Steps to Hiring your First Employee in Massachusetts

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Hiring your first employee as a new business owner is both an exciting and frightening experience.  Not only do you have a person relying on you to pay them so they can provide for their family while balancing the cash flow needs of your business, there is a lot of paperwork and laws to comply with. Here are 8 steps a business will need to take when hiring their first employee in Massachusetts.

Step 1 – Register as an Employer

Employers will need to first get an Employer Identification Number (EIN) – Form SS-4 from the Internal Revenue Service (IRS) in addition to the Employer Registration from the Massachusetts Department of Revenue and Unemployment Insurance Registration with the Department of Unemployment Assistance.

Step 2 – Employee Eligibility Verification

Each new employee will need to fill out the I-9, Employee Eligibility Form from U.S. Citizenship and Immigration Services. The I-9 Form is used to confirm citizenship and eligibility to work in the U.S.

The employee must complete Section 1 by their first day of work and the employer will complete Section 2 by the end of the third business day after the employee starts.

Employers don’t submit the I-9 form, but are required to keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.

Step 3 – Employee Withholding Allowance Certificate

Each employee will provide their employer with a signed Withholding Allowance Certificate (Form W-4) on or before the date of employment. The W-4 Form determines how much federal income tax will be withheld from the employee’s paycheck. 

The employer does not typically submit Form W-4 to the IRS, but will keep a copy on file.

See IRS’s Publication 15 – Employer Tax Guide for more information on federal withholding.

Step 4 – New Hire Reporting

Employers are required to report newly hired employees and re-hired employees with the Massachusetts Department of Revenue within 14 days of their hire or rehire date.

This information is recorded in the National Directory of New Hires (NDNH) and is matched against state and federal child support databases for the purpose of locating parents who owe child support.

Step 5 – Payroll Taxes

After hiring employees, payroll taxes will need to be paid.  Payroll taxes include:

Federal Income Tax Withholding

Employers withhold money from each employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The employer pays no part of the withholding tax, but is responsible for collecting and remitting the taxes that are withheld.

State Income Tax Withholding

Similar to the federal income tax withholding, taxes are withheld from an employee’s paycheck for state income taxes.  Use Form M-4, Employee’s Withholding Exemption Certificate.

Federal income tax withholding reports are filed using Form W-2, Wage and Tax Statement with the IRS.  Additionally, IRS Form 941 is due quarterly and IRS Form 940 is filed annually to report any unemployment taxes due.

Social Security & Medicare

Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA).  The employer pays half of FICA and the other half is paid from the employee’s wages. 

Unemployment Insurance

Employers pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA). 

Companies like Gusto make it easier to do the paperwork and filings to ensure everything was done right.

Step 6 – Workers’ Compensation Insurance

All businesses with employees (even a single part-time employee) are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job.   Worker’s Compensation Insurance is administered through the Massachusetts Department of Labor & Workforce Development.

Step 7 – Labor Law Posters and Required Notices

Massachusetts businesses must display Federal and State of Massachusetts labor law posters where they can be easily viewed by employees.  These posters inform employees of their rights and employer responsibilities under labor laws.

Massachusetts labor law posters can be individually printed from the Massachusetts Office of Labor & Workforce Development’s website.

Step 8 – Stay Up-To-Date

There is a lot to keep up with when hiring employees for your business, but your obligations and responsibilities as an employer don’t end there.  Labor laws are complex and ever changing.  Be sure to keep up-to-date with the Massachusetts Department of Labor & Workforce Development and U.S. Department of Labor.