As a sole proprietor, you’ve put in countless hours to get your business off the ground and start bringing in money. You’ve undoubtedly pulled at least a few 15-hour days to meet deadlines and keep clients happy. The decision to hire an employee marks the next stage of your journey as a business owner. Before you take that step, however, make sure you’ve adequately prepared and protected yourself from potential liability.
1. Get an EIN
Prior to hiring employees, you must get an employer identification number. You use this number on tax returns and other tax documents. To get an EIN, you must file SS-4 with the IRS.
2. Consider Changing Your Business Structure
Legally, you can continue operating as a sole proprietor while hiring employees. However, doing so may put you at considerable legal risk. If you face legal issues from employees down the road, your personal assets may be at risk if you operate as a sole proprietor. Choosing a different business entity can offer additional protection and help you take advantage of other resources available to corporation owners.
3. Register with the State Labor Department
You can register your company with the Florida Department of Economic Opportunity. Once this step is complete, you can pay state unemployment compensation taxes.
4. Explore Insurance Options
It’s important to secure workers’ compensation insurance before you hire an employee. If an employee injures themselves while on the job, you could be on the hook for their medical expenses and lost wages. You aren’t legally required to have workers’ compensation insurance in Florida until you have four employees. However, purchasing insurance right away can protect your business from lawsuits and encourage continued growth.
5. Set Up Your Tax Withdrawals and Payroll
As an employer, you must withhold taxes from your employees’ paychecks and give it to the IRS. Additionally, you have to pay Medicare and Social Security taxes. An automated payroll system can help you avoid costly errors and fines at tax time.
6. Get Employment Forms Ready
Hiring employees involves a substantial amount of paperwork. Each year, you have to file IRS Form 940 and pay federal unemployment tax. You may also be required to post notices and posters on employees’ rights and protections. For each new hire, you must fill out Form I-9 for the USCIS and Form W-4 for the IRS.
Consult an Attorney to Comply With Employment Laws
Now that you’re close to hiring your first employee, you should work with a business attorney to ensure that you are complying with all relevant statutes and employment laws. Failing to meet state or federal standards can lead to massive fines and other consequences, potentially bankrupting your business. Being proactive and consulting a business attorney can help you avoid these pitfalls, protect your business, and create a safe work environment for your employees.
Being a small business owner is challenging, but you don’t have to do it alone. Prepare for the future of your business by contacting Trembly Law at 305-431-5678.