Part One of this article focused on making the decision to hire employees and the costs of doing so. Part Two provides a brief overview of the numerous Federal and California State laws and regulations governing employers. It is important that businesses become familiar with these laws as they contemplate hiring their first employees. Minimum wage, Social Security and Medicare, tax forms and withholdings, workers’ compensation, eligibility to work in the United States and other labor laws are all important considerations.
As businesses look to hiring employees, their first consideration is cost. Wage is of course the largest component of employment costs, and in California the minimum wage is $8.00 per hour. This is the minimum wage cost prospective employers face. In addition to the employee’s wage, the employer is responsible for paying an equal contribution to the employee’s Federal Social Security and Medicare payments. This is the same payment individual business owners pay as their self-employment tax. Currently, the combined tax is 15.3% of the employee’s wage (12.4% for Social Security and 2.9% for Medicare) of which the employer is responsible for half.
Once a decision is made to hire, businesses are required to ensure that the employees they hire are legally eligible to work in the United States. Each new employee is required complete a Form I-9, “Employment Eligibility Verification”, and present their Social Security card. It is recommended that employers take photo copies of the Social Security card for future reference and proof of documentation. If for any reason, a prospective employee doesn’t have a Social Security card, the employer should ask that they obtain one as soon as possible
Employers are also required to withhold taxes from the employee’s pay. The amount of tax withheld is determined by the employee’s W-4 form which is provided to the employee by the employer. The employee identifies his or her tax status and desired number of exemptions which the employer uses, along with state and federal tax withholding tables, to calculate withholdings. At the end of each year, the employer reports the employee’s income and total amount of withholdings to the IRS and the California State Franchise Tax Board via a W-2 form which is also provided to the employee for his personal tax return.
In addition, to wage, tax and withholding requirements, California employers are required to maintain workers’ compensation insurance. California does not regulate workers’ compensation premiums so the rates vary. See the California Department of Insurance Website for a list of authorized insurers in California. Employers should also familiarize themselves with the most salient features of California’s State Disability Insurance (SDI) Program, child labor laws, and federal and state anti-discrimination and anti-retaliation laws.
Development of an employee policy (which will be discussed in part three of this article) and consultation with a San Diego employment lawyer are the best ways to ensure compliance with all of the above regulations. Finally, new and growing businesses today have the option of outsourcing key human resource tasks to companies or free lancers that specialize in payment of wages including handling employee tax forms and withholdings.