Becoming an Employer
[Update: A federal judge has agreed with a jury that American Family insurance agents actually are company employees, not independent contractors — a designation attorneys for agents and former agents say entitles their clients to more than $1 billion in retirement benefits, according to the Wisconsin State Journal.]
Prior to merging with Adorable IO, I operated Sapling Events with no employees. Within two years it was time to start adding staff. I brought on two part-time people, and initially, they functioned as independent contractors. I later learned based on the independent contractor rules that they were actually employees, which meant Sapling Events was responsible for paying state and federal unemployment taxes, Social Security, Medicare and even Workers’ Compensation. I was able to correct this mistake, but it took time. I also learned that I am not the only one who has made this mistake.
While researching for this post, I discovered a few great resources that outlined the steps that need to happen before you even post the job description for your first employee. When I was faced with hiring I thought I was doing the right thing and that my online research was sufficient. So, I did not seek out additional resources to help me through the process.
Well, I am here to tell you that there is some logistical set up, that is a bit confusing and time consuming, but all of that needs to happen before you even write the job description.
Here are a few assumptions that I am making before you read too much further. The first assumption, you have incorporated (see https://www.wdfi.org/apps/CorpFormation/) and have been operating your business as an independent contractor for some time so you have already obtained your Federal Employer Identification Number (EIN). The second, you already have in place a record/bookkeeping system for withholding taxes. The third, you are located in the state of Wisconsin. (The second post of this series will cover what is needed when hiring remote employees located outside of Wisconsin.)
Before you hire your employee:
- Obtain your state income tax number — State of Wisconsin: Department of Revenue (DOR) and if you need it the Business — new registration
- Obtain your state unemployment insurance number — State of Wisconsin: Department of Workforce Development (DWD) and if you need more details the Business Resources
- Add worker’s compensation coverage to your business liability insurance coverage (make sure you understand the difference between an employee and independent contractor, you maybe surprised.) Independent contractor test for worker’s compensation
Once you have hired your employee, you might want to create a new employee on-boarding checklist. A great tool for that is Manifestly and below are few things to include:
- Have your employee complete the necessary new hire paperwork:
- Form I-9 (https://www.uscis.gov/i-9) which verifies the employee is legally able to work in the U.S.
- Wisconsin State Income Tax Withholding Form (https://www.revenue.wi.gov/DORForms/w-204f.pdf), which tells you how much to deduct from their wages for state taxes
- Federal Income Tax Withholding Form exemption form (https://www.irs.gov/pub/irs-pdf/fw4.pdf), which tells you how much to deduct from their wages for federal taxes
- File your taxes
- 940 Employer’s Annual Federal Unemployment Tax Return
- 941 Employer’s Quarterly Federal Tax Return
- 944 Employer’s Annual Federal Tax Return
- UCT-101 Wisconsin Quarterly Contribution/Wage Report
- WT-7 Employer’s Annual Reconciliations of Wisconsin Income tax Withheld from Wages
As part of our bookkeeping process, we use a payroll service (we selected ADP). This service deducts the appropriate withholdings for each employee based on the employee’s completed tax forms, and they submit the needed tax returns and payment. This is must have. Your time is better spent elsewhere.
Please don’t make the same mistakes I did when you start the process of hiring your first employee. Once you have these initial steps completed hiring your second, third and even your tenth employee will be much easier.
References:
Jane Clark with Clark & Gotzler
