Monday, March 8, 2010
On Being an Employer
10 Things about Becoming an Employer
You have elected to expand your small business and hire a new employee. This will mean that you have to do payroll for the first time. It is important that you bear several things in mind as you venture into the world of withholding taxes, 941 Forms and W2s. Here are 10 things you need to be aware of.
1. You need an Employer Identification Number from the IRS. If you do not already have one (for example you are a sole proprietorship), you need to apply for the EIN. You will not be able to report wages or pay employment taxes without this number. Here is a handy link to the IRS that will tell you all you need to know about applying for an EIN:
2. You should register as an employer in the state in which you do business. This is likewise critical. You will need to make sure that you are registered to pay withholding taxes for the state, as well as being registered to pay unemployment insurance. These days, most every state has a one stop web site for new employers.
3. Be aware that some states have additional taxes beyond the standard withholding tax and unemployment tax. For example, California requires withholding for disability insurance, as does Rhode Island. Some states also have county and city income tax that needs to be withheld from your employees’ pay. Your state’s one stop web site will usually provide this information for you.
4. Make sure you are familiar with the federal wage and hour regulations, minimum wage requirements, and also those of your state. Some states have minimum wages that are higher than the federal minimum, and in these cases the state’s rate supersedes the federal. It is crucial to follow these regulations. You do not want to get caught up in any kind of wage and hour audit.
5. Make sure you have your employees fill in a form W-4, an I-9 form, and provide proper identification that documents that they are legal residents of the U.S.
6. You will likely be required to report new hires to your state’s department of labor. Make sure you do this when required.
7. When you do payroll, you will withhold a certain amount of Federal Withholding tax, FICA tax (Social Security), Medicare Tax and state taxes as well. You will be required to deposit the federal, FICA and Medicare taxes, along with the matching FICA and Medicare amounts that you are required to pay. When these deposits occur depends on how large your payroll is. For small, one and two person payrolls, you will likely be able to deposit quarterly or monthly.
8. You will also need to file quarterly payroll reports. These include federal form 941 and at least one state income tax return and state unemployment return. These will usually be due within 30 days of the end of each calendar quarter.
9. You will need to provide each employee with a form W-2 by January 31 each year, detailing the wages and taxes for the prior year. In addition, you will need to file these forms to the federal and state governments.
10. If by now your head is spinning, welcome to the world of being an employer.
It is a lot to keep track of. Being an employer is serious business, and missing any of the required steps can result in penalties, extra taxes, and sometimes worse.
One possible way to deal with these details in an efficient manner is to hire a payroll processor, or an on-line payroll service.
These companies can handle all the details for you. They can remind you when taxes are due, and provide you your quarterly and annual returns.
We are such a company. Pay us a visit at:
and see how we can, for a very reasonable monthly fee, turn the dizzying world of being an employer into a simple and easy to manage part of your business. We’re the ‘Amazing Payroll Guys!”