Hiring your first employee as a new business owner is both an exciting and frightening experience. Not only do you have a person relying on you to pay them so they can provide for their family while balancing the cash flow needs of your business, but there is also a lot of paperwork and reporting requirements to comply with.
Here are the 8 steps a business will need to make when hiring their first employee in Virginia.
Step 1: Register as an Employer
Employers will need to first get a Federal Employer Identification Number (FEIN) – Form SS-4 from the Internal Revenue Service (IRS) in addition to the Business Registration with the Virginia Department of Taxation and the Employer Registration from the Virginia Employment Commission.
Step 2: Employee Eligibility Verification
Each new employee will need to fill out the I-9, Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services. The I-9 Form is used to confirm citizenship and eligibility to work in the U.S.
The employee must complete Section 1 by their first day of work, and the employer will complete Section 2 by the end of the third business day after the employee starts.
Employers don’t submit the I-9 Form but are required to keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.
Step 3: Employee Withholding Allowance Certificate
Each employee will provide their employer with a signed Withholding Allowance Certificate (Form W-4) on or before the date of employment. The W-4 Form determines how much federal income tax will be withheld from the employee’s paycheck.
The employer does not typically submit Form W-4 to the IRS but will keep a copy on file.
See IRS’s Publication 15 – Employer Tax Guide for more information on federal withholding.
Step 4: Submit the New Hire Reporting Form
Virginia employers are required to report newly hired employees (and re-hired employees) to the Virginia New Hire Reporting Center within 20 days of their hire or rehire date.
Effective July 1st, 2020, the Virginia New Hire Reporting Center now requires that Independent Contractors be reported as new hires. Independent contractors also need to be reported within 20 days of the start of their contract.
The New Hire Reporting form can be completed online, or by mail:
Virginia New Hire Reporting Center
PO Box 25309
Richmond VA 23260-5309
or by fax: (800) 688‐2680
Employee Information that will be needed on the new hire form includes the employee’s first and last name, address, employee’s Social Security Number, date of birth, and the employee’s start date or the first day the employee begins work.
Employer Information includes Federal Employer Identification Number, employer’s name, address, and contact phone number.
The New Hire Reporting Form is required through the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA).
This information is recorded in the National Directory of New Hires (NDNH) and is matched against state and federal child support databases to locate parents who owe child support.
Step 5: Set Up Payroll Taxes
After hiring employees, payroll taxes will need to be paid. Payroll taxes include:
Federal Income Tax Withholding
Employers withhold money from each employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The employer pays no part of the withholding tax but is responsible for collecting and remitting the withheld taxes.
Federal income tax-withheld reports are filed using Form W-2, Wage, and Tax Statement with the IRS. Additionally, IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due.
State Income Tax Withholding
Similar to federal income tax withholding, taxes are withheld from an employee’s paycheck for state income taxes. Use Form VA-4, Employee’s Withholding Exemption Certificate.
Social Security & Medicare
Social Security and Medicare taxes are paid under the Federal Insurance Contributions Act (FICA). The employer pays half of FICA, and the other half is paid from the employee’s wages.
Employers pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).
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Step 6: Obtain Workers’ Compensation Insurance
All businesses with employees (even a single part-time employee) are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job. Worker’s Compensation Insurance is administered through the Virginia Workers’ Compensation Commission.
Step 7: Display Labor Law Posters and Required Notices
Virginia businesses must display Federal and State of Virginia labor law posters where employees can easily view them. These posters inform employees of their rights and employer responsibilities under labor laws, such as federal minimum wage, anti-discrimination laws, and workers’ compensation rights.
Virginia labor law posters can be individually printed from the Virginia Employment Commission’s website.
Step 8: Stay Up To Date
It is important to understand the differences between employees and independent contractors. Employers will sometimes improperly classify employees as independent contractors who have different rules on payroll taxes, minimum wage, overtime, and other labor laws. An individual’s status as an employee or an independent contractor may be determined by filing IRS Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes, and Income Tax Withholding.
The process of hiring your first employee in Virginia can feel overwhelming and there is a lot to keep up with, but with a clear understanding of what’s required, you’re setting your business up for success. Labor laws are complex and ever-changing, so be sure to keep up-to-date with the Virginia Department of Labor & Industry and the U.S. Department of Labor, and remember to seek professional advice if needed.