The United States is one of the best countries to start and grow a business, according to a 2016 index published by Forbes. Although the great recession of 2008 threw the American economy into a free fall, it has since recovered and continues to grow at a slow but steady rate of 2.4 percent annually.
When you set up a business in a foreign country, it’s cost-effective and prudent to tap employees from the local workforce. However, as a first-time employer, hiring is rarely a straightforward task. In the US, you must meet various local, state and federal tax, labor and employment requirements before you can begin bringing workers on board.
In this article, we take a deep dive into the steps you must complete and, where necessary, provide tips that can help you avoid common hiring pitfalls.
1. Obtain a Federal Employer Identification Number
The first step to becoming an employer in the US is to obtain a Federal Employer ID Number (EIN), which is also known as a Federal Tax ID Number. Government agencies such as the Internal Revenue Service (IRS) use this unique ID to identify businesses and ensure their tax returns are properly filed. There are a number of ways to apply for the EIN:
- Online – In any country, online application is by far the most preferred method of getting business documents. In the US, internet EIN application is only available to people whose businesses have a physical office in the country or any of its territories. As the applicant, you must have an Individual Taxpayer Identification Number, and if you have multiple businesses, you can only apply for one EIN per day. Successful applicants receive their EIN immediately.
- Fax – You can download Form SS4, fill it out and fax it to the IRS. Fax applications take a maximum of 4 business days.
- Mail – You can also fill out the form and mail it to the IRS. This method takes a maximum of 4 weeks.
- Telephone – You can also grab your phone, call the folks over at the IRS at 267-941-1099 and answer the same questions you would find in the application form. If the agency determines that your business is eligible for the EIN, it will fax or mail you the document.
Application For Employment
A detailed document that includes an applicant's personal details, education and employment background to be viewed by a potential employer.
2. Register with the Employment Agency/Department of Your State
Once you have obtained your federal EIN, head over to your state’s department of revenue or similar agency and get another employer ID. You need this ID to identify your business and file payroll tax remittances and unemployment taxes to your state government.
It is important to note that employment tax reporting requirements vary from state to state, so do your homework diligently. For example, in states that do not collect personal income tax, like Nevada, Alaska and Texas, you may not be required to obtain a state EIN. In general, the requirements for obtaining a state EIN are similar to that of obtaining a federal EIN.
If you are not familiar with the application process, you can always hire specialist companies that provide employer setup services to do the work for you.
3. Prepare IRS Form 940
All employers in the US must remit federal unemployment tax on a yearly basis. The federal government disburses the funds collected through this tax system to state workforce agencies, which then compensate workers who have lost their jobs.
To file this tax return, you need to get familiar with the IRS Form 940. So, as a starting business, are you exempt from remitting federal unemployment tax? Well, if you expect to spend at least $1500 on employee compensation, or you plan to hire at least one employee on a part-time or full-time basis, this is a requirement you must meet. The IRS provides the due dates for filing this form, and in some cases, it can allow you to remit the tax in installments.
HR & Employment Forms, Contracts & Letters
Collection of 205 ready-made HR & employment contracts, letters & forms for record-keeping and managing your employees
4. Set Up a Payroll System
At this point, you have all the legal business documents you need to move into the labor market and hire your first employees, but you aren’t quite ready to process their salaries. As such, the next step is to set up a payroll system that will enable you to efficiently withhold taxes and make payments to the IRS.
Although you can pay your employees by hand, this method is time consuming and error-prone. Needless to say, filing erroneous tax returns will only expose your young business to unnecessary IRS audits, fines and penalties. The best way to handle payroll is to hire an experienced in-house accountant to do the job, use payroll software or outsource the payroll function to external experts.
Setting up payroll typically involves the following:
- Deciding on when and how frequently employees will be paid – Many state and local authorities have regulations for determining how often workers are paid
- Determining the salary for each employee/job position
- Determining how to monitor or track work hours
- Settling on other pay items, such as bonuses, reimbursements, deductions and benefits such a medical, paid leave and retirement.
Once your payroll system is properly setup, you can begin onboarding your employees. The payroll system will calculate the amounts due to each employee and withhold the relevant federal and state taxes.
5. Obtain Compensation Insurance for Workers
In the course of employment, an employee can be involved in a workplace accident that may lead to permanent disability or even death. When this happens, your business loses a valuable human resource and exposes itself to unnecessary expenses. Obtaining compensation insurance – which is a legal requirement in many states – not only ensures that your employees and their families are compensated for lost wages, but also protects your enterprise from costly healthcare expenses and lawsuits.
Depending on the size of your business, you can:
- Purchase a group insurance policy from a private insurance company
- Become self-insured – Typically available to large employers with huge financial strength, and involves getting approval form a state board
- Purchase a compensation insurance policy from a State Insurance Fund.
This document sets out the terms and conditions of employment. It includes, but is not limited to Employee's salary, hours of employment, holidays, etc.
6. Get Familiar with Occupational Safety and Health Administration (OSHA) Laws and Regulations
As an employer, you have to ensure the workplace is safe and healthy for all workers. OSHA, the agency in charge of enforcing workplace safety regulations, has put in place a number of key employer responsibilities. You must:
- Ensure the workplace meets OSHA standards at all times
- Design and implement workplace safety training programs
- Ensure all potential hazards are clearly labelled or color-coded
- Ensure workplace tools and equipment are in sound condition and they are properly maintained
- Maintain accurate records of all workplaces injuries and accidents that have occurred (Your business may be exempt from this regulation if it has a workforce of less than 10 people)
- Comply with OSHA audits.
To prevent workplace hazards, it’s advisable to develop an injury and illness prevention program. A good program should identify workplace hazards, provide effective control and prevention measures and encourage regular safety education and training for all employees. The program should be evaluated for effectiveness and updated accordingly. Many successful companies hire health and safety managers to implement this program and ensure compliance with OSHA standards and regulations.
7. Find out Information About Workplace Posters/Notices
In many states, employers are required to clearly display various notices in their business premises. Such notices generally serve to keep employees informed and updated on various labor and employment laws. In Illinois, for instance, all employers are required to provide workplace posters detailing the rights of workers under Illinois employment laws. If you own a construction company, then you must also provide a notice for the employee classification of 2008. If your run a day and temporary labor service agency, you must put up a poster outlining the day and temporary labor service act.
Beyond installing a notice board where the posters will be displayed, you can also provide handbooks with all the necessary notices to your workers.
8. Create HR Documents
Creating HR documents such as job applications forms, employment contracts, staff handbooks or employee manuals and sign-up forms for employee benefits, significantly streamlines the onboarding process for news hires. When you advertise a job position, you must provide an application form where interested workers can fill out their personal, education and experience details. You must also develop a staff handbook that contains about the company’s workplace policies and procedures, as well as sign up forms for medical benefits and other schemes.
These documents can influence employment recruitment and retention. If you make the application form too short, for instance, potential workers may be unable to completely describe their competencies. If you make it too long, you risk intimidating and turning them off. Instead of going through the hassle of designing these documents from scratch, you can purchase ready-made ones on Starting Business. The website offers a complete HR package that includes all the documents and letters you will need to get your company up and running.
Finally, you must verify that all your new hires are eligible to live and work in the US by filing out form I-9 and keeping it on record for three years from the date of employment. You must also report new hires to your state within 20 days of employment.
There you have it! A complete guide on how to hire workers in the U.S. Whether you are an American or a foreigner looking to dig into the U.S labor market and find skilled workers who can help take your company to the next level, the recruitment process has no doubt been baked into a piece of cake for you!
Staff Handbook provides a summary of the policies and procedures that operate in the Company. It should be read in conjunction with contract of employment as both documents form part of terms and conditions of employment.