Menu

Growing Your Business

What You Need to Know Before Hiring New Employees For Your Startup

by
Julie Farless
on
8/3/2017
What You Need to Know Before Hiring New Employees For Your Startup

Many people don't realize how malleable the process of running a startup is until they're already right in the middle of it. Fortunately or unfortunately, there is no one-size-fits-all approach to what you're doing. How quickly or slowly to grow, when to bring on new employees, how much financing to secure -- there isn't one correct answer that works for everyone, just one correct answer that works for you and what you're trying to accomplish.

This is a large part of the reason why teaming with­­ someone well-versed in finance is so important, as both the money you're bringing into your startup and how you choose to spend it will form the foundation of every step you take thereafter. Case in point: Hiring new employees is often something of a balancing act, as every new hire represents more than just another friendly face hanging around the office. There are also a number of financial and tax-related implications that you need­­­ to be aware of moving forward.

Before You Start Hiring

One of the common misconceptions in the world of business is the idea that just because you're running a business means that you can bring on employees whenever you want, however you want, without question. In reality, this is false. You must have an Employee Identification Number first before you can even think about expanding your staff.

Also commonly referred to as an EIN, this is a nine-digit number that identifies your startup as an official business entity in the eyes of the IRS. In essence, it means that you're legally allowed to hire people. Your CPA or other financial professional can help you with this process, or you can apply for an EIN right online at the IRS website.

Next, you'll need to verify that the candidates you're thinking about hiring are actually eligible to work for your business in the first place. All employers -- regardless of the type of startup you're running or even the industry you're operating in -- will need to verify the eligibility of every individual you want to bring on by way of an IRS Form I-9. The last page of that form specifies what types of documents new hires will have to provide in order to make sure they're eligible to work, their citizenship status and more.

Taxes are not something that you want to take chances with or cut corners on, especially when it comes to new hires. This is another situation where partnering with a CPA or other financial professional will absolutely be worth your time.

Once the Hiring Begins

Once you begin bringing people into the fold, you'll need to make sure that you satisfy all federal and state tax reporting requirements. This will require you to classify your workforce as either employees or independent contractors, something that will vary based on a wide range of different factors.

The decision will depend on your business, but making the wrong choice here could cost you dearly down the road. It directly affects how much money you pay in unemployment taxes, for example. If your workers are made up entirely of independent contractors, they pay all of their own Social Security and income taxes. You'll also need to provide them with a Form 1099 either quarterly or annually.

If you hire part-time or full-time employees, however, you need to get every one of them to fill out a Form W-4. You'll need to make sure that your finances are set up in a way that allows you to withhold certain necessary taxes based on their checks, and you'll also need to report the amount of wages paid and taxes withheld to the IRS.

Every time you hire someone new, you'll need to report these people to your state directory within 20 days, as dictated by the Personal Responsibility and Work Opportunity Reconciliation Act. Right around this time you'll also need to obtain workers' compensation insurance to protect both yourself and your business from the unfortunate event of someone getting injured on the job.

Finally, you'll also need to post all required notices on workers' rights throughout your office. With the sole exception of Texas, every state requires most employers to display up-to-date posters that talk about federal and state workers' rights in a very clear, easy-to-see area. What makes this difficult is that these rights can sometimes change up to 70 times a year, meaning that you'll have to swap out the old posters for new ones just as often. If you're not making an active effort to stay aware of the evolution of workers' rights in your state, it's easy to miss a situation where a labor law poster needs to be updated. You would likely receive a fine as a result.

A mistake at any one of these points could destroy your compliance with either the Equal Employment Opportunity Act or the Fair Labor Standards Act or, more likely, both. All of this helps to illustrate why hiring a new employee is very rarely as simple as posting a job listing, interviewing a candidate and saying, "You're hired!" as enthusiastically as possible. There's so much more that goes into it than most people are aware of.

This is also why partnering with the right CPA or other financial professional is so essential, even in a situation like hiring new employees where you initially think it may be unnecessary. A CPA is someone who does a whole lot more than just making sure that your accounts are in order. It's literally their job to stay up to date on all the rules, regulations and implications in situations like these. Paperwork, legal rules and tax procedures -- it doesn't matter. All of these things can be overwhelming and intimidating if you're attempting to do them on your own, but they certainly don't have to be.

Teaming with the right CPA means that you're enlisting the help of someone ready and willing to address all of these challenges so that you can get back to doing what you do best: running the business you always dreamed of in the first place.

Martinez & Shanken, PLLC writes for TaxBuzz, a tax news and advice website. Reach the firm at [email protected]

share this post
Search for matches...
Julie Farless

Julie Farless

Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services, but we specialize in tax preparation. We work with you to ensure that your personal or business processes are conducted in a manner that ensures ongoing integrity in your financial transactions. We are available to answer your questions and help with your ongoing tax planning and changing business needs.

Deborah Martinez & Earl Shanken
★ ★ ★ ★ ★
29 reviews

Arizona

Firm Profile

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts