Setting up your Employees for Payroll

May 14, 2015 Leena Thampan

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Hiring your first employee or contractor is a huge deal! Getting them set up with an employee payroll system is an even bigger deal because this is the moment you’ve both been waiting for since the inception of your business idea.

Fine, maybe it isn’t that dramatic.

But have no fear – we’ve got you covered – in fact, we went so far as to creating a free Comprehensive Guide to Hiring your First Employee, that covers everything from the differences between employees and contractors to workers compensation, why you need healthcare and so much more! You can also count on us for our convenient employee payroll solution services. 

So make sure you download our handy guide explaining our business payroll services, but in the meantime, let’s take a look at the steps needed to get your employees set up for payroll.

Is your staff eligible to work in the U.S.?

You’ve gone through the due diligence of hiring the right staff for your business, but the last thing you want to do is hire someone who isn’t legally allowed to work in the U.S.

As per the law, companies can only employ people who are legally allowed to work in the United States – they have to be U.S. citizens or foreign citizens with applicable authorization.

The first step is making sure you have completed Form I-9s from each of your staff.

The Form I-9 is used to verify the identify and employment authorization of individuals hired for employment in the United States. As the employer, it is your responsibility to ensure that these forms are completed and retained on record.

You don’t have to send these forms to the U.S. Citizenship and Immigration Services (USCIS) or Immigration and Customs Enforcement (ICE), but you could be issued fines if the forms are found incomplete.

Newly hired employees must complete and sign Section 1 of the Form 1-9 no later than the first day of employment, and this section should never be completed before the employee has accepted the job offer.

If you still want to be 100% sure that the information on the Form I-9 matches up with government records, you can do that through the E-Verify program.

The government makes it easy to verify the eligibility of your staff with their E-Verify program – it’s a free online service that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from U.S. Department of Homeland Security and Social Security Administration records to confirm employment eligibility.

To enroll for the program: http://www.uscis.gov/e-verify

Determine the Tax Withholding Rates

From a payroll perspective, the one thing you don’t want to get wrong is the amount you pay in taxes for your employees.

This is why you need to ensure your employees complete a Form W-4, which will give you the information you need to set up their tax withholdings correctly to deduct taxes from their pay.

You are not allowed to complete this form on your employee’s behalf, and the completed forms should be kept on file for at least four (4) years.

As per the IRS, “if an employee fails to give you a properly completed Form W-4, you must withhold federal income taxes from his or her wages as if he or she were single and claiming no withholding allowances”.

“You should [also] inform your employees of the importance of submitting an accurate Form W-4. An employee may be subject to a $500 penalty if he or she submits, with no reasonable basis, a Form W-4 that results in less tax being withheld than is required”.

New Hire Reporting

To provide for a stronger Child Support Enforcement Program, The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 was signed into law on August 22, 1996. This program ensures that child support is being effectively enforced.

One provision of this law impacts employers directly because it is the employer’s responsibility to provide information on each of their new hires under the requirements of this program.

As per the PRWORA law; the new hire report must contain:

  • the name, address and SSN of the employee; and
  • the name, address and FEIN of the employer.

It is extremely important that these reports be both accurate and legible, to ensure successful matching and contact once a match is made.

While each state has its own reporting requirements, all new hires have to be reported to the State within twenty (20) days of the date of the hire.

Most payroll providers offer this as as a part of their service, but you should check to make sure that there are no extra charges for the new hire reporting feature.

Key Takeaways:

  1. Complete and maintain a record of the Form I-9 for all your staff, and if you are not sure about their authorization to work, you can use the free E-Verify program.
  2. Your employees have to complete a Form W-4, which you should also keep on record, to ensure that the correct amount of taxes are being deducted on their payroll.
  3. New Hire reporting is a requirement for all employers, and all new hires have to be reported within twenty days of the hire date.

FREE GUIDES

For more information, helpful forms and resources to help you navigate the confusing waters of hiring your first employee, download our free guide here. If you want to learn more about distinguishing between employees vs contractors and choosing what's right for your business, we have a guide for that too! Download our free Employees vs Contractors guide.

About the Author

Leena Thampan

Leena worked for some of the big guns in the media industry before deciding her true calling was to be the ultimate curator of our brand - this is our version of the story, of course. She spends her days cooking culinary masterpieces from all over the world. And if you are not really careful, she might just offer it to you.

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