You’re an entrepreneur. A visionary. A big-picture-oriented business professional with big dreams and big plans. And since this is where your strengths and skills lie, it’s no wonder the words “human resources” seem to stop you dead in your tracks.
Growth-driven business owners face a double-edged sword when it comes to expanding their operations. On the one hand, bringing on employees is a necessary part of scaling a company. But at the same time, hiring these new workers adds a layer of complexity that most entrepreneurs either don’t want to deal with or don’t know how to address.
I can’t give you the motivation needed to tackle HR issues head on, apart from telling you that they’re a necessary evil that’s better addressed before small issues blow up into major problems. But I can tell you what you need to do to prepare your startup to scale.
Tackling each of the following five tasks before bringing on employees will put your growing company in the best possible position for sustainable success.
1. Register for an employer identification number.
Depending on the type of business structure you registered initially, you may already have an employer identification number (EIN). If you don’t, you can register for this nine-digit number quickly and easily through the IRS website. Once established, this number signifies that your business is legally allowed to hire employees in the eyes of the IRS.
As a side note, if this isn’t your first business – or if your current business is undergoing certain structural changes – you may be required to obtain a new EIN or multiple EINs. Check out the IRS’s “Do You Need a New EIN?” page for more information.
2. Understand tax and classification reporting requirements.
Filing for your EIN is easy, understanding your tax and classification reporting requirements is regrettably less so. Essentially, as a business owner, you’re responsible for paying federal income tax, unemployment tax, Social Security tax, Medicare and state income tax (where applicable) for all eligible employees. This requires two separate processes.
First, you must determine whether the employees you’re hiring can be considered traditional employees or should be classified as independent contractors. The IRS outlines the criteria for each classification here, but the gist is that traditional, common-law employees have a lesser degree of control and independence than those who will ultimately be designated as independent contractors.
Beyond establishing your workers’ classifications, you’ll need to put systems in place to ensure the tax payments you’re required to make for each of your workers are funneled to the right state or federal agency. Most accounting software programs can help with this, as can your local accountants.
3. Report new hires to your state.
Yet another requirement startups will need to comply with as they bring on new workers is a provision of the Personal Responsibility and Work Opportunity Reconciliation Act, which specifies that all new hire data must be reported to the appropriate state agency within 20 days of each employee’s first day or by the first pay date following this 20-day window.
Fortunately, this reporting process is generally simple, and typically involves reporting only the employee’s name, contact information and hire date. The Small Business Administration offers a list of New Hire Reporting Centers to help you find your state’s center.
4. Purchase workers’ compensation insurance.
Next up, you’ll need to purchase workers’ compensation insurance to protect any employees that are injured while on the job. State requirements vary significantly regarding the purchase of this policy, and your premiums are likely to vary based on your industry, the age of your company and other factors.
Your best course of action? Talk to your banker or insurance agent to be sure you’re covered.
5. Verify candidate employment eligibility.
One final requirement all business owners face when bringing on new employees is the responsibility for verifying that the people you’re hiring are, indeed, eligible to work in the U.S.
Typically, this is done by requiring all new hires to complete a I-9 form, which requires documented proof of citizenship or valid work visas. While you aren’t required to submit this paperwork to the government, it’s a good idea to keep it on file at your office, along with copies of the documents your new hires provided. You may also choose to run completed I-9 forms through the government’s everify program for added certainty.
Certainly, none of these tasks are as fun as brainstorming new product lines or mapping out new marketing campaigns. But if you’re going to expand by bringing on new workers, they’re just as vital to your success as these more obviously profit-oriented activities are.
Protect yourself by completing them in a timely manner, as well as by learning from the hiring tips other successful CEOs have to offer.