You have to add employees and delegate work if you want to grow, but if you’ve never hired anyone you’ll be surprised how much payroll bookkeeping is involved. Read on to determine if you’re ready for your first employee, and what you need to do.
Are You Ready to Hire an Employee?
Review company financials
Review your financials to determine how much money you’re making alone, and what your margins are. An employee may not be as productive as you, and you’ll likely have to give up some margin in exchange for taking on more work.
Evaluate future projections
Adding an employee should increase gross revenue. How much more do you need to make to afford them? How many hours should it take them to do this additional work? Run various projections so you’re prepared for best and worst-case scenarios.
Full-time vs. Part-time employee considerations
In many instances part-time help is preferable, especially for your first hire. You may not have a full workload for them yet, and you don’t want to pay them to sit around. Additionally, part-time workers don’t fall under the same requirements as full-time employees when it comes to insurance and benefits, potentially saving you even more money.
However, if you’re looking for a career professional to add to your team, you’re likely looking for a full-time employee. In addition, those working part-time for you may also be working part-time for someone else. If you’re not okay with that, look to hire a full-time employee that is loyal to you.
First Hire Checklist
While not exhaustive, below is a helpful list of payroll bookkeeping items every employer should complete.
Register for EIN#
If you’ve operated as a sole proprietorship up until this point you may have just used your social security number. Now that you have an employee you need to register for a Federal Employer Identification Number, which will be used on payroll reports and forms such as Form 941 and W-2.
Register with State
If you don’t have one already, you’ll also need to register for a state tax ID number to remit state payroll taxes, as well as a state UI number to remit SUTA taxes. Minnesota employers can register for an eServices account here, and MN UI here.
Worker’s Compensation Insurance
As an employer, it is your responsibility to carry insurance on your employees, covering any workplace injuries. As a result, you will also face many work comp audits verifying the accuracy of your policy.
Establish Payroll System
Payroll frequencies vary, but they never go away as long as you have employees. Whether you’re weekly, bi-weekly, semi-monthly, or monthly, you need to develop a system to track hours, record payroll, and remit both paychecks and taxes.
Obtain a signed Form W-4 from your employee for both Federal and state. This is the employee’s withholding certificate and determines how much they want withheld from each paycheck.
Obtain a signed Form I-9 from your employee, which determines their employment eligibility in the United States.
New Hire Reporting
You must report all newly hired employees to the state new hire reporting agency. As the Minnesota New Hire Reporting Center states, “New hire reporting helps children receive the support they deserve.” Read more about the history and purpose here.
Minnesota requires employers to display posters notifying employees of certain basic rights, such as Age Discrimination and Minimum Wage Rates. Find the posters here.
You’ve always done things the way you want, but an employee requires documented rules and expectations in an employee handbook. Expectations should be written down for clarity and review purposes, as well as a resource to utilize in a disagreement on job performance.
Create Personnel Files
All of the paperwork above (signed I-9, W-4’s, payroll records, etc.) should be kept in a secure location and span the length of their employment.
Determine which company benefits the new employee will qualify for and compensate them accordingly, such as health insurance or retirement. For example, if you had a SEP retirement plan and continue it they will need to receive the same percentage as you. Research discrimination rules and vesting periods to avoid breaking any laws. Consider pre-tax vs. after-tax benefits.
First Hire Payroll Bookkeeping Considerations
Now that the initial paperwork is done, your recurring payroll bookkeeping job begins. You’ll need to process payroll according to a specific frequency, and calculate, withhold, and remit payroll taxes in the appropriate window.
For example, if you’re a semi-weekly depositor and your pay date falls on Wednesday, Thursday, or Friday, your payroll taxes must be deposited by the following Wednesday. You will also need to file quarterly and annual reports with the Federal and state governments, including their W-2 disclosing wages and withholding for the whole year.
Make sure to keep copies of everything as well so you’re ready for your first Work Comp audit, and when your employee requests copies of paystubs and W-2’s for their own personal reasons.
Working with Haworth & Company, Ltd.
If that sounds like way more payroll bookkeeping than you wanted, give us a call. Our EZ Payroll division can provide guidance, take the work off your hands, and handle the scheduling and remittance. Take advantage of our 24/7 Employer on the Go system and review and approve payroll from anywhere. With four convenient locations in the Twin Cities metro and another in Rochester, we’ve helped many clients hire their first employee and make the jump from a solo entrepreneur to an employer and would love to help you grow too.