If your small business is booming, you may have decided the time is right to add one or more workers to your team. If it’s your first time hiring an employee, it’s important to start off on the right foot and follow a legal hiring process to ensure you stay organized and comply with employment laws.
When it comes to new hire paperwork, it can be difficult to wade through all the information out there, so here is a simple explanation of which forms employers are required to have by law, as well as those that are not required but still vital to both the onboarding process and the operation of your business.
What Forms are Required for New Employees?
The Fair Labor Standards Act outlines the recordkeeping requirements for employers. There are a handful of tax forms you need to have, in addition to a number of forms you should have. Before any new hire starts work and receives their first paycheck, you must have them complete and sign all of the forms, and place copies in their personnel file.
I-9 Form
Employers must document a new employee’s eligibility to work in the United States before their first day of work. Form I-9, also known as an I-9 form or Employment Eligibility Verification Form, is completed by the new hire, who must provide documentation of both their identity and employment eligibility.
The best form of identification is a passport or permanent resident card, more commonly known as a green card. All other documents establish either identity or eligibility--not both--and must be used in conjunction with another document. For instance, a driver’s license establishes identity only, and therefore must be combined with a document that establishes eligibility, such as a Social Security number card (SSN card) or birth certificate.
Employers are not required to file a Form I-9 with the government, but you must keep a copy of it on file.
What is E-Verify?
E-Verify is an online system that employers can use to confirm an employee’s eligibility to work in the US. It compares the information on an employee’s I-9 to data from the Department of Homeland Security and the Social Security Administration. Many states require employers to use E-Verify, so be sure to check the laws in your jurisdiction.
W-4 Form
New employees must complete Form W-4, also known as a W-4 form or federal income tax withholding form, upon hire and before they receive their first paycheck. A W-4 Form tells you how much federal income tax to withhold from an employee’s paycheck based on marital status, number of dependents, and allowances or deductions. The form must be signed by the employee and kept in their personnel file.
You are not allowed to advise your new hire on filling out a W-4, although you can direct them to resources that will help them complete the form correctly, including the IRS’s withholding calculator.
A W-4 remains in effect until an employee changes it, which can be done at any time. If they do, it is your responsibility to ensure the changes are implemented in a timely fashion, namely before the start of the first pay period ending on or after the 30th day from when you received the replacement form.
State Withholding Tax Forms
Federal income tax is of course withheld in all jurisdictions, but most states collect income tax as well. If your state requires you to withhold income tax, your new hire will need to complete an additional tax withholding form, similar to a W-4 form. The same rules regarding filing and updating the withholding tax apply to state forms.
Which states collect income tax?
Only seven states lack income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, with Tennessee gradually reducing its income tax until it is eliminated altogether in 2022. Tennessee and New Hampshire currently impose a limited income tax on dividend and interest income only (earned income is exempt).
New Hire Reporting Form
Employers must report basic information about new employees within 20 days (sometimes less) of hire to the State Directory of New Hires. This allows the government to prevent unlawful or mistaken receipt of public assistance (including welfare and food stamps), and to locate parents who owe child support to issue or enforce an income withholding order. The information can be particularly helpful if a parent lives in a different state than their child.
Other Important Paperwork for New Hires
The type and size of your business, in addition to your resources as an employer, can all shape your hiring process. While the following documents are not required, you should consider including them to improve your new employee’s onboarding experience, communicate responsibilities and expectations, and create a high standard of recordkeeping.
Employment Offer Letter
It is common practice to make a verbal offer to the candidate you choose to hire. Doing so adds a personal touch and can make them feel valued. The candidate may accept right away, or they may wish to negotiate terms such as start date or salary. Once they accept the position, you should put the offer in writing with an Employment Offer Letter.
A job offer letter contains pertinent information about the position, including a job description, start date, working hours, salary, and employee benefits. If the candidate agrees to the terms of your offer, they sign the letter. Their signature is confirmation that they are accepting the position.
Employment Contract
While an Employment Contract, or employment agreement isn’t strictly required by law, it’s a good idea for employers to outline the terms and conditions of employment so that both parties are clear. An Employment Contract can contain information such as:
- Type of employment: permanent or fixed term; full or part time
- Job description, including the new hire’s general duties and obligations
- Type of compensation: hourly wage, salary, or commission-based
- Pay period: biweekly, monthly, etc.
- Work hours and overtime policies
- Starting vacation time
- Notice required for employer termination and employee resignation
Your employment agreement can also include clauses restricting certain actions after employment ends. Although they are probably unnecessary for unskilled or entry-level positions, the following post-employment clauses can be used when an employee is privy to confidential information or when you don’t want them creating a competing business:
- Confidentiality clause: prevents a former employee from sharing any of your business’s information for personal gain.
- Non-solicitation clause: prohibits a former employee from recruiting your employees to another workplace, also referred to as poaching.
- Non-compete clause: restricts a former employee from unfairly competing against you in the same type of business.
Non-Disclosure Agreement
A Non-Disclosure Agreement (NDA) is also known as a Confidentiality Agreement. Not all employers need one; it is only necessary if your employees are exposed to sensitive or private data or information. For instance, if you own a retail store or restaurant, a clerk or a server likely do not need to sign an NDA in order to work for you. On the other hand, if a new hire will have access to private customer data or trade secrets, then you may want to consider having them sign a Non-Disclosure Agreement to protect your business.
Like an Employment Contract, an NDA can also contain non-solicitation and non-compete clauses (some employers choose to have a separate non-compete agreement, but both serve the same purpose). It may be wise to include these clauses if you do not have an Employment Contract or simply did not include them in your agreement.
Employee Handbook
Do you need an employee handbook if you only have a handful of workers? Small business owners may be able to get away without one, but it’s still a good idea to put rules and expectations in writing, regardless of how many employees you have. A handbook also outlines an employee’s rights and may answer some of their basic questions about working for your company.
An employee manual doesn’t need to be long--a barebones handbook can include the following information:
- General employment policies, such as dress code, probationary period, and termination procedures.
- Work schedule, including break times, reporting absences, and guidelines for flexible schedules.
- Compensation details, including overtime pay, bonuses, and salary increases.
- A description of employee benefits, including eligibility requirements. Some benefits, namely family and medical leave, Social Security, and workers’ compensation, must be offered by law, while others, such as health care insurance and a 401(k) plan, are optional.
- A statement of your business’s anti-discrimination policies, based on the equal employment opportunity laws that all business owners must comply with.
- A statement of compliance with occupational safety and health (OSH) laws that require employers to offer a workplace free from health and safety hazards.
- Policies for creating a secure work environment, such as locking computers when not in use.
Your employee handbook can be a printed booklet, but it’s becoming increasingly common for employers to offer online training or a digital manual, which the employee can print if they so desire.
Employer’s Tip:
Have new hires sign a form acknowledging receipt of the employee handbook, to indicate that they have read and understood your company’s policies and guidelines.
Direct Deposit Authorization Form
As an employer, you can pay your workers by check or by direct deposit. With one or two workers, writing regular paychecks is not a big chore, but as your business grows and you add to your team, you may find it more convenient to adopt an automatic payroll deposit or direct deposit system. You can get started by talking to your bank or to an accounting software provider.
Once you’ve set up automatic deposits, each new hire will need to provide a voided check and fill out a direct deposit authorization form with the name of their bank, account type, account number, and check routing number.
Employer’s Tip:
Many banks will not open accounts for individuals with bad credit, in which case they cannot be paid by direct deposit. However, having a bank account is not a prerequisite for cashing a check, so if a new hire does not have an account, you can either write them paper checks or use a payroll card. These reloadable cards function much like debit or credit cards and are issued by most major payment processors.
Emergency Contact Information Form
Upon hire, you should have every employee fill out a form with their emergency contact information. Without that information stored in a safe and accessible place, it may be difficult in an emergency situation to get in touch with their family or other emergency contact.
The form doesn’t need to be complicated; you can simply collect the contact’s name, relationship to your worker, and contact information, and store it in their personnel file.
Hiring New Employees: Do it by the Book
There are a number of forms to think about when you hire your first employee. Once they have been completed, signed, and in some cases registered with the government, each document should be stored properly. Create a personnel file for each employee containing everything from their resume to their termination letter. These files should be kept in a locked file cabinet to which only you and any HR staff have access. When it comes to new hire paperwork, organization and confidentiality are key.
