Tips for Entrepreneurs: Hiring Employees in California
Congratulations! Your business is expanding, work is pouring in and you think it’s time to hire someone to help you handle it all. When it’s time to hire your first employee, it’s important to do everything “by the book” instead of “under the table.” Here’s a quick list of some of the important considerations and requirements for hiring employees:
1. Paying the STATE taxes and registering with the California Employment Development Department (EDD). This will assign you an EDD employer account number, also called a State Employer Identification Number (SEIN). You’ll start filling out forms and filing returns that report all employees, paying state payroll taxes, and reporting total wages paid and taxes due for each quarter. Each form and tax has its own due dates and deadlines. It is the employer’s responsibility to report all wages paid to employees, and then pay all applicable taxes on the employee’s wages. Detailed info can be found here.
2. Paying the FEDERAL taxes. You will fill out paperwork and get assigned an Employer Identification Number (EIN). Similarly to the state taxes, the IRS will require you to report all employees and wages paid, and then pay taxes accordingly. You must issue W-2’s to all employees, which they will use when they report their income to the IRS. The IRS has detailed info for small business owners here.
3. Classifying your employees. People who you pay compensation to may be classified as “independent contractors” or “employees,” and employees may further be categorized as “exempt” or “non-exempt.” Each of these classifications has different tax ramifications for the employee and the employer, so it’s important to educate yourself. The classifications also correspond to different requirements for paying wages and overtime. We’ve written about misclassification here, but more detailed information can be found here.
4. Paying your employees and supervising hours worked. There are both state and federal minimum wage requirements which must be observed. Moreover, there are requirements about overtime and break periods. More details on these major federal laws can be found here.
5. Obtaining Workers’ Compensation Insurance. In California, even if you only have one employee, you are required to obtain workers’ compensation insurance. This type of coverage protects both employees and employers. If the employee gets an on-the-job injury or illness, he or she receives medical treatment and benefits and the employer receives protection from a lawsuit over those illnesses and injuries. Read more information on workers’ compensation here.
6. Considering confidentiality agreements. If your employee is granted access to any confidential material or “trade secrets,” it would be wise to have them sign a confidentiality agreement upon hiring. We’ve written extensively on this topic on the blog- be sure to check out this article on confidentiality agreements and this article on trade secrets.
For more information regarding starting your own business, please contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
Griswold Law is always posting articles about concepts and issues involved with running a business. Be sure to check out the complete list of these articles!
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