Becoming an Employer
By Fred S. Steingold
Many a small business has been able to survive for months--or even years--without employees.
In some cases, the owners do all the work. In other cases, they get help from independent
contractors. Then one day, the owners decide they really do need employees if their business
is to thrive and grow.
So when that day comes, what steps should you take to do it right? The following checklist
gives the basics. It can also help you if you've already started hiring workers and want to
make sure you're not missing anything.
1. Get an Employer Identification Number
The IRS and many state tax departments use this number to track employment taxes. If your
business doesn't already have a number, go to the IRS website
(www.irs.gov) and look for Form SS-4.
The instructions are there too. You can fill in the form online and submit it electronically.
Or, if you prefer, you can submit it by mail or fax. Technically, if you're a sole proprietor,
you can use your Social Security number instead of an Employer ID Number, but it's usually
better to get a separate number for your business.
2. Write Job Descriptions
Focus on qualifications: the skills, education, experience and licensing that are needed for
the job. Then turn to the essential job functions--the core of the job. You don't want to
exclude someone from consideration just because the person can't perform some marginal job
duty. (To do so would violate the Americans with Disabilities Act.) It's okay to identify
some non-essential duties--things that are desirable but not strictly required. Typing,
for example, may be a desirable skill but not a necessity.
3. Put Together a Job Application
A standard form makes it simple to compare applicants. Cover the applicant's educational
and employment history. Avoid unlawful questions. Some examples:
- "How old are you?" (Ask instead, "Are you 18 years old or older?" especially if you
are concerned the applicant may not be of legal age to work.)
- "Have you ever been arrested?" (Try instead, "Have you ever been convicted of a crime?")
- "Do you rent or own?" (Opt for a less specific question like, "How long have you lived
in this city?")
4. Interview Applicants
Write down your questions so you can ask everyone the same thing. Stick to the applicant's
skills and work history--and to your workplace rules. Avoid personal inquiries. Let's say
you're worried that an applicant may have young kids and may spend a lot of time talking
to them on the phone. Don't ask, "Do you have children?" or "Who watches the kids when
you're at work?" But you can safely say: "We don't allow personal calls during work
hours. Do you have a problem with that?"
5. Do a Background Check
At the very least, you'll want to contact former employers. If the job requires handling
money, you'll probably want to do a credit check. An applicant with financial problems may
have sticky fingers. And if the applicant will be going into customers' homes, it's smart
to check for a criminal history.
6. Make a Job Offer
Draft a simple letter that states the job title, the salary and the starting date. Have
the new employee acknowledge that the employment is "at will." This means you can fire the
employee for any reason.
7. Complete Official Paperwork
- Fill out Form I-9 for each new employee. This helps the government make sure it's
legal for the employee to work in this country.
- Have each new employee complete a Form W-4. You need this information to know how
much income tax to withhold.
- Fill out a New Hire Reporting Form and send it to the appropriate agency in your
state. Your state's Department of Labor can give you details.
8. Pay the Minimum Wage
Check the current minimum wage at www.dol.gov,
the website of the U.S. Department of Labor. You'll also find each state's minimum wage at this
site. You'll need to honor your state's minimum if it's higher than the federal one. Also,
be sure to pay overtime at 1.5 times the usual rate--unless the employee is exempt. See
details at the same website.
9. Handle Payroll Taxes
Uncle Sam relies on you to withhold income tax from each employee's paycheck. You also
need to deduct the employee's share of the Social Security and Medicare taxes. Then,
periodically, you pay these taxes to the IRS--along with the employer's share of Social
Security and Medicare Taxes. For details, see Circular E, Employer's Tax Guide, at
(www.irs.gov). States and cities have
similar requirements for withholding income tax.
10. Secure Workers' Comp Insurance
This insurance covers workers injured on the job or suffering from a work-related illness.
The insurance company pays certain medical and wage benefits whether or not your business
was at fault. The employee can't sue your business for pain and suffering, unless there was
intentional misconduct. You can buy this insurance through a state fund or a private
insurance agency, depending on where you're located.
11. Meet Your Unemployment Obligations
The IRS collects a federal unemployment tax. So do the state governments. Check with your
state unemployment office for details.
12. Post Workplace Notices
A number of federal laws require you to display a poster in the workplace. A poster tells
employees of their rights, for example, under the Family and Medical Leave Act. Several
publishers offer a complete federal poster for a nominal cost. Enter "federal job posters"
in a search engine (such as Google) to
learn the names of these companies. Posters for each state are also available.
Fred S. Steingold practices law in Ann Arbor, Michigan. He is the author of Legal
Guide for Starting and Running a Small Business and The Employer's Legal Handbook
published by Nolo. Legal strategies may vary depending on the state in which you live and the
specifics of your situation. See your lawyer for legal advice.
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