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Your Money: Is your business ready for an employee?

Business owners often make the step to add an employee to their business without knowing all the required employment laws they have to follow. They hire a CPA, an insurance agent, and even an attorney, but they don’t think to hire an HR specialist to help them out. While I am far from an HR expert, I did a bit of research on this topic with the Small Business Administration to help employers out.

The first few requirements are the most obvious, and that is that you must file taxes with the IRS and the state. To do this, you should get an Employer Identification Number and a state Wage Withholding number. You need to process regular payments to your employees as paychecks, and that means that you need to withhold federal, state and local taxes. Simply cutting a check to someone for their hours worked is not sufficient.

As part of the hiring process, you need to get each employee to fill out three required forms: the I-9, W-4 and Colorado Affirmation. The I-9 form and Colorado Affirmation are required to verify the employee’s eligibility to work in the United States. The W-4 form provides a way for the employee to determine how much tax they want withheld from each paycheck. These documents should be filled out prior to hiring an employee and retained indefinitely.



Once an employee is hired and set up for payroll, many employers think they’re all set, but the requirements don’t stop there. Each state has a New Hire Reporting Program that requires you to file a report within 20 days of their hiring. This documents employment status so that the state can track employees, and can be used for wage garnishment and child support issues.

Insurance requirements change for employers as well. I recommend contacting your business liability insurance provider, as they may need to change your policy to cover your employees’ actions, but you are also required to carry worker’s compensation insurance and unemployment insurance. While you may be able to opt out of worker’s compensation if you are the sole owner/employee of the business, it’s not without effort, so you still need to file appropriate paperwork.



Perhaps the most surprising of requirements is labor law posters. At a big company, you’ll always find a break room somewhere with a number of posters displayed about workplace conditions, safety requirements, and the equal employment act. While the list of requirements changes depending on the size of your company, technically all employers need to display these posters. You can buy them online or print your own with a bit of research.

Sound like a lot for just one employee? Honestly, it is, but unfortunately there’s no avoiding it. Employers are required to follow state and federal guidelines, OSHA (Occupational Safety and Health Act) Compliance, and other guidelines set at the local and national levels. This list is far from comprehensive, so I still always recommend you hire an expert to provide a consultation on your specific business, but hopefully this helps employers get off to a solid start.

Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.


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