Steps to Hiring your First Employee in Texas
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 Texas.
Step 1 – Register as an Employer
Texas 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 Unemployment Tax Number from the Texas Workforce Commission.
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 Texas Workforce Commission (TWC) within 20 calendar days of the employee start date or rehire date.
The Texas Employer New Hire Reporting Form can be submitted online, by mail:
ENHR Operations Center
P.O. Box 149224
Austin, TX 78714-9224
Required information includes:
Employee Information that will be needed includes the employee’s first and last name, employee home address, Social Security Number, date of birth, wages, salary frequency, and the employee’s start date or the first day the employee begins work.
Employer Information includes Federal Employer Identification Number, business name, employer’s name, employer’s address, new hire contact person, and phone number.
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) and is matched against state and federal child support databases to locate parents who owe child support.
Step 5 – Payroll Taxes
After hiring employees, monthly and quarterly wage reports will need to be filed and payroll taxes 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.
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).
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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 Texas Department of Insurance.
Step 7 – Labor Law Posters and Required Notices
Texas businesses must display Federal and State of Texas labor law posters where they can be easily viewed by employees. These posters inform employees of their rights and employer responsibilities under labor laws.
Texas labor law posters can be individually printed from the Texas Workforce Commission’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 Texas Workforce Commission and the U.S. Department of Labor.