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New Hires: Legal Requirements for Hiring Your First Employee

By Christopher Coble, Esq. | Last updated on

Most of us are entrepreneurs so we can be our own bosses. We form our own business, complete the required paperwork, register with our state department, and put in years of work.

If you haven't started your business yet, you can complete business formation documents from home with simple, DIY options customized for your state.

When you're successful enough, your company hits the stage where you need some help. Now that it's time to bring someone else aboard, do you know the legal ins and outs of onboarding new employees?

Here are a few things for business owners to think about before hiring their first employee:

Paperwork and Prep

Before you hire anyone, you'll need an Employer Identification Number (EIN) in order to report taxes to the IRS and state agencies. You'll also be required to:

  • Maintain comprehensive records of employment taxes

  • Collect social security numbers

  • Submit W-4 forms for each employee

  • Report how much you've paid in wages and withheld in payroll taxes by filing a W-2 form

  • Make sure your office space is ready with necessary accommodations for employees with disabilities and a required posting of legal rights for employees

Job Description Ads and Applications

The biggest legal concern during your candidate search is discrimination. Make sure your ads aren't targeted to or biased against candidates based on race, color, religion, sexual orientation, gender identity, or national origin. And know that you can't screen candidates based on those criteria either.

When interested people apply, be prepared to run a background check, discuss employee benefits, and have the basics of company and day-to-day expectations figured out. Are you offering health insurance coverage? Is the role full time or part time? How often is their pay period going to be? You may want to create an employee handbook before interviewing.

Interviews and Inquiries for Startups

Once you've got a prospective employee in the door, be careful what you ask. There are illegal interview questions under labor laws, so stick to the qualifications necessary for the job and avoid exaggerations or misrepresentations about responsibilities, job security, or the current or future health of your company.

Yes, you can drug test prospective employees, but you must have a clear and consistent testing policy and stick to it. You can also require skills or aptitude tests, but be wary of extensive personality or psychological testing during the hiring process.

By no means should you give applicants a polygraph -- that's prohibited under federal law. And if you're looking to do background or credit checks on prospective employees, make sure you have their consent first.

Small Business Owner Employee Contracts and Contractors

Once you've decided to hire someone, you may still be faced with a few more choices. Is this person going to be an employee or an independent contractor? Are they going to sign an employment contract? If so, what are the specific provisions of that employment contract going to be?

Get Employee Systems In Place

Many business owners aren’t ready to scale their systems. You may need to purchase a payroll system, hire service for tax forms, time tracking systems, and more.

Make sure you've got all your legal ducks in a row before you begin your hiring search. You're more likely to find the right candidate for the job and protect your small business in the process. Then, you can quickly prepare for the first day with your new hire!

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