Like many people, I tend to think of a business as an entity that already has employees. The reality is more and more people are becoming solo entrepreneurs, either striking out on their own or making some extra money with a side hustle.
I imagine it’s a great feeling for an entrepreneur to reach the point where she or he needs a staff. Unfortunately, the legalities of going from a sole proprietor to a small business do not make it easy, especially if you’ve never done it before.
The list below is by no means exhaustive, but it is a good place to start. And as always, NJBIA members can contact me at the Member Action Center for any questions specific to their business.
Steps for hiring your first employee:
- Get an Employer Identification Number (EIN) – (If you don’t have one already.) You can apply here and with the State of New Jersey.
- Satisfy Federal and State Tax Reporting/Withholding Requirements – These include federal income, Social Security and Medicare taxes, as well as federal unemployment taxes. In addition, in New Jersey you are required to set up deductions for Temporary Disability, Family Leave Insurance, etc.
- Establish Payroll.
- Classify the New Position as Exempt or Non-Exempt – Virtually all employers are governed by the Fair Labor Standards Act (FLSA) and the wage and hour laws of the state in which its employees work. These laws classify employees as exempt or non-exempt from minimum wage and overtime requirements and carry significant potential penalties for a misclassification of an employee’s status. Before hiring an employee a business must understand whether the position it is seeking to fill is exempt or non-exempt and how to record time and calculate overtime pay, if applicable.
- Consider Creating an Employee Handbook – Although not required by law, having a handbook that spells out your policies is a practice we highly recommend.
- Report the New Hire to the State of New Jersey – Business owners are required to report newly hired and rehired employees to a state directory within 20 days of the employee start date. (Go here for more information.)
- Set Up a Personnel File.
- Verify the Employee’s Work Eligibility – You are required by law to do this through the I-9 form. Section 1 of the form is completed by the employee no later than the first day of hire. Section 2 is completed by you no later than the third business day after first day of work. The form must also be securely retained by you. Employers must retain original I-9 forms for three years after the date of hire, or one year after the date employment ends, whichever is later. The forms should be stored separately from other personnel files.
- Post Required Notices on Worker Rights – A New Jersey employer poster packet is available by clicking here and here, and a federal employer poster packet is available by clicking here. Please note that posting requirements vary by law; that is, some employers may or may not be required to post a specific notice depending on the size of their companies and other factors.
The U.S. Small Business Administration also has some resources on this. You can find them here.
Need more? Contact the Member Action Center at 1-800-499-4419 or email@example.com.