Guide to Laws Related to Hiring for Your Business in the U.S.

When hiring for your business, the first step is to determine what type of workers you will use. Legally speaking, there are 2 types of workers: employees and independent contractors (aka freelancers). You will then need to know what paperwork to file, what rights your workers will have, and what intellectual property protections you will need.

The laws here vary greatly by location. If your business is in California, see our Guide for Hiring in California.

Should I hire employees or independent contractors (freelancers)?

Businesses often struggle in deciding whether to hire people as employees or independent contractors (also called freelancers or consultants). Using independent contractors instead of employees can save money on taxes and mean less paperwork, but it also means that employers don’t have as much control over the independent contractors. Many employers try to have it both ways, and classify workers as independent contractors but also treat them as employees, setting their schedule and telling them how to do their job. This is known as “misclassifying” and can involve significant penalties.

See more about the pros/cons of each status and how to determine when someone should be classified as an independent contractor or employee.

Employees

What benefits am I required to provide to my employees?

It depends on how many employees you have, and varies greatly by state and even city.

In most states, few benefits are required for employers with fewer than 5 employees.

When you get to 50 or more employees, you will be required to provide health insurance, under the federal Affordable Care Act. Under the federal Family Medical Leave Act (FMLA), you must allow employees to take up to 12 weeks off work, unpaid, for specified reasons, without fear of losing their job.

Again, your state and local government may have many additional requirements.

How do I onboard employees and set up payroll?

Setting up and administering payroll can be complicated, as you need to make sure you are paying exact compensation and payroll taxes. You will probably want to get a payroll company to assist with this. If you use a service like Gusto, it’s very manageable and not too costly.1NOTE: Law Soup Media may receive compensation from this vendor if you use any of their services. We have used every product we recommend, and we stand by them. Thank you for your support!

Onboarding

  1. You and the employee should sign an employment agreement, or simply describe the terms of employment in an offer letter
  2. The employee should fill out a W-4 (for you to complete the W-2s) and I-9 (to verify immigration status and work permit)
  3. Set up payroll for the employee
  4. Your state and city may have additional requirements, including registering with the state’s labor or employment agency
  5. Recommended: Provide the employee with an employee handbook describing your company policies

Ongoing

  1. Pay the employee through the payroll system you have set up, at the intervals you have agreed on (every 2 weeks, every month, etc)
  2. Remit (pay) payroll taxes (usually monthly or semi-weekly)
  3. File payroll tax filings (usually quarterly)
  4. You would send a W-2 the following year by Jan 31 to both the employee and the IRS.

What are other general employment laws I should know?

See our Employee rights page.

Freelancers

What benefits am I required to provide to my freelancers?

None, other than what is negotiated between you and the freelancer.

How do I onboard freelancers?

Onboarding

  1. You and the freelancer should sign an independent contractor agreement
  2. The freelancer should fill out a W-9 form (for you to complete the 1099)

Ongoing

  1. The freelancer should invoice you for the work they have done.
  2. Each year, for independent contractors who you paid at least $600 during the prior year, and who are not taxed as a corporation, you must send them a 1099 form by Jan 31 (and send it to the IRS by March 31). You generally do not withhold any taxes from them.

Further Resources

What are Payroll Taxes?

Guide to Small Business Resources

Guide to Registering Your Business

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Photo credit: Photo by Eric Prouzet on Unsplash

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