Hiring Employees? Here’s What You Need to Know About Compliance
Bringing on your first employees is an exciting milestone for any small business, but it also comes with legal responsibilities that many business owners overlook. Failing to comply with federal, state, or local employment laws can result in fines, penalties, and potential lawsuits—all of which can be avoided with the right preparation.
To help you navigate the complexities of hiring, we’ve created a legal compliance checklist that ensures your hiring process meets all necessary regulations and best practices.
Step 1: Verify Your Business is Legally Ready to Hire
Before you extend a job offer, make sure your business is set up correctly to legally employ workers and avoid costly compliance issues.
✔️ Obtain an Employer Identification Number (EIN) – This IRS-issued number is required for tax reporting, payroll setup, and hiring employees.
✔️ Register for State & Local Payroll Taxes – Many states require businesses to register for state unemployment insurance (SUI) and disability insurance (SDI) to cover workers' benefits.
✔️ Secure Workers’ Compensation Insurance – Most states require businesses to carry workers' comp, even for just one employee, to protect against workplace injuries and liabilities.
✔️ Understand Wage & Hour Laws – Employers must comply with minimum wage, overtime, and classification laws under the Fair Labor Standards Act (FLSA) to avoid wage disputes.
✔️ Determine At-Will Employment vs. Contracts – Many states follow at-will employment laws, but some positions require written employment agreements for clarity and protection.
Step 2: Follow a Fair & Legal Hiring Process
Avoid discrimination and ensure compliance with equal employment opportunity (EEO) laws when recruiting and selecting candidates.
✔️ Use Non-Discriminatory Job Postings – Job descriptions should focus on skills and qualifications, avoiding biased language that could exclude candidates based on age, gender, race, or disability.
✔️ Comply with the EEOC (Equal Employment Opportunity Commission) Guidelines – All applicants must be evaluated fairly and consistently, with no questions about age, marital status, religion, or disabilities.
✔️ Check Federal & State Background Check Laws – Some states limit the use of credit history or criminal background checks in hiring decisions to prevent unfair bias.
✔️ Understand Limitations Around Credit Checks – Credit checks are restricted or prohibited for most roles in several states. If used, employers must follow the Fair Credit Reporting Act (FCRA), obtain written consent, and provide proper notice if adverse action is taken based on the report.
✔️ Follow Ban-the-Box Laws (If Applicable) – Many states prohibit asking about criminal history on initial job applications, requiring employers to assess qualifications first.
✔️ Ensure Consistency in Interviewing & Selection – A structured process reduces bias, protects against discrimination claims, and improves hiring accuracy.
Step 3: Complete Legally Required New Hire Paperwork
The first day of employment comes with a legal obligation to collect and maintain required documents. Missing these forms can result in fines and compliance violations.
✔️ W-4 Form (Tax Withholding) – Employees must complete this IRS-required form so you can withhold the correct federal taxes from their paychecks.
✔️ I-9 Form (Employment Eligibility Verification) – Employers must verify the employee’s legal right to work in the U.S. and maintain I-9 records for at least three years.
✔️ State-Specific Tax Forms – Some states require additional state income tax or unemployment insurance forms for proper payroll deductions.
✔️ New Hire Reporting – Employers must report new hires to their state's workforce agency within a set time (varies by state) to track employment trends and child support compliance.
✔️ Employee Handbook or Company Policies – Providing written policies on workplace expectations, benefits, and procedures ensures clarity and reduces legal disputes.
Step 4: Establish an Organized Personnel File System
Maintaining accurate and secure employee records is critical for legal protection, audits, and compliance with labor laws.
✔️ Maintain a Secure Employee File – Keep offer letters, performance evaluations, and signed agreements in one place for future reference.
✔️ Separate Medical & Confidential Records – Store medical records (ADA, FMLA, workers’ comp) in a separate, secure location to comply with privacy laws.
✔️ Follow Record Retention Guidelines – Keep employee records for 3-7 years after termination, depending on state and federal requirements, to avoid legal risks.
Step 5: Provide a Legally Compliant Onboarding Experience
A structured onboarding process ensures employees understand their rights, responsibilities, and workplace policies from day one.
✔️ Train on Workplace Safety & Harassment Prevention – Some states mandate harassment prevention training, especially for businesses in California, New York, and Illinois.
✔️ Distribute Required Labor Law Notices – Employers must provide federal and state labor law postings regarding wage laws, workplace safety, and employee rights.
✔️ Set Up Payroll & Benefits – Ensure employees are properly classified (W-2 vs. 1099) and paid in compliance with state wage laws. Employers must also withhold required federal, state, and local taxes from employee paychecks, which may include income tax, state disability insurance, paid family leave, or local city-specific payroll taxes. Staying up to date on jurisdiction-specific requirements is key to avoiding penalties.
✔️ Document Job Expectations & Performance Standards – Clearly define job duties, performance metrics, and disciplinary policies to prevent future misunderstandings.
🚀 Need Help Ensuring Compliance? We’ve Got You Covered.
Hiring employees comes with complex legal responsibilities, but you don’t have to navigate them alone. Our HR Launch service provides everything you need for a compliant, structured, and stress-free hiring process.
HR Launch Includes:
✔️ A customized recruiting strategy to simplify hiring.
✔️ Legally compliant new hire paperwork tailored to your business.
✔️ A personnel file system to organize employee records properly.
✔️ A step-by-step onboarding checklist to ensure smooth transitions.
✔️ Hands-on HR training in mozzo so you can manage HR with confidence.
📞 888.622.4402 | ✉️ info@archbright.com