ContractsCounsel Logo

Hiring Employees Explained

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,608 reviews
Home Blog Hiring Employees Explained

Jump to Section

Need help with an Employment Contract?

Create a free project posting

Hiring employees is essential to company growth at every stage. However, the many legal requirements surrounding the hiring process can result in penalties and affect your bottom line.

This post covers what it means to hire employees, legal requirements, and a helpful checklist to help you start on the right foot.

What Does Hiring Employees Mean?

Hiring employees means scouting, interviewing, screening, and employing company staff members. The hiring process also includes obtaining an employer identification number (EIN) for tax and legal purposes from the Internal Revenue Service (IRS). A successful outcome results in the selected candidates signing an employment contract .

Here is an article where the IRS discusses what it means to hire employees.

Legal Requirements for Hiring Employees

Small-business owners need to navigate several legal regulations when hiring employees. These requirements include proper classification, work authorization confirmation, and taking tax deductions. Missing a single legal requirement can result in consequences, such as fines and penalties.

Here are the eight legal requirements that employers should know at a minimum:

Requirement 1. Employer Identification Number

Start by applying for an EIN from the IRS first. You need one for IRS tax and data-reporting purposes. Contact them by phone to apply for an EIN or complete their online application process, completely free of charge, regardless of how you apply.

Requirement 2. Proper Job Classification

Decide if an employee or independent contractor holds the role. Employers have the legal right to control how employees execute their work performance. Independent contractors are self-employed, while employees perform services under the employer’s control.

Requirement 3. Work Eligibility Verification

It would be best to verify employee work eligibility legally by having them complete an I-9 from the U.S. Citizenship and Immigration Services (USCIS) website . Complete the form and authenticate the documentation to confirm work eligibility. Ensure that you keep this documentation fine for at least three years or longer.

Requirement 4. W-4 Form Completion

Give your new hire IRS Form W-4 to complete for federal income tax withholding purposes. It’s impossible to know the amount of federal tax to withhold from the employee’s paychecks without one since they need to specify what they’re claiming.

Requirement 5. Taxes

Contact local and federal revenue agencies for applicable come tax withholding guidelines. Some states don’t require employees to withhold state income tax, while others do. Further, local agencies may ask you to register for a state employer identification number in addition to the federal EIN.

Requirement 6. New Hire Reporting

You should also register with applicable new-hire reporting programs in your state since many require you to report new promptly and rehired employees. The program helps state agencies locate individuals who owe maintenance and withholding payments. Federal laws require you to submit the employer and employee names, location, EIN, employee Social Security number (SSN) and hire date.

Requirement 7. Workers’ Compensation Insurance

Get a workers’ compensation insurance policy according to your state’s requirements. Companies might be able to obtain insurance through a state program, through self-insurance, or via a commercial insurance carrier.

Requirement 8. Review Federal and State Labor Laws

Contact the Wage and Hour Division about federal wages, tips, breaks, and overtime regulations. They can also provide you with the required posters as well that you must legally display in conspicuous worksite areas that address employment rights.

Please consult with your local state labor department to meet their requirements. They may adhere to some federal labor laws or have different minimum wages, breaks rules, and overtime laws, of which they can let you know.

This web page also discusses requirements for hiring employees.

Meet some lawyers on our platform

Gregory B.

138 projects on CC
View Profile

Janice K.

1 project on CC
View Profile

Ryenne S.

439 projects on CC
View Profile

Connie C.

8 projects on CC
View Profile

Checklist for Legally Hiring Employees

There are several legal requirements for hiring employees, making it challenging to keep track of the process. Below, we’ve outlined a seven-step checklist for legally hiring employees so that you have a starting framework:

Step 1. Establish a Recruitment Policy

As an employer, you are responsible for adhering to anti-discrimination laws when interviewing and recruiting new employees. You must exercise caution in your language use and avoid specific phrases that could be construed as discriminatory. Instead, questions should focus on the applicant’s ability to perform the job’s duties successfully.

Step 2. Conduct Background Checks

If you intend to conduct a thorough background check on applicants, you must comply with all applicable laws. You must adhere to all of the Fair Credit Reporting Act’s requirements. Arrest records that are not accompanied by a conviction should be disregarded during the hiring process, as there is no evidence of guilt. Before conducting a background check, applicants should sign a written consent form.

Step 3. Meet Your Tax Obligations

Ensure that you are adequately equipped to collect and remit employee taxes. If your business is new, you can begin the process by requesting an employer identification number via IRS form SS-4. Additionally, you must register with your state’s tax and labor department’s where applicable.

Step 4. Avoid Immigration Law Violations

You are responsible for meeting all immigration requirements at the state, local, and federal levels. Verify identification and all pertinent documents to ensure that you hire only individuals legally permitted to work via an I-9 Form that’s completed within three days. You must keep these signed forms on file for at least three years.

Step 5. Get Workers’ Compensation Insurance

Many states require employers to carry a workers’ compensation insurance policy for all employees. Certain states require this regardless of the number of employees. Other states require you to have this insurance in place if you have a certain number of employees under your control.

Step 6. Draft an Employee Handbook

Your employment handbook should cover all pertinent company policies, including anti-discrimination, anti-harassment, and company code of ethics . You can also address attendance and conduct standards as well as possible disciplinary actions if they go unmet.

Step 7. Address Workplace Safety

New employees should receive any necessary training. This training should include training on workplace safety and a review of all applicable federal, state, and local safety and health laws.

Step 8. Draft Employment Agreements

Employment agreements ensure that both parties understand expectations, duties, and obligations. Incorporate the following provisions into an employment contract if you want to protect your legal rights:

  • Confidentiality agreement
  • Compensation & benefits
  • Severability clauses
  • Probation provisions
  • Start date
  • Position offered
  • Termination provisions

Your contracts may require special provisions. Work with employment lawyers throughout the employment letter agreement process.

Employee vs. Independent Contractor

Independent workers are legally classified as self-employed or independent 1099 contractors , whereas employees perform traditional employment functions under a W-2. Employees generally work under an at-will relationship, and contractors must meet the terms and conditions according to their agreement.

When noting the differences between independent contractor vs. employee , here are three easy questions you can ask yourself to help you decide:

  • Question 1 . Does the employee work free from managerial control?
  • Question 2 . Does work take place off-site?
  • Question 3 . Can the employee offer services to other companies?

If you answered “Yes,” to all three questions, you should classify the employee or role as independent contractor work. Ensure that you update your employment letter agreements and other types of employment contracts as well. Employment lawyers will help you navigate the legal complexities of hiring either role.

Post a project in ContractsCounsel’s marketplace to get free bids from lawyers to review and compare. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

Need help with an
Employment Contract?

Create a free project posting

Meet some of our Lawyers

Erdal T. on ContractsCounsel
View Erdal
5.0 (2)
Member Since:
September 15, 2022

Erdal T.

Owner, CEO and Managing Attorney
Free Consultation
New Jersey
17 Yrs Experience
Licensed in NJ, NY
New York Law School

Erdal Turnacioglu of Erdal Employment Law focuses on providing employment solutions to both employees and businesses, whether through litigation, review of employee handbooks, workplace investigations, or training seminars.

Rachel C. on ContractsCounsel
View Rachel
4.9 (3)
Member Since:
August 1, 2023

Rachel C.

Contract Attorney
Free Consultation
St. Louis, MO
3 Yrs Experience
Licensed in MO
St. Louis University

Contract attorney who enjoys empowering individuals and businesses with contracts that stand as a fortress against potential disputes and uncertainties. Find peace of mind with prepared agreements ensure that your agreements are enforceable and aligned with your long-term objectives.

Fabian G. on ContractsCounsel
View Fabian
4.5 (2)
Member Since:
May 9, 2023

Fabian G.

Managing Attorney at Apex Legal Solutions PLLC
Free Consultation
Miami, Florida
2 Yrs Experience
Licensed in FL
University of Miami School of Law

Fabian graduated with honors from the University of Miami School of law, where he served as the articles and comments editor for the law school's Race and Social Justice Law Review. He received the John F. Evans Memorial Scholarship Award for excellence in the university's Litigation Skills Program and the HOPE Pro Bono award for completing more than one hundred (100) pro bono hours. Additionally, he received the CALI Excellence for the future award in Sports Law. He focuses his practice on corporate, real estate and immigration matters. Fabian has experience representing luxury hotel owners and operators in connection with the drafting of hotel management agreements, restaurant license agreements, and complex restaurant leases for domestic and international projects including: Nobu Tulum, Nobu Punta Cana, Nobu Orlando, Nobu Chicago and the Nickelodeon Hotel in Riviera Maya, Mexico, among others. He has represented clients in the commercial real estate industry in connection with the drafting of purchase and sale agreements, promissory notes, and mortgages. Lastly, Fabian routinely counsels corporate clients in connection with the drafting of articles of organization, operating agreements, and other documents related to acquisitions, restructurings and investments.

Andre T. on ContractsCounsel
View Andre
Member Since:
September 6, 2023

Andre T.

Free Consultation
30 Yrs Experience
Licensed in IL, MO
University of Missouri - Columbia

Commercial Litigation attorney providing advice and counsel to management regarding employment related matters and risk management issues

Christopher L. on ContractsCounsel
View Christopher
Member Since:
September 6, 2023

Christopher L.

Business Lawyer
Free Consultation
Minneapolis, MN, United States
12 Yrs Experience
Licensed in MN
New England School of Law

I have worked in banking, financial technology and technology as a legal and compliance executive who negotiates and drafts contracts, ensures products and services comply with applicable regulations, implements policies and procedures, oversees litigation, and manages corporate governance programs.

Kim G. on ContractsCounsel
View Kim
Member Since:
September 6, 2023

Kim G.

Business Lawyer
Free Consultation
26 Yrs Experience
Licensed in FL
Florida State University College of Law

Attorney and mediator with extensive experience in negotiating, drafting, and managing contracts in the private, public, and nonprofit sectors.

Michael C. on ContractsCounsel
View Michael
Member Since:
September 6, 2023

Michael C.

self employed
Free Consultation
Sacramento area
42 Yrs Experience
Licensed in CA
Lincoln School of Law

40+ years handling litigation matters for employers and employees, defense and prosecution of personal injury matters, CalOsha defense, prepare employment contracts, non-compete clauses, established drug policies and franchise agreements. represented banks in commercial litigation , asset retrieval matters. conducted audits of insurance company claims on behalf of employers, defended contractors in toxic tort cases, handled appeals to the insurance commissioner on workers compensation rate classification matters

Find the best lawyer for your project

Browse Lawyers Now
Learn About Contracts
See More Contracts
other helpful articles

Need help with an Employment Contract?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city