Legal Considerations When Hiring Employees
Many entrepreneurs launch their business as sole proprietor or a partnership, but when the work becomes too much to handle, they begin hiring employees. If you’ve reached that stage in the business lifecycle where you have made the decision to hire employees, make sure you’re prepared to address the legal requirements for hiring and on-boarding new employees.
Within three days of the hire date, you must complete an I-9 form, which is the form that proves the employee is eligible to work in the United States. Most companies also have their employee complete the W-4 (tax withholding) form at the same time.
Set up Payroll
To set up payroll, you’ll need to apply for an employment identification number (EIN), which you can do online or by contacting the Internal Revenue Service. Once you have your EIN, you must also file a Maryland Combined Registration, which the government uses to establish your payroll tax rate. This registration also covers your obligations regarding payment of unemployment insurance.
Many business owners outsource all payroll functions to a third party.
The benefit of using a payroll service is that you don’t have to worry about making any missteps regarding taxes and reporting. Plus, many payroll companies offer convenient tools, like online records management portals for employees and employers, direct deposit, and online pay stubs. Make sure the payroll service company is reputable and verify that payroll taxes are being paid because the employer ultimately is responsible for these taxes whether or not the employer paid a third party to handle this function.
Maryland Reporting Requirements
Within 20 days of the hire date, employers must report their new hires to MAXIMUS, which operates the Maryland State Directory of New Hire. The purpose of the directory is to expedite the processing of child support withholding and to locate non-custodial parents who move or change jobs frequently. If you use a payroll service, you may ask if it’s set up to handle reporting requirements (most larger payroll firms handle electronic reporting for their clients).
Post Required Materials
The U.S. Department of Labor requires employers to provide workplace posters, by either putting them in a highly visible location in the workplace (like a break room) or by giving electronic versions to employees. There are many different posters, not all of which are required at every place of business. The DOL has an online Poster Advisor tool business owners can use to determine which posters they need.
Generally, each poster advises workers of their rights and protections under federal employment law. Maryland, and some municipalities, may require some employers to have additional employment posters.
The Employee Handbook
You’re not required by law to provide an employee handbook, but having one can protect you from potential legal complications down the road. For example, if you should have to terminate an employee because of their performance, you could defend against accusations of discrimination and wrongful termination if you’re able to show the section of your employee handbook that covers progressive discipline and termination, and that you followed these steps in terminating the employee.
Employee handbooks also should explain the company policy regarding appropriate conduct, including dress code, and policies and penalties for harassment, violence, and misuse of company property. Describe in detail any benefits you plan to offer, including the scheduling and use of paid time off.
At Lusk Law, LLC, we believe that businesses are in the best position to succeed when they prepare in advance for every step they take. Before you hire your first employee, talk to our experienced business law attorneys to make sure you’re ready to meet all regulatory requirements.
Our attorneys have provided legal counsel and representation to business owners in Frederick County, Baltimore County, Baltimore City, Carroll County, Washington County, and Anne Arundel County, and other counties in Maryland. Please call us at 443-535-9715 or fill out our contact form if you need advice on any aspect of launching or growing your business.
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