Congratulations! Your business is growing and you need to hire your first employee.
One of the first decisions you need to make is to clarify whether you will be hiring an employee, or need an independent contractor. Both have benefits and drawbacks. There are about 20 ways to determine whether a worker is an employee or a contractor, according to the IRS.
Here are some steps you will need to take to make sure its done right! Also, take a look at some online resources from the Missouri Business Development Program.
- Develop an Organizational Chart – You will get a clearer picture of the reporting relationships of current and future employees. This is also useful in establishing pay rates and promotional opportunities.
- Write a Job Description – What will this employee be responsible for? Who will they report to? How much will they be paid? Identify the skills and qualifications required for this position.
- Recruiting – Where will you advertise for this job, or will you hire someone to do it for you? Write an ad.
- Legal Issues Affecting Application Forms and Interview Questions – Employers are prohibited from asking for information that is unrelated to doing the job. The U.S. Equal Employment Opportunity Commission has published a list of Prohibited Practices.
- Verifying References – The term, “Negligent Hiring,” refers to litigation against employers who hire employees that endanger fellow employees and customers. If you are too busy to verify the information on your job application, consider using an employment agency. Pre-employment verification can also include confirmation of Social Security number and background checks.
- Personnel Files and Documentation – Best practices recommend three files to be maintained on each employee.
- General information – Original application, current home address and telephone number, etc.
- Employment records – Employment date, attendance records, performance appraisals, trainings, etc. This file is confidential.
- Payroll information – Employee wage & salary history, Social Security number, I-9 and other IRS employment paperwork, etc.
- Employee Handbooks – An Employee Handbook is an important information tool between you and your employees. It will dictate policies and procedures, anti-discriminatory practices, compensation, schedules and much more.
How do you determine a competitive pay rate for your new employee? A method to verify pay equity is conduct a wage/salary survey. The US. Department of Labor’s Bureau of Labor Statistics has done some statistical research on salaries that might be useful, but other companies out there like Glass Door, Indeed, and PayScale can give you a good ballpark as well.
Remember that no matter how qualified a candidate is, your new hire will need some training in specific company practices. Orientation Training specifically covers administrative details such as completing IRS forms, pay procedures, benefits, policies and safety regulations.
Performance support training enables the employee and employer to work together to develop written performance goals, and specific task training/breakdown. And in addition to any informal training classes by the business owner, newer employees might also need to attend seminars. Other excellent training is accomplished through job rotation, coaching and apprenticeship programs.
- EIN – When you incorporated your business, you should have applied for an EIN (Employer Identification Number) for your business. If not, visit the IRS’s website. It is free, and required for certain legal formations.
- Withholding Taxes -- Employers are generally required to withhold federal income, social security and Medicare tax from their employee’s pay. To withhold federal income tax properly from an employee’s wages, employers need the information provided by the employee on Form W-4 and information in IRS (Circular E), Employer’s Tax Guide.
- Citizenship -- Employers are required by law to complete the I-9 Employment Eligibility Verification. To help determine eligibility, visit E-Verify.
- Employee Withholding – Each employee must fill out a Form W-4 to define the proper amounts of income tax to withhold. Employers are not required to verify the accuracy of allowances claimed.
- Social Security and Medicare Taxes -- Social Security and Medicare taxes are paid by both the employer and employee. These taxes have different rates and must be estimated every year. See IRS Publication 505, Tax Withholding and Estimated Tax.
- Unemployment insurance -- Visit the Missouri Division of Employment Security for MODES-2699 to determine whether an employer is liable for state unemployment tax. On the federal side, visit the IRS. Pamphlets or posters need to be given to employees regarding their unemployment insurance.
- Missouri Withholding Taxes -- All employers in Missouri must report their newly hired employees within 20 days of hire. Employers need to send a copy of MO W-4 to the Department of Revenue.
- Missouri Tax ID -- Every employer maintaining an office or transacting any business in Missouri and making payments of wages must have a Missouri Employer Tax Identification Number (MO Revenue Form 2643).
- Workers Compensation – Any business with five or more employees (except agricultural or domestic labor) must provide workers’ compensation insurance to protect their workers in case of job-related injury, illness or death. Construction companies need workers’ compensation insurance if they have one or more employees. Failure to insure your employees may result in a fine of $10,000 and/or confinement. More information is available at the Missouri Division of Workers’ Compensation.
- Occupational Safety and Health Act (OSHA) – All employers must furnish a place of employment free from hazards causing or likely to cause deaths or serious harm to employees. Employers must comply with occupational safety and health standards issued under the Act. If you are a small business subject to OSHA regulations, OSHA provides a Small Business Handbook to give your business the information it needs to comply. Free assistance in correcting hazards without penalty is available through OSHA-approved Missouri Department of Labor on-site inspections.
- IRS Assistance & Publications – The IRS provides a lot of helpful information and assistance to small businesses owners.
- Missouri Department of Labor and Industrial Relations – This network of workforce development offices provides a computerized job bank, applicant recruitment, labor market information, testing and other services.
- Missouri Career Source – Provides current information about employment opportunities in Missouri as well as information on labor, employment, education/training, and other programs and services related to employment and training.
For more information, visit Missouri Business Development Program.