Hiring Your First Employee: Tax and Paperwork Guide

Before your first hire, you need to confirm the worker is an employee, get an EIN and your state accounts, have the new hire paperwork ready and set up payroll.

Hiring changes your tax life.  You become responsible for withholding, employer payroll taxes, regular deposits and year-end forms.  Doing the setup first is much easier than fixing it after the first paycheck.

It also helps to think about the full cost of an employee before the first offer.  Wages are only part of it: the employer share of payroll taxes, unemployment tax, insurance and the time spent on paperwork all add to the cost.  Talking through those items ahead of time makes it easier to decide whether to hire an employee, use a contractor where the facts truly allow it, or wait.

This checklist covers the general steps.  Details vary by business, and Alabama has its own requirements, so we check how they apply.

• Confirm the worker is an employee, not a contractor
• Get a federal EIN
• Register with the state for withholding and unemployment as required
• Have the new hire complete Form W-4 and Form I-9
• Report the new hire to the state
• Set up payroll and a place for records

An employer generally needs a federal EIN and state accounts for income tax withholding and unemployment tax.

You apply for the EIN directly with the IRS.  The state has separate registrations, and Alabama also has local occupational taxes in some cities and counties.  Our guide to Alabama withholding and unemployment tax gives the overview.

Alabama also has rules about workers' compensation insurance and work eligibility verification.  Those sit outside tax preparation, so confirm the requirements that apply to you with the state or your insurance agent.  Check for required workplace notices as well.

Employers are generally required to report new hires to the state within a short period after the hire.

The purpose is mainly to help with child support enforcement and to prevent benefit fraud.  The state sets the deadline and method, and you should check the current one when you hire.  Keeping a copy of what you filed helps if questions come up.

This is a routine but easily forgotten step.  Add it to your hiring checklist so it does not slip.

Our payroll and bookkeeping service can set up and run payroll for your first employee and keep the paperwork organized.

Through payroll and bookkeeping, we help new employers handle withholding, tax deposits and year-end forms.  You can call with questions before you hire, when it is easiest to set things up correctly.

We serve Arab and the surrounding area.  Call 256-586-4635 or use our contact page. Bring your paperwork to the office, and please do not send Social Security numbers or documents through the website.