You are a small business owner who has just hired your first two employees. Let’s say you go to a company like Dallas-based BenefitMall to sign up for their payroll processing service. BenefitMall is going to ask for certain information to get you set up in their system. Without that information, they will not be able to help you. Why? Because you are not legally recognized as an employer until you complete both federal and state registration.
Federal and state laws require employers to register on a number of different fronts in order to be legally recognized as employers. Not registering means one of two things: you are an employer paying your employees under the table or you are an employer whose workers are deemed contractors under federal law.
Hiring only contractors eliminates the need for you to register as an employer. You also are not responsible for withholding, providing workers’ comp insurance, etc. If your new hires are employees rather than contractors though, paying them under the table could get you in big trouble.
Obtain an Employee Identification Number
Registering as an employer begins at the federal level by applying for an employee identification number (EIN). This number is the number the IRS uses to identify your company in its system. It is also used by the Social Security Administration and a handful of other federal agencies.
The good news about obtaining an EIN is that it is really simple. You can contact the IRS either by phone or online to request your number free of charge. Provided you have all the relevant information readily at hand, you will get your number immediately. The IRS will follow up with a paper document confirming the number issued to you.
If you have not yet established a business bank account, your bank will ask you to furnish your EIN before you can open an account. An account already established under your Social Security number should have the EIN added to it for tax purposes.
Register for State Unemployment Tax
Each of the individual states has an unemployment insurance program in place to protect employees. The programs are funded by employers and their employees through shared payroll taxes. In order for your registration to be legal at the state level, you have to register as an unemployment tax payer. How you go about this depends on your state system. You may have to register online or over the phone. When you do, the state will inform you as to the rate you and your employees will be paying.
Reporting New Hires
Every state requires employers to report all new hires. When you first register, you report all the employees currently on the books. You will have to separately report each additional hire thereafter. New hire reporting typically involves proffering information like the name of your business, your business address, your EIN, and the appropriate employee information.
Finally, you may have to register your business with local authorities as well. This should only be necessary if your municipality or county assesses additional payroll taxes on top of what the state and federal government collects. New York City is a good example. New employers in the Big Apple pay additional local taxes that don’t apply to employers in rest of the state. Employers have to register with the city in order to make sure those local taxes are collected and submitted.
Hiring employees alone doesn’t make you a legally recognized employer. To be recognized at the federal and state levels, you must register your business as a legitimate employer.