A Payroll Guide to Hiring Employees
A lot more goes into bringing a new employee onto your team than successfully making an offer and sealing the deal with a handshake. Each time you hire a new employee, you’ll need to fulfill your employer’s responsibility according to the law. This article will guide you through the necessary steps you’ll need to prepare for:
If you are a new business starting out, you will first need to take the following steps to establish your company:
- Set up a Corporate Entity: As your first order of business, you’ll need to decide the type of business structure you’d like to be classified as, whether it be a limited liability company (LLC), C Corp, or an S Corp. Each corporate entity provides different liability protections, and have legal and tax implications for your business. Learn more about your options here.
- Apply for a Federal Employer Identification Number (FEIN): The FEIN is a unique nine-digit number used by the IRS to identify a business operating in the U.S. Just like each person has a social security number, each company needs a FEIN. To obtain a FEIN for your business, you can apply online, over the phone, via fax or through the mail.
- Register Your Company with Your State: Your company must be registered with your state for compliance purposes. Each state has one to three local agencies that handle compliance with specific filing requirements. You can determine your state’s requirements here.
- Purchase Workers’ Compensation Insurance: It is required by law to have workers’ comp insurance before processing payroll. Check out your state’s regulation rules here. In some states, you will also be required to have a Temporary/Short-Term disability policy for employees. In some states, the state will supply coverage; in some states, the employer will have to obtain a policy through an insurance carrier approved by the state. States requiring disability coverage include New York, New Jersey, Hawaii, and Rhode Island. Some states (e.g. New York) require to purchase disability insurance through an insurance agency. You can now purchase workers’ compensation insurance from FingerCheck.
- Choose a Payroll Schedule: Determine your pay period and workweek – this will dictate whether your payroll schedule will run on a weekly, biweekly, semimonthly, or monthly basis. Decide what the pay date for that period should be, also known as the ‘check date’, and be sure to make the payment schedule clear to your employees.
If your company has not yet set up any of these, the designated links above will help you navigate to the proper sites to do so.
Determine the Employee’s Status
Your new worker may not be an employee depending on the services they provide and their level of supervision. If they largely control how they do their work, they may be an independent contractor or consultant, not an employee. If you’re unsure of the nature of your business relationship, consulting the IRS website can help. Once you’ve established the status of your new hire, there are legal forms that need to be filled out at the start of their employment.
The First Day
Whether they are an employee or a contractor, they will need to fill out the Employment Eligibility Verification I-9 form, required by Homeland Security. This is a form used by employers to verify a worker’s identity as well as legal authorization to accept employment. On Day 1 of employment, new hires must fill out Section 1 by:
- filling out basic personal information
- attesting under penalty of perjury their legal status to work
- signing a declaration of their truthfulness regarding the documents and statements provided by them
- providing one or more legal documents that establish both identity and authorization to accept employment in the U.S.
It’s your responsibility to complete Section 2 within three business days of the date employment begins. If the worker does not or cannot supply the needed documents, you will be faced with the decision of whether to continue employment; legally, you cannot employ an employee without having the I-9 completed and on file.
Once the I-9 is completed, you must keep a digital or printed copy of the I-9 form on file for the entire duration of the employee’s employment, and a minimum of three years from the hire date or one year from the termination date, whichever is lengthier.
If your new hire is an employee, they will need to complete the W-4, which aids you in determining the correct federal income tax to withhold from their pay, and may only be prepared by the employee themself. The federal withholding is calculated based on the employee’s marital status, the number of allowances claimed, and their compensation.
If your employee opts not to fill out the W-4, as the employer you have the right to withhold at either the Single-zero or Married-one level. A digital or printed copy of the W-4 form must be kept on file and retained for a minimum of four years. Some states with income taxes allow the Federal W-4 to default so that it can be used for the state. Some states (e.g. Arizona) require their own forms for state withholding.
Getting Their Pay Details
As an employer, you want to make a good first impression, so get the information you need in order to pay your employees when promised. Discuss compensation and how they’d like to be paid, whether it be direct deposit, checks, or pay cards. If they ask to be paid via direct deposit, make sure you get their bank account details right and don’t hesitate to have your employee check it.
After the First Day
New Hire Reporting
You are required to report new hires by the Federal Parent Locator Service (FPLS) which uses the new hire information to locate non-custodial parents in order to ensure that their child support obligations follow them wherever they go. Typically, you will provide the employee’s name, address, and social security number, and will have anywhere between a few days to 90 days to submit the information to your state. Check your local state tax, labor, and/or workforce website for more information.
As an employer, it’s your duty to come up with a reliable method of tracking your non-exempt employees’ worked hours. Any timekeeping plan is acceptable as long as it is complete and accurate. Investing in an automated timekeeping system means your employees will never have to manually write down their own hours, which will eliminate any confusion when processing payroll.
Whichever method you decide, make sure to set employees up with the proper protocol so they can record their time. If you’re using a biometric system, you’ll need to conduct a one-time supervised enrollment process where your employees’ characteristics are scanned to form a template of which future punches will be matched. If you’re using a digital system and would like them to be able to review their hours and/or approve timesheets, remember to give access to the employee self-service module.
As an employer, you’re required to calculate, withhold, deposit, and file taxes for your employees. You will also need to match all Social Security and Medicare taxes withheld and calculate your employees’ net pay after all taxes are withheld so that their take-home pay is correct. As a new business owner, all this may sound overwhelming, but a well-designed payroll software program can help you put your compliance on autopilot and take care of your needs.
Calculating and Withholding Taxes
Calculating taxes is the tricky part when it comes to doing your due diligence as an employer. While you could calculate payroll tax manually, doing so can get very confusing. You would need to be familiar with the formulas needed to calculate federal income tax, state and local income tax, social security, medicare, and employer-paid taxes such as FUTA and SUTA. Routinely calculating all these taxes each pay period can quickly become a time-consuming task. Some companies bypass the headache by either hiring an in-house payroll professional or outsourcing to a payroll company. However, thanks to today’s modern times, you can sign up for a payroll software program that allows you to have full control of your payroll while eliminating the complexity!
Routinely calculating all these taxes each pay period can quickly become a time-consuming task. Some companies bypass the headache by either hiring an in-house payroll professional or outsourcing to a payroll company. However, thanks to today’s modern times, you can sign up for a payroll software program that allows you to have full control of your payroll while eliminating the complexity!
Depositing Taxes and Filing Returns
Another employer’s responsibility you’ll need to fulfill is depositing the taxes you’ve withheld from your employees’ pay. These may all be due on different dates, with some being due on a quarterly or annual basis, depending on local or state regulations. If you use a payroll provider or payroll software program, this service may be offered to you, or you can outsource this specific task. Regardless, you can find assistance in matching these due dates to your payroll schedule, and some programs even deposit the taxes automatically.
FingerCheck360 Will Take Care of All Employee Onboarding, Time Tracking, and Payroll
FingerCheck360 was designed to help you fulfill your responsibilities as an employer. Using FingerCheck360, you can rely on one platform that handles your employee onboarding, time tracking, payroll, and even applicant tracking. As part of FingerCheck360’s onboarding module, the I-9 Form is actually built into the onboarding process the employee fills out. Employees can upload their legal proofs while onboarding online.
The W-4 form is also built into FingerCheck360’s onboarding module. As your employees move through the tax withholding stage, the information they enter is automatically filled within a W-4 form which is generated as they progress through the onboarding.
You can then find those documents within the employee’s profile. After you’ve onboarded your employees, you can look forward to seamless time tracking with FingerCheck360. With countless options of clocking in, your employees can record their hours from anywhere, whether they’re on the road or in the office. Their punch data automatically syncs to the cloud where you can manage it using our customizable software.
FingerCheck360 lets you build your own overtime rules, break rules, policies, and more. You can also set up exceptions and punch alerts that notify you when employees punch in. Since all the recorded punches and total hours are already inputted, you will never have to import timesheets or manually enter times again. Once you’ve approved timesheets and run payroll, you will be able to pay your employees directly from FingerCheck360 by setting up direct deposit, pay cards, or printing checks.
FingerCheck360 will then calculate, file, and deposit state and federal taxes automatically. Each time you run your payroll, it will debit the taxes as you go so you never have to experience any bank account surprises when a large portion of the money is taken all at once. Consider turning to FingerCheck360 as one platform that will give you full control over your payroll, while making compliance a breeze. From clock into cash out, FingerCheck360 takes care of all your workforce management needs, the way payroll is meant to be.