Continued from “The Commercial Lease and Your New San Diego Business“.
Perhaps one of the most important aspects of starting a new business is the hiring of employees. Employees are often both the face and backbone of any company and their hiring comes with a host of legal obligations, liabilities, and expenses. Some estimates place the cost of finding, interviewing, hiring, and training a new employee at nearly $4,000. In addition to each employee’s salary, employers need to add approximately 18% to employment costs for withholdings, payroll
taxes, worker’s compensation, and compliance with labor laws and this is exclusive of employee
The first step in successfully completing the hiring process is to determine whether your company is, in fact, in need of an employee or employees. For new businesses, knowledge and experience in the company’s industry helps to guide the decision. If you are opening a retail clothing outlet in a busy shopping mall, you will almost certainly have to hire employees. The decision for existing businesses is more complex. Although every business is different, there are several key warning signs: missing deadlines; making mistakes due to excessive workload; or being so overwhelmed with miscellaneous tasks that it becomes difficult to focus on key aspects of the business. Whether starting a new business or considering the hiring of employees for the first time, it’s important that the business has the resources to follow through.
Once a business has decided that employees are necessary to its continued growth and success, there are a series of important steps that the business needs to take to ensure it complies with local, state and federal laws.
Obtain an Employer Identification Number
Employer identification numbers (EIN) are tax identification numbers issued by the Internal Revenue Service (“IRS”) which are necessary to report taxes and submit other tax documentation. An EIN number can be obtained at the IRS website by completing a short application process.
Establish A System To Withhold And Record Employment Taxes
The IRScrequires that all employers withhold employment taxes and keep records of such withholdings for at least four years. Further, employers must submit W-4s (forms that state how much will be withheld from each employee’s paycheck) to the IRS and report annually how much they’ve paid in wages and withheld in taxes on their W-2s. In addition to being necessary for compliance with IRS and state tax regulations, the maintenance of tax records allows a company to monitor its growth, track expenses, and prepare tax returns. For many small businesses, outsourcing payroll is an cost effective way of complying with employment and tax laws.
Employee Eligibility Verification
Government requires that employers take steps to verify a new employee’s eligibility to work in the United States. Employers must complete Form I-9, requiring employers to check an employee’s documentation regarding citizenship or eligibility to work in the U.S., within three days of
hiring. Although employers do not have to submit I-9 forms to the
government, they are required to maintain them for the three years
following the date of hire or one year following termination, whichever
Register With The State’s Hiring Reporting Program
California requires that all employers report new or rehired employees to the
state’s New Employee Registry within twenty (20) days of the employee’s
first day of work. Employees that have been rehired after a separation
of at least sixty (60) consecutive days must also be reported.
Employers must provide the following information in the report:
- Employer’s business name, contact individual, address, phone number, California employer account number, and Federal EIN.
- Employee’s full name, social security number, address, and date of first work day.
Obtain Workers’ Compensation Insurance
California law requires all businesses with even a single employee to carry
workers’ compensation insurance coverage from a licensed insurer
authorized to write policies in California or become self-insured. In
California, a business may apply to the state to be self-insured, but
must have a net worth of at least $5 million and a net income of
$500,000 per year, and post a security deposit.
Post Required Notices
Federal and state law requires that employers display certain posters in the
workplace designed to inform employees as to certain rights and employer responsibilities. For example, all business are required to display a
poster discussing the The Fair Labor Standards Act (FLSA), establishing
minimum wage, overtime pay, record keeping, and youth employment
standards affecting workers in the private sector and in federal, state,
and local governments.
For a more detailed analysis on hiring employees see “New and Growing San Diego Businesses – Hiring Employees“. Consult with an experienced San Diego business attorney if you are uncertain about the hiring process.