Steps to Hiring your First Employee in Massachusetts
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, but there is also a lot of paperwork and laws to comply with. Here are 8 steps a business will need to make when hiring their first employee in Massachusetts.
Step 1 – Register as an Employer
Employers will need to first get a Federal Employer Identification Number (FEIN) – 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, Employment Eligibility Verification 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 (DOR) within 14 days of hire or rehire.
Employee Information that will be needed includes the employee’s name, address, Social Security Number, date of birth, and the employee’s start date or the first day the employee begins work.
Employer Information includes Federal Employer Identification Number, employer name, payroll address, and contact phone number.
The completed form can be submitted online to the Massachusetts Department of Revenue:
Massachusetts Department of Revenue
New Hire Reporting
P.O. Box 55141
Boston, MA 02205
or fax: (617) 376-3262
The new hire information is required through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). This information is recorded in the State Directory of New Hires and the National Directory of New Hires (NDNH) to locate 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 withheld taxes.
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.
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.
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.
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).
Make Payroll EasierHiring employees and paying payroll is complicated and easy to make a mistake. Companies like Gusto simplify the process and ensure the federal and state reporting is up-to-date.
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
It is important to understand the differences between employees and independent contractors. Employers will sometimes improperly classify employees as independent contractors who have different rules on payroll taxes, minimum wage, overtime, and other labor laws. An individual’s status as an employee or an independent contractor may be determined by filing IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes, and Income Tax Withholding.
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 the U.S. Department of Labor.