What to Know Before You Do
Bringing on your first employee is an exciting yet daunting experience. It brings a set of legal, financial and administrative responsibilities.
Legal Steps:
- You should have an Employer Identification Number (EIN) from the IRS
- If not, you can learn how to get one quickly for free HERE
- Register with your state’s labor and unemployment insurance departments
- In Wisconsin, you must register for unemployment insurance through the Department of Workforce Development (DWD). You can do this online by visiting https://dwd.wisconsin.gov/ui2024/ and selecting "Create Employer UI Account."
- Set up workers’ compensation insurance, which is required in most states
- You can get quo through your current business insurance provider or contacting an independent agent.
-
- Understand federal and state wage and hour laws, including minimum wage and overtime rules
- Collect the employee’s completed Form W-4 for federal income tax withholding
- Verify their identity and employment eligibility using Form I-9, along with acceptable identification (such as a driver’s license and Social Security card)
Payroll Basics:
- Choose a regular pay schedule (biweekly, monthly, etc.) and payment method
- Accurately calculate gross pay, withhold federal and state income taxes, Social Security and Medicare
- Example: If you hire an employee at $20/hour for 40 hours per week, their gross weekly pay is $800 (40 x $20).
- From this amount, you'll typically need to withhold:
- 6.2% for Social Security = $49.60
- 1.45% for Medicare = $11.60
- Federal and Wisconsin income taxes (based on the employee’s Form W-4)
- As the employer, you also match the Social Security and Medicare amounts, adding another $61.20 in payroll taxes
- Submit payroll tax payments and file IRS forms (such as 941 quarterly and W-2 annually)
- A business accountant such as JB Tax and Accounting can do this for you or you can use one of the many online softwares
Compliance:
- Review and follow anti-discrimination and labor laws, including Title VII and the Americans with Disabilities Act (ADA)
- Keep a record of your the completed I-9 form.
- Keep accurate personnel records including job applications, tax forms and performance reviews
- Display required labor law posters where employees can easily see them
Final Thought:
Hiring your first employee takes planning and attention to detail. Laying the right groundwork helps avoid costly mistakes and creates a smoother path as your team grows.
