Growing your business might also mean adding employees. Before you staff up, know what you need to do to prepare in terms of technology and legal obligations.
Employer identification number (EIN). Before you hire anyone, you need to apply for an EIN from the Internal Revenue Service, also known as an Employer Tax ID or Form SS-4. Apply online or at an IRS office.
Check on state requirements. You need a special ID number in some states or localities for payroll tax purposes.
Take care of tax matters. Know the difference between an independent contractor (1099 employee) or employee, and know what your obligations are as in employer in both cases. Legally, independent contractors and employees are subject to different income tax withholding, Social Security and Medicare withholding, and unemployment taxes. Have new employees fill out the correct IRS paperwork so the right amount of Federal income tax is taken out of their paychecks.
Set up a payroll system. Determine your employee pay period, paid time off policies, whether your employees are hourly or salaried, and how you will handle health insurance, retirement plans, direct deposit, and other benefits. Then, research your options for payroll administration. You can choose to handle payroll in house, or outsource it to a vendor.
Get educated about payroll taxes. The IRS produces an Employer Guide that outlines your obligations as to the reports and forms you are required to submit quarterly or annually regarding payroll taxes.