Finding the right person to fill a role in your company can be challenging. But before you start the search for that person, you should have an infrastructure, of sorts, in place. You’ll have to have a plan for paying those who work for you.
Employer Identification Number
You’ll have to get an Employer Identification Number (EIN), find out whether you need state or local tax IDs, decide whether you want to hire employees or use independent contractors, ensure you receive completed W-4 forms from new employees, schedule pay periods to coordinate tax withholding for IRS, create a compensation plan for holiday and vacation and leave, decide whether you want an in-house or external service for administering payroll, decide who will manage your payroll system, know which records must stay on file and for how long, and report payroll taxes as needed on quarterly and annual basis.
Employees Versus Independent Contractors
Distinguishing between employees and independent contractors can impact your bottom line, as this affects how you withhold taxes and avoid costly legal consequences. Learn the differences before hiring your first employee.
An independent contractor operates under a separate business name from your company and invoices for work completed. Independent contractors can sometimes qualify as employees in a legal sense. The Equal Employment Opportunity Commission (EEOC) created a guide to help business owners make the determination.
That’s an important decision to make. If your contractor is discovered to meet the legal definition of employee, you may need to pay back taxes and penalties, provide benefits, and reimburse for wages stipulated under the Fair Labor Standards Act.
Next, you have to decide which benefits you’re going to offer. Some are required while others are at the discretion of the employer.
Among the required benefits are Social Security taxes, which employers must pay at the same rate as their employees, currently 7.65 percent from each in 2018. Workers’ compensation insurance is required across the country, and disability insurance is required in California as well as four other states and the territory of Puerto Rico. Outside of the Family and Medical Leave Act (FMLA), most leave benefits are optional, and unemployment insurance varies by state.
In a competitive market, other benefits such as an employer-sponsored 401K or pension plan and employee incentive programs can help attract the most desirable employees.
In addition to providing the benefits required by the federal and state governments, employers must adhere to labor laws. Those include laws for hiring veterans, foreign workers, household employees, child labor and people with disabilities, among others groups. Employers must also comply when terminating an employee, laying off workers, or downsizing the company.
More guidance is available from the U.S. Department of Labor, which offers federal and state law resources, and from experts at the organizations including the Service Corps of Retired Executives (SCORE) and the EDC-VC.
For more information on hiring employees, contact the Economic Development Collaborative-Ventura County. Conveniently located in Camarillo, California, we’re here to help.