Moving from a sole-proprietorship to a company with one employee is a bigger step than many people realize. In this blog, I will discuss some of the legal ramifications. In the next blog, I’ll discuss hiring and management tactics that apply to first hires.
Legally, a company hiring its first employee needs to prepare by obtaining an employer identification number from the US Internal Revenue Service. You must set up systems for keeping records of federal and state taxes (which should be kept for 4 years), including form W-4 (withholding exemption certificate) and form W-2 (wage and tax statement). Among other requirements, a copy of the W-2 form will have to be sent to the Social Security Administration by the last day of February for the prior calendar year.
However, before you start collecting W-4 and W-2 forms, you have to make sure your potential employee is eligible to work in the US. Form 1-9 lists the specific documents you can ask for to confirm an employee’s eligibility; for example, a passport or alien registration receipt card or permanent resident card (often called a “green card”) with signature. Although the current I-9 form has an expiration date of 3/31/16,. it is still valid until the government issues a revised version. Employers now have the option of e-verifying through a specific government website. Since 1996, you must also report a new hire to your state’s directory within 20 days of the hire.
Even with just one employee, you’ll need workers’ compensation insurance; required federal and state posters; and policies covering sick leave, vacation, paid holidays, and unpaid leave. As a best practice, you should have written job descriptions and an employee handbook or guide, so that there is no confusion over policies.
Hiring a first employee is a bigger move than many sole-proprietors realize. HR Compliance 101 can help set up and navigate the systems, forms, and information you need to make the process go smoothly—and legally. We welcome your questions before that first hire comes through your door.