Hiring Your First Employees: What Changes
Your first hire sets off a short list of must-dos, from paperwork to payroll to benefits. Here is what lands on your plate, and in what order.
Before Day One
Your first hire turns you from a business owner into an employer, and a short list of obligations starts right away. You need an Employer Identification Number, which the IRS issues for free. You verify identity and work eligibility on Form I-9, collect a Form W-4 so you know how much income tax to withhold, and report the new hire to your state within 20 days. In Pennsylvania, New Jersey, and Delaware, you also generally need workers' compensation insurance.
Health benefits are a different story. The federal employer mandate applies only to employers averaging at least 50 full-time employees, counting full-time equivalents, so with a first hire, offering coverage is your choice. Many owners make that choice to attract and keep good people. The sections below take the steps in order.
Your order of operations
Required paperwork first, then payroll, then the benefits decision.
Your First-Hire Checklist, in Order
Here is the sequence most owners follow, from the weeks before the start date through the first days on the job.
Before the start date
Get your EIN. You need one if you have employees. It is free from the IRS, and you can apply online.
Arrange workers' compensation. In Pennsylvania, New Jersey, and Delaware, it is generally required once you have an employee. Your insurer can confirm any exceptions.
Choose your payroll approach. You will withhold and deposit income, Social Security, and Medicare taxes, pay the employer share of Social Security and Medicare, and pay unemployment tax, so decide whether you will run payroll yourself or use a service.
Day one and week one
Complete Form I-9. You and the employee both complete it, for every person you hire, whether or not they are a U.S. citizen. The employee completes Section 1 no later than their first day of employment, and you complete Section 2 within three business days after that first day. If the job lasts less than three business days, Section 2 is due on the first day.
Collect Form W-4. Ask for a signed form when the employee starts, and make it effective with the first wage payment. Without one, withhold as if the employee is single.
Record their name and Social Security number. You need both to report their wages on Form W-2.
The first weeks
Report the hire to your state. Federal law requires employers to report new and rehired employees to the state where they work within 20 days of hire. State law may add steps or shorten the timeline.
Make the benefits decision. The federal employer mandate applies only to employers averaging at least 50 full-time employees, so with a first hire, offering health coverage is your choice.
Deadlines and exceptions vary by situation, so confirm the exact dates for your business with your advisor or attorney.
Questions for Your Advisor or Accountant
A first hire touches taxes, insurance, and benefits at once. These six questions help you cover each area before the start date.
Is this person an employee or a contractor?
Bring the details of how the work will be done, who sets the schedule, and who supplies the tools. A good answer walks through the control and independence factors and tells you which way they point.
Do we have the right tax setup in place?
Ask whether your EIN, withholding, and payroll tax deposits are all ready to go, and who handles each one.
Does our workers' compensation coverage meet the state rules?
Ask your insurer to confirm that the policy covers the new employee from day one, and whether any exceptions apply to your business.
What paperwork should be on file before the first payday?
Ask for a short list covering Form I-9, Form W-4, and your state new-hire report, with a date and an owner for each.
Should we offer health benefits now, or later?
A good answer weighs your budget, your hiring goals, and the options available at your size, so you can decide with real numbers.
What changes if we keep growing?
Ask which obligations kick in at 10, 20, and 50 employees, so you can plan hiring and budgets one step ahead.
More Questions About Your First Hire
Do I need to register for unemployment insurance when I hire?
Most employers pay state unemployment tax. Pennsylvania asks new employers to register within 30 days after services covered by its unemployment law first begin. New Jersey asks businesses to register with the Division of Revenue and Enterprise Services using form NJ-REG and to pay applicable unemployment insurance. In Delaware, you register with the Division of Unemployment Insurance by filing Form UC-1, Report to Determine Liability. Your state labor department can confirm how the rules apply to your business.
What is federal unemployment tax, and do I owe it?
Most employers pay both federal (FUTA) and state unemployment tax. You owe the federal tax if you paid wages of $1,500 or more in any calendar quarter, or had one or more employees in 20 or more different weeks, in the current or prior calendar year. The federal rate is 6.0 percent on the first $7,000 paid to each employee, and you can generally take a credit of up to 5.4 percent for state unemployment tax you paid, which brings the rate down to 0.6 percent.
How often do I deposit payroll taxes?
New employers are generally monthly depositors in their first year, unless they accumulate $100,000 or more in taxes on any day. On the monthly schedule, you deposit taxes on payments made during a month by the 15th of the following month. If your liability for a quarter is under $2,500, you may pay with your quarterly return instead. All federal tax deposits must be made electronically.
Can I check Form I-9 documents remotely?
Only employers that participate in E-Verify in good standing can use the optional alternative procedure from the Department of Homeland Security to examine an employee's documents remotely, for example by live video. Other employers examine the documents in person or through an authorized representative.
Do part-time and temporary employees count toward federal unemployment tax?
Yes. For the test based on the number of weeks you had employees, count all full-time, part-time, and temporary employees. If your business is a partnership, do not count its partners.
Where do I find the official employer tax guide?
IRS Publication 15, the Employer's Tax Guide, also known as Circular E, covers withholding, deposits, and other employer rules. The IRS website also has a Businesses with employees section that gathers the main topics in one place.
This content is provided for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor to determine how regulations apply to your situation.
Ready for Your First Hire?
We can help you sort out the benefits side of hiring, and your accountant can confirm the payroll and tax setup, so day one is smooth.
Disclosures
We are compensated by the insurance carriers for policies you choose through us. There is no direct cost to you. Compensation may vary by carrier and product. Information on this page is for educational purposes and does not constitute legal, tax, or accounting advice. Please consult your professional advisors about your specific situation. Tax treatment of ICHRA reimbursements can vary by employer and employee. We are licensed to advise clients in Pennsylvania, New Jersey, and Delaware. Contact us to confirm availability in other states.
