A sole proprietorship is the first step for many businesses because it’s the simplest of all business structures to set up. In this type of business, the owner is responsible for all liabilities.
But this doesn’t mean you have to handle everything by yourself. If your small business is expanding, you’ll likely need to hire support. Here are the initial steps to take before doing so:
Get an EIN
Prior to hiring employees, you must get an EIN or Employer Identification Number to use on tax returns and other tax documents. To get an EIN, you must file the SS-4 form with the IRS.
Register with the State Labor Department
When your business pays an employee a certain amount per quarter, it must pay state payroll taxes. You must register as an employer with the state labor department where your business is located to pay these taxes. These payments are part of the federal unemployment insurance program and go to your state’s unemployment compensation fund, which provides short-term relief to workers who lose their jobs.
Explore Insurance Options
If an employee injures themself at work, you might be responsible for their medical expenses and lost wages. This is why it’s important to secure workers’ compensation insurance before hiring anyone. Purchasing insurance now can protect your small business from future lawsuits and enable continued growth.
Set up a Payroll System for Taxes
As an employer, you have to withhold taxes from your employees’ paychecks to give to the IRS. You also have to make Social Security and Medicare tax payments to the IRS. An automated payroll system can help you avoid costly errors and fines at tax time.
Get the Paperwork Ready
Hiring employees involves a lot of paperwork, which is better done sooner than later. For each new hire, you must fill out Form I-9 for the U.S. Citizenship and Immigration Services (USCIS) and Form W-4 for the IRS, which tells you how many allowances an employee is claiming for tax purposes.
While onboarding each employee, ask them to fill out IRS Form W-4 so you can withhold the correct amount of tax from their paychecks. Employees should fill out a new W-4 form each year if they want to change their allowances.
Consult an Attorney to Comply with Employment Laws
Consulting a business attorney may be the most important step to consider before hiring. It can help you avoid many troubles like failing to meet state or federal standards, which can lead to massive fines, or failing to comply with all relevant statutes and employment laws. Such mistakes could cost your business significantly. Consulting a business attorney can protect your business and create a safe work environment for employees.
Being a sole proprietor can be challenging, but hiring the right team can make it easier and help your small business thrive.