This is a guest post by Bill Landess.
Maybe each month seems to fly by faster. Maybe it’s feeling harder lately to keep the shelves stocked. Maybe it was your busiest holiday season yet.
At some point, you may find you need more hands to get work done. If you’re taking the first steps to hire, the process can feel overwhelming. Fortunately, there are lots of resources to help you on the path from entrepreneur to someone’s boss.
We’ve rounded up the steps you need to take to comply with your new legal and tax responsibilities as an employer.
Define the role
Before posting a job opening, researching payroll software or asking around for referrals, take a moment to clearly define the position you’re looking to fill.
- Commitment. How many hours per week does this role require?
- Duration. Do you need seasonal help, or a long-term commitment?
- Responsibilities. Are you looking for a freelancer to outsource a task like accounting or marketing, or a new member of your team?
From there, you can craft a job description that best fits your needs. Indeed offers advice and examples of retail job descriptions, like this one for a retail associate.
Most importantly, decide whether you need to hire an independent contractor or an employee—often referred to as a 1099 or a W-2, based on the corresponding tax form. This choice is critical because it will determine your legal obligations for taxes and insurance.
Full-time, part-time or seasonal?
When deciding between full-time, part-time and seasonal help, the two main factors to weigh are your business’s operational needs and the employer obligations that come with each.
Full-time employees may expect more perks like paid leave and benefits, but for small retailers most legal requirements are the same for all employees, regardless of how many hours they work. Part-time and seasonal employees are subject to the same tax withholding rules as full-time employees. (Hourly part-time workers may also be eligible for overtime pay.)
Consider starting small, with a part-time hire or seasonal help, and growing from there. As Janeen Russell found, owner of The Sweet Shop in Cadillac, Michigan, “figuring the ebb and flow” to have enough help without overstaffing was one of the biggest challenges when growing her business.
Look into tax and legal requirements
Certain employer requirements are dictated by the federal government, but many of the most commonly known federal requirements, such as those outlined in the Family and Medical Leave Act and Affordable Care Act, apply to businesses with 50 or more employees.
All employers regardless of business size are required to fill out and submit certain paperwork to the federal government, ask any new employees to complete required paperwork, and keep employment records on file. You also must withhold, deposit, report and pay certain employment taxes on the employee’s behalf.
Here’s a summary of what you’ll need to complete:
- Get an Employer Identification Number (EIN), if you don’t already have one.
- Register as an employer with your state’s labor department, and find out whether you need state or local tax IDs.
- Confirm the employee is eligible to work in the U.S. by having them fill out an I-9 form.
- Get the employee’s name and Social Security Number (SSN), and complete a W-2 form.
- Give the new employees a W-4 form to complete and return. This form will also tell you how much income tax to withhold from employees’ wages. (The IRS explains withholding requirements in more detail.)
- Set a pay period schedule to coordinate tax withholding for the IRS.
- Deposit and report federal income tax, social security and Medicare taxes and Federal Unemployment (FUTA) Tax.
- Keep copies of forms and all records of employment taxes for at least four years.
Note: If hiring seasonal retail help, employers do not have to file a Form 941 for quarters in which they have no tax liability because they have paid no wages.
Other state or local regulations and taxes may also apply. Check with your state tax agency for employer filing obligations, and read up on your state’s insurance requirements and labor laws.
Want to check things off as you go? Gusto has a helpful employee onboarding checklist.
One of the best parts of having a brick-and-mortar store is making it a family affair — whether it’s the kids helping to restock shelves, or a sibling, parent or spouse helping out on the shop floor.
State and federal requirements do make some exceptions for family members, but that doesn’t mean you’re exempt from employer regulations.
The IRS outlines what to do if a spouse or other family member works for your business. Also check your state’s workers’ compensation requirements, as some family members are counted as employees. If they need to be covered by the policy, their wages should be calculated like any other employee.
Get the right insurance coverage
Employer insurance requirements are often the same for part-time and full-time employees. The most important insurance policies to know when hiring are disability, health, unemployment and workers’ compensation.
Disability insurance covers a portion (typically a percentage) of a worker’s wages if they are unable to work. Employers in California, Hawaii, New Jersey, New York and Rhode Island are required to offer disability insurance to employees and cover the premium. Otherwise, disability insurance is optional and can be offered as a part of a benefits package.
Under the Affordable Care Act, full-time employees must be offered health insurance coverage if the business has 50 or more employees. For all other employees, health insurance is optional and can be offered as a benefit at the employer’s discretion.
Unemployment provides temporary financial assistance to workers who lose their job through no fault of their own. All employers are required to pay federal and state unemployment taxes to fund unemployment benefits; this is one of the withholdings you’re required to administer each pay period.
Workers’ compensation insurance
Workers’ compensation insurance protects both employees and employers in the event of a work-related injury or illness. Very small businesses may be exempt from workers’ comp laws, but most businesses with employees need coverage.
Workers’ compensation is regulated at the state level, so check your state’s requirements to make sure you comply. Full-time, part-time, temporary and seasonal employees are all counted as a full employee. This means that if a seasonal hire will push you over your state’s employee limit, you need to have coverage in place on their first day.
If your business is required to carry workers’ compensation insurance, you must purchase a policy that covers your full payroll. A workers’ comp policy must be purchased by the employer, and employee wages cannot be withheld to cover the cost. That said, many retail businesses are low-risk, so the cost of coverage is usually minimal.
Plan ahead for payroll and compensation
To comply with employment tax withholding requirements, you’ll need to implement a payroll system. To simplify the process, you could hire an outside vendor to handle payroll services or use payroll software. Gusto, Intuit QuickBooks Payroll, Sure Payroll and Wave all offer payroll solutions for small businesses.
- Compensation. What compensation and benefits will you offer? The National Retail Federation and Mercer released a 2018 report on average hourly wage and benefits for part-time retail employees.
- Scheduling. Will the new hire work regular hours each week, or do you need to create a shift schedule?
- Time tracking. Does the employee need to clock in and out? Do you need timesheets or time tracking software?
- Time off. How will you handle holidays, vacation and leave? (Private employers are not required to give paid time off for holidays. If you want to offer paid holidays, The Balance published a list of 2019 federal holidays and how they are paid.)
Document your process
Once you know what’s required, it’s time to get organized. As you learn more about state or local requirements, write them down. Document all obligations, reporting requirements and deadlines in a single place. It will simplify future hires, streamline onboarding, and save you time and hassle in ongoing reporting.
Make sure you include:
- Your scheduled pay periods to coordinate tax withholding for the IRS.
- When and how much to withhold for federal income tax and employees’ share of social security and Medicare taxes.
- When to deposit withheld federal income tax, along with withheld and employer social security and Medicare taxes.
- When to report payroll taxes (quarterly and annually).
- A reminder to record and update business payroll annually to keep your workers’ comp policy current.
- Which records must stay on file and for how long.
A cloud-based platform like Google Drive, Dropbox or Evernote is useful to keep this process easily accessible, and to store copies of important documents. Evernote Scannable and CamScanner are both great apps for scanning forms and other papers quickly and easily.
Find small business resources
And remember: You don’t have to do it all yourself. The U.S. Small Business Administration has resources on hiring and managing employees, and can help you find local programs and mentors for one-on-one advice.
From payroll and HR to accounting, tax and insurance, professionals that specialize in small businesses can provide advice and support every step of the way.
Need more staffing tips and insights? Check out The Ultimate Guide to Training and Motivating Retail Employees, an in-depth resource packed with actionable takeaways for motivating employees and boosting staff productivity. In this guide, you’ll learn:
- How to empower your workforce to maximize happiness and productivity
- What tools and methods to use when educating your staff
- How to motivate your staff to bring their best selves to work
Bill Landess is a partner at WorkCompOne (www.workcompone.com), an online insurance agency that makes it easy for busy small business owners to buy workers’ compensation insurance online. Licensed nationwide, WorkCompOne has helped thousands of small businesses get covered since its founding in 2012. Get a free quote online, on your schedule.
This is not a comprehensive guide and should not be treated as legal advice or legal recommendation. If you have questions about legal and tax compliance as it pertains to your specific circumstances, consult an attorney or tax professional.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.