26 Mar Hiring Your First Employees
Kieran B. WheelerAttorney
Hiring the first employee is an important step in the growth of any new business. There are a number of laws that govern the employer-employee relationship, and there are certain steps that a business must take when it decides to become an employer. Our firm can assist you in structuring and documenting the relationship that your business has with its employees, but any employment agreement or similar document only determines the relationship between your business and the employee. There are a number of actions that your business will need to take in order to satisfy the reporting and compliance requirements of both the Texas and Federal governments. Some of these actions will vary based on the type of employee and the type of business, but most new employers will need to follow each step outlined in this article.
Please note that this guide is intended only for for-profit entities that are properly formed and registered to do business in the State of Texas, and is intended only for the hire of employees based in Texas. The requirements for employees in other states, or for other types of entities, may be quite different. If you have any questions about your particular business, or about the requirements that may apply to your employees, please contact us.
Finally, this article is intended to cover only the minimum legal requirements applicable to your entity. Many owners take additional steps to govern their entities or to protect their ownership interests, such as putting an operating agreement in place (e.g. Bylaws, Limited Liability Company Agreements, and/or Partnership Agreements), setting restrictions on the transferability of ownership interests of the entity (through Shareholders’ Agreements, Buy-Sell Agreements, or similar restrictive documents), or setting restrictions on the actions owners can take outside of the entity (including noncompetition, non-solicitation, confidentiality, and other restrictions). The structure and benefit of these actions are highly dependent on the specific circumstances of the entity in question. If you have any questions about, or interest in, these additional steps, please contact us.
- Decide How to Meet Workers’ Compensation Obligations
- The State of Texas does not require that employers carry workers’ compensation insurance. If an employer intends to provide workers’ compensation insurance for its employees, an insurance agent or broker should be contacted to secure an appropriate policy. Large employers may be eligible to self-insure their workers’ compensation insurance, and some employers may be eligible to join a self-insurance group. These options have specific requirements and are typically not available to new businesses.If an employer does not intend to obtain workers’ compensation insurance, it must:
- Post notices in the workplace notifying its employees that they are not covered by workers’ compensation insurance;
- Notify each new employee in writing that the employer does not carry workers’ compensation insurance; and
- Annually file a Form 005 notice with the Texas Department of Insurance’s Division of Workers’ Compensation. The Form 005 can be found HERE, and it can be filed electronically with the Texas Department of Insurance (TDI) HERE.
Additional information about workers’ compensation insurance, and the responsibilities of employers, can be found at the TDI’s website, HERE. The TDI provides model notices for employers to use, depending on whether or not the employer offers workers’ compensation insurance. These forms can be found HERE.
- Register for Unemployment Tax
Within 10 days after an employer first pays wages to its first employee, it must register for a new Unemployment Tax Account with the Texas Workforce Commission (TWC). Registration cannot be done in advance, and can only be completed after the first wages are paid.
The TWC’s online instructions and registration system for Unemployment Tax Accounts can be found HERE.
- Determine the Necessary Federal Tax Withholding
All new employees must complete IRS Form W-4. A copy of this form can be obtained from the Internal Revenue Service (IRS), HERE. For most employees, the Form W-4 should be updated annually, but updates are not required. However, any employees that claim an exemption from income tax withholding must update their Form W-4 every year. After it is completed, the employer must submit the Form W-4 to the IRS for processing.
- Notify Employees About Medical Health Plan Coverage
An employer must notify each new employee in writing that:
- The Health Insurance Marketplace (Marketplace), established under the Affordable Care Act (ACA), exists;
- Depending on the employee’s income and the health insurance coverage offered by the employer, the health insurance coverage available on the Marketplace may be less expensive than the employer’s health insurance plan; and
- If an employee purchases health insurance coverage on the Marketplace, the employee may lose the employer’s contribution (if any) to his or her health benefits.
The U.S. Department of Labor (DOL) provides model notices for employers to use, depending on whether the employer offers a health plan to some or all of its employees, or whether the employer does not offer a health plan. These form notices are available at the DOL’s website HERE.
- Verify Employees’ Eligibility to Work
Within 3 days after an employee is hired, the employer must verify the employee’s eligibility to work in the United States by completing Form I-9 from the U.S. Citizenship and Immigration Service (USCIS). A copy of Form I-9 can be found HERE.
Employers are not required to submit the completed Form I-9 to the USCIS, but many employers choose to use the online E-Verify system to quickly and electronically verify an employee’s eligibility to work. To register with or learn more about E-Verify, visit the USCIS’s website HERE.
- Register New Employees for Child Support Withholding
Within 20 days after hiring an employee, an employer must report the new hire to the Texas Attorney General’s Child Support Division (OAG-CSD). This reporting helps the OAG-CSD collect any child support that may be owed by the employees. An employer cannot satisfy its obligations by asking the employee if child support is owed, or by relying on the employee’s assurances that child support is paid. If a valid child support order is on file for an employee (whether it pre-dated the employee’s hire, or was ordered during the employee’s term of employment), the employer must withhold the appropriate portion of the employee’s wages and remit that amount to the OAG-CSD. A handbook explaining the responsibilities of employers for child support and withholding can be found HERE.
The form needed to report an employee to the OAG-CSD can be found at the OAG-CSD’s Employer Information Center, which is linked HERE. Employers can also report new hires electronically. To do so, the employer must register with and submit new hire information through the OAG-CSD’s Child Support Interactive website, located HERE.
- Display Required Labor Posters
Both the TWC and the DOL require that employers display posters in the workplace that contain the text of certain laws that protect employees’ rights. The text and content of the posters are mandated by the TWC and the DOL, and they can be obtained at no cost. The DOL and the TWC require separate posters, and an employer must display one or more posters from each agency.
The DOL provides an automated tool HERE to assist employers in selecting the correct DOL posters to display. Employers can determine which TWC posters it needs to display by visiting the TWC’s website HERE.
- Report and Pay Appropriate Employment Taxes
The IRS has created a comprehensive guide to the taxes that each employer must pay and report for its employees. These taxes and the necessary due dates can vary based on the nature of the work being done. The IRS’s guide can be found HERE. If you have any questions about you withholding and reporting obligations to the IRS, please contact us or your accountant.
- Keep Appropriate Records
Employers must keep each employee’s Form I-9 until the later of 3 years after the date the employee is hired, or 1 year after the date the employee is terminated. All records of employment taxes (such as Forms W-4, and other employment tax returns) should be kept for a minimum of four years. There are no required timelines in which employers must dispose of any records, so employers are permitted to maintain records for a longer period if so desired.
ABOUT THE AUTHOR: Kieran B. Wheeler is a Shareholder at Rapp & Krock, PC in the Business Transactions group advising clients on corporate governance matters as well as mergers and acquisitions and other business transactions.
Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.
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