Budget for the role, invest in payroll software and purchase the right insurance before hiring employees at your small business.
Hiring your first employee is a good sign that your business is growing. But before your new employee’s first day, you’ll need to spend a few days – or weeks – making sure your small business is prepared.
Some of the most important things you need to do include registering for an Employer Identification Number, getting the right insurance and investing in payroll software. You’ll also need to understand your registration and filing requirements.
Not having all your ducks in a row before you hire your first employee can make things complicated for both you and them. Without infrastructure like payroll software or formalities like workers’ comp, you can open yourself up to legal and tax problems. Plus, your employee might not get paid on time or taxed correctly.
Go through the checklist below on your own or with an accounting expert to make sure you’re ready to hit the ground running by your employee’s first day.
1. Apply for an EIN
An Employer Identification Number (EIN) is like a Social Security Number for your business. You’re required to apply for one before you hire employees.
You need an EIN to hire regardless of your business structure. It’s also necessary for opening bank accounts or filing tax returns. So if you don’t already have one, take a few minutes to fill out the free IRS application.
2. Budget for the role
Your budget for the role should include their salary or hourly rate, any benefits they’ll receive, the payroll taxes you owe and the required insurance.
While salary and benefits are a straightforward expense to you, many small business owners forget to factor in what they’ll owe in payroll taxes.
Many small business owners are aware of the Social Security and Medicare taxes they need to pay as a result of hiring an employee. But they often overlook the other payroll taxes, like federal unemployment (FUTA) taxes, state unemployment (SUTA) taxes, and any applicable local taxes for employers – especially when hiring remote employees.
3. Invest in payroll software
Having payroll software is essential for small business owners – even if they just have one or two employees. Running payroll without software often leaves small business owners with tax and legal issues. It automates many of your payroll-related responsibilities while saving you time, money and energy.
Gusto is one of the easiest payroll platforms to use. There are other payroll software options like ADP Run, Square and QuickBooks. Compare each option or use available free trials to find out which one is best for you.
4. Learn how to use your payroll software
Payroll software can automate much of the payroll process for you, but it won’t automate everything. You should feel comfortable navigating the software and performing manual tasks.
Some common tasks you might have to do are run payroll for your hourly employees, granting PTO requests, approving reimbursements and more.
You should also be familiar with what your payroll software does for you before your new hire starts so you don’t have to spend any extra time that could be used focusing on your business.
A good payroll software will:
- File state and federal payroll tax returns
- Pay and remit state and federal payroll taxes
- Collect employees’ required forms like Form W-4 and Form I-9
- Issue employees’ Form W-2s
- File new hire reports in your state
- Integrate with your accounting software
When setting up your payroll software, make sure you’re following their directions. It’s easy to mess up when choosing a pay frequency, selecting a first payday and classifying your employees as salaried or hourly – but they’re important.
5. Report your new hire to the state of Florida
Florida employees and contractors that earn more than $600 per year need to be reported to the state’s Department of Revenue (DOR).
You can report your employees on the DOR’s website. Payroll software like Gusto can do this on your behalf once it gathers your employee’s information.
6. Register for reemployment tax
All Florida businesses with employees are required to register to pay reemployment tax.
You can register by filing the DOR’s business tax application (Form DR-1). It has several types of taxes you can register to pay for – including reemployment tax.
After you’re registered, you need to keep up with payments and filing your Employer’s Quarterly Reports (Form RT-6). You can do this through the DOR’s site or a payroll software can do this for you automatically.
7. Get workers’ comp and other insurance
Depending on the number of people you’re hiring and your industry, you may be required to provide workers’ compensation. Workers comp is a type of insurance that helps employees cover the cost of work-related illnesses or injuries.
Even if workers comp isn’t required for your business, it may still be beneficial for you to get it – so ask your business attorney about whether workers comp is right for you.
Liability insurance, or general liability insurance, is less ambiguous. This is something you need regardless of your industry or how many employees you have. It covers claims regarding bodily injuries, property damage, copyright infringement, lawsuits from employees and more.
Talk to your business attorney for more information on purchasing liability insurance.
The bottom line
Interviewing isn’t the only thing you need to do before you hire an employee. As a business owner, there are a lot of ways you need to financially and legally prepare to hire your first employees.
You’ll need to apply for an EIN, invest in payroll software, get liability insurance and more. There’s a lot of other red tape you need to cut through.
Having tax and accounting experts in your corner to guide you through the process of hiring someone for the first time can save you a lot of time and save you from a lot of tax and legal trouble if something falls through the cracks.
Schedule a free call with a DiMercurio Advisors team member today for peace of mind that your paperwork is in order and more time you could spend focusing on the parts of your business you actually love.
