Guidance
Resources and tools aimed at helping employers maintain their tax records.

Labor Recordkeeping Requirements
Employment laws such as the Occupational Safety and Health (OSH) Act, the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA), have certain recordkeeping and/or reporting requirements.

Adopt Workplace Safety Practices

The Occupational Safety and Health Administration's (OSHA) Quick Start tool provides a clear, step-by-step guide that helps you identify many of the major OSHA requirements and informational materials that may apply to your workplace.

Understand Employee Benefit Plans

If you will be providing benefits to your employees, you should become familiar with the uniform minimum standards required by federal law to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. See the chapter on Employee Benefit Plans in the U.S. Department of Labor's Employment Law Guide for more information.

Learn Management Best Practices

While you aren't legally required to be a good manager, it sure helps when trying to recruit and retain good employees. The SBA's Guide to Managing Employees provides sound guidance on hiring, motivating and directing employees.

Apply Standards that Protect Employee Rights

Complying with standards for employee rights in regards to equal opportunity and fair labor standards is a requirement. Following statutes and regulations for minimum wage, overtime, and child labor will help you avoid error and a lawsuit. See the chapter on Laws, Regulations and Technical Assistance Services in the U.S. Department of Labor's Employment Law Guide for information, and FirstStep Employment Law Advisor for advice on federal requirements. Also, visit the Equal Employment Opportunity Commission (EEOC) and Fair Labor Standards Act (FLSA).

Copper Canyon Tax and Accounting Services provides full service payroll, payroll reporting and is an E-Verify Employer Agent. We service Tucson and all of Southern Arizona.