How does it work when I hire an employee?
What do I need to know about hiring employees?
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Listen to the audio
- To listen to this interview snippet, just click the play button above (twice if necessary).
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In this audio snippet, you'll hear about:
- State and federal and taxation employment issues
- Employee must adhere to state requirements
- Can go onto department of labor web site and get all the facts of what they have to do
- Federal – employer must withhold certain taxes
- 20 factors before you can identity someone as an independent contractor and not an employee – on IRS web site
- If you make the wrong decision, IRS can hold you liable for all the taxes that you should have paid but did not
- Must make withholding payments on a timely manner
Audio Transcript
Travis:
How does it work –– and being an attorney and also
a CPA, you'll have in depth knowledge of this –– how does it work if I
hire an employee, if I'm the sole, let's say, single member LLC that
wants to hire their first employee, what do I need to know?
Yosef:
There are going to be a number of issues. You are going to have state
employment issues and also going to have federal employment and as well
as federal taxation issues. On the state side there are certain states
that basically allow any employer to hire any employee at will. And
that pretty much allows the employer to delegate to the employee
whatever the employer wants the employee to do, and the employer has
the power to hire and fire the employee as he pleases.
That
being said, states also have very strict guidelines regarding when
there is an employee termination one has to make sure that the employee
would not terminated for the wrong reasons. That's with issues of
sexual harassments, racial discrimination and other issues that tie in.
On
the face, typically, an employer just has to make sure they are
actually adhering to state requirements which would require the
employer pay the employee hourly, overtime –– I mean, again, depending
on the class of the employee, other requirements. The advantage today,
by the way, that every employer can easily go onto every state's
Department of Labor website and get a very quick gist as to what they
have to do. And most employers, by the way, intuitively already know.
You have to treat your employees fairly; they are not your slaves.
Travis:
Right.
Yosef:
Not indentured servants.
Travis:
Not if they're my employee. [laughs]
Yosef:
What?
Travis:
Not if they're my employee. [laughs]
Yosef:
But on a federal side, an employer has the obligation to withhold from
the employees paycheck, certain taxes and that implies to both the
federal and state governments. Federal withholding tax, they were
holding tax, there is also an unemployment tax, disability taxes and
employments, generally on the federal side as well as on the state
side. There is a social security taxes, you know, that every employer
has to pay 7.65% between Medicare and Social Security tax from out of
his pocket. 7.65% additionally gets withheld from the employee's
paycheck, and that's really important that employers keep that in mind
and make sure that they do this.
Now
I will tell you, based on experience, that a lot of employers who are
starting off initially say, 'Oh what's the big deal? I'm just going to
call all of my employees independent contractors,'' and give them
1099s.
Travis:
Right.
Yosef:
I think the IRS has over 20 different factors you have to consider
before classifying someone as an independent contractor or as an
employee, and I highly advise anyone who's considering hiring an
employee to look at them with those factors, and they're on the IRS
website. Because what'll happen is if you incorrectly consider someone
an independent contractor when they're really an employee, the IRS will
hold you liable for all of the taxes that you should have withheld but
did not.
One
point further, and that is that in the event that you are an employer
and you withhold taxes from your employee –– you're withholding both
security taxes as well as federal and state taxes.
It's
really important that whatever money is withheld in that paycheck gets
paid over to the government. It highly matters, you know, if you're a
quarterly filer, or a monthly filer, or a bi–weekly filer.
The
government doesn't take it lightly when an employer neglects to pay
them their withheld tax from their employees. Because the government
looks at the employer as a guardian, or a fiduciary, of that money and
if the employer doesn't maintain or meet its obligation, the IRS has
the right to post severe sanctions on the employer.
Because
the IRS is looking at the employer as actually squandering away
somebody else's money, which is very different from the way the IRS
looks at someone who just failed to pay their income tax bill.
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