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Congratulations! You’ve worked hard to grow your business. Revenues are increasing and so is the amount of work that needs to get done. You can’t do it all anymore and it is time to hire your first employee.
“Hiring an employee brings about fundamental changes in the structure of your business that you need to be aware of,” says Michael O’Brien, a partner at the law firm of Jones Waldo. “When you employ someone there are legal obligations and rights that must be observed.”
Several of these legal issues are items that business owners must be aware of in order to be prepared for their inaugural employee’s first day of work.
The Employment Relationship
From a legal perspective, you will need to determine the nature of the employment relationship. Most employees are hired on an “at will” basis, meaning the employment relationship can be terminated by either party for any legal reason or no reason. It’s usually best not to create an employment contract that could bind you to obligations if the new employee doesn’t work out.
Employer Identification Number (EIN)
If you have not already done so, you will need to obtain an Employer Identification Number (EIN) for your business from the Internal Revenue Service for payroll taxes. You will no longer be a sole proprietor filing taxes under your Social Security number.
Payroll and Taxes
Now that you have a payroll, you will need to file the appropriate returns, such as a federal Employer’s Quarterly Federal Tax Return. As an employer, you are required to withhold certain payroll taxes: Federal Insurance Contributions Act (FICA) tax, Social Security, Medicare and state income tax. You will need to start keeping payroll tax records and making appropriate filings.
Eligibility to Work Documentation
Within three days of hiring your new employee, federal law requires you to complete a Form I-9 verifying an employee’s eligibility to work in the United States. You don’t have to file this form with the government, but you do need to keep it on file.
State New Hire Registry
You will need to register with the state’s New Hire Registry and report your newly hired employee within 20 days of their hire.
Workers’ Compensation Insurance
Utah law requires businesses with one or more employees (full-time, part-time, temporary or seasonal) to carry workers’ compensation insurance.
Post Required Notices
Employers are required to display certain posters in the workplace regarding employee rights and employer responsibilities under applicable state and federal labor laws.
You are required to adopt workplace safety measures and comply with the requirements of the Occupational Safety and Health Act (OSHA) depending on the nature of your business.
Intellectual Property Protection
It is a good idea to have your new employee sign non-compete, confidentiality and nondisclosure agreements to protect your intellectual property and trade secrets.
For each employee you hire, you need to create an employee file for job-related documents. All I-9 Forms should be kept in a separate file. Medical records need to be kept in a confidential, locked cabinet, separate from other job-related documents and the I-9s.
State and Federal Law Requirements
You will need to become familiar with many state and federal law requirements, such as the Fair Labor and Standards Act, which covers regulations regarding minimum wage, overtime and child labor. It is a good idea to consult with a knowledgeable professional on legal, accounting, tax and insurance issues as needed.
Now that you have an employee, you will want to consider the type of benefits you will offer them, such as health insurance or a 401(k). Now might also be a good time to consider putting together an employee handbook so expectations and policies are clear for everyone.