New Employee Checklist

Updated: Jan 25

In my last two posts, we discussed the four questions to ask yourself before hiring an employee and the four mistakes to avoid in hiring your first employee.  In this post, we complete our discussion on hiring a new employee with a checklist of the decisions and actions required prior to your new hire’s very first day.

  1. Determine how often you will pay employees. Will you pay weekly, biweekly, semimonthly or monthly? Please note, once you set this in motion it is challenging to divert to another method, so spend some time on this. Look at the common practice in your industry. In my experience most employers pay on a biweekly or semimonthly basis.

  2. Determine employee benefits. You need to decide whether you will offer benefits in addition to an hourly rate or salary, such as: health insurance, life insurance, paid time off, access to fitness center, etc. You may determine that you cannot afford any benefits outside of payroll at the beginning, but having settled on this prior to the interview process will go a long way in setting expectations for that new employee.

  3. Purchase payroll system (module). As a new business, you should have an accounting system in place, such as QuickBooks. Most accounting packages include a payroll module. It will need to be set up, typically requiring an annual fee to be paid upfront. These modules automatically calculate payroll taxes based on current tax tables, and radically simplify the filing of quarterly and annual payroll tax reports. In my opinion, this is a necessary cost of employment.

  4. Purchase workers compensation insurance.  As an employer, you are likely required by law to purchase workers compensation insurance.  All state laws are different, so check out your state’s rules. Best place to start is your internet search browser.

  5. Request a Federal Identification Number (FEIN). Many new small businesses begin with no employees and often are created using the owner’s social security number. If that is you, you will need to file for a FEIN from the IRS to file payroll taxes. This FEIN will replace the use of your social security number for income tax returns, as well. You can file an online request for a FEIN from the IRS here. Federal Social Security tax add 7.65% to every dollar paid to the employee up to a certain six figure income limit. Furthermore, the employer is also required to pay into the federal unemployment fund a rate of 0.6% on the first $7,000 of each employee’s earnings. Federal tax payments are required on a periodic basis. You’ll need to consult IRS Publication 15 (Circular E) to identify how often these payments are due and when. Penalties and interest for late filing on payroll taxes are considerable, so make the payments timely.

  6. Submit notification of employment to your state. As a new business, you likely already have registered with your state. Now you will need to register for payroll taxes with the state, as well. There is no additional tax burden to the employer, just a withholding requirement for its employees. Having said that, you need to find out when your withholding payments are due to the state. As with the federal government, late filing or underpayment of payroll taxes can yield substantial penalties and interest.

  7. Register with your state unemployment division. As a new employer, you will most likely be subject to unemployment taxes to the state. This is a tax for the employer on the first portion of an employee’s earnings. In the state of Kansas, my clients pay somewhere between 2.5% – 5.4% (max) on the first $8,000 of each employee earnings. Additionally, most state unemployment divisions handle new hire reporting, a requirement for employers to provide notification of each new employee hired within a certain time frame of employment. The purpose of the new hire reporting is to provide timely tracking of individuals who may have child support payment requirements. This page from SBA.gov provides a quick link to each state’s new hire reporting center.

  8. Print required payroll forms for new employee. There are at least two federally required forms for a new employee and the employer to complete ideally the first day of employment; the W-4 and I-9. Make sure these forms are completed accurately and timely. The I-9 form is a bit complicated, so make sure you understand it completely, before you sit down with your new employee to fill it out. Some states have additional form requirements, so check with your state.

Hiring that first employee is a BIG step, so be sure to take your time in weighing your options beforehand, exercise care and prudence in the hiring process and ensure you have all of the documentation, systems and processes in place to compensate your new employee and abide by federal and state payroll tax and reporting requirements. As Michael Conrad used to say on Hill Street Blues“Let’s be careful out there…”

#hiring #smallbusiness #startup #wheredoistart


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