Checklist for Hiring an Employee
There are many different tasks to be performed and a wide variety of state and federal paperwork to file when you hire an employee. Here we guide you through the steps you ll need to take.
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1) Determine whether the worker is an employee
A worker generally is considered an “employee” if the person who obtains the worker’s services has the legal right to control the manner and means of performing the work. A worker may be considered an employee for certain purposes, such as payment of FICA taxes – and not for other purposes, such as income tax withholding.
If a worker is an employee, the requirements apply whether the person is employed full-time or part-time. Before determining that a worker is not an employee it is advisable to consult with your attorney or with the appropriate agency – such as the Internal Revenue Service, Minnesota Department of Revenue, Minnesota Department of Employment and Economic Development, or Minnesota Department of Labor and Industry.
2) Obtain federal employer identification number
File Form SS-4, application for Employer Identification Number, with the IRS. To obtain a federal employer identification number (EIN) from the Internal Revenue Service (IRS):
3) Obtain Minnesota taxpayer identification number
You may apply for a Minnesota Tax ID number online with the Minnesota Department of Revenue online at Business Registration, by phone at 651-282-5225 or 800-657-3605, or by filing a paper form - Application for Business Registration (ABR).
To apply online, you’ll need your federal employer ID number (EIN), if applicable; business name or if applicable, Certificate of Assumed Name; business owner's Social Security Number; contact phone number and email address; the North American Industry Classification Code (NAICS); and business begin date.
4) Obtain Minnesota workers' compensation insurance
Coverage is obtained through the employer‘s insurance company.
5) Obtain Minnesota unemployment insurance employer account number
Register online at Minnesota Unemployment Insurance (UI) Program, Employers and Agents or by telephone at 651-296-6141, option 4. Registration must be filed within 10 days after first wages are paid or if you have acquired, purchased, leased or assumed any part of an existing Minnesota business.
6) Verify compliance with immigration law
See Complete and Correct The Form I-9. Forms, online registration and more information is available at E-Verify.
Form I-9 is not filed with any government agency, but is subject to audit and inspection by the U.S. Departments of Homeland Security and the U.S. Department of Labor. Form I-9 must be retained by the employer for three years following the date of hire or one year after the individual’s employment is terminated, whichever is later. The forms are open to inspection by the U.S. Departments of Homeland Security and Labor and Industry. Generally, a new Form I-9 must be completed each time an individual is hired within three business days of the employee’s first day of work. Details are available at U.S. Citizenship and Immigration Services (USCIS), I-9 Central.
7) Obtain employee withholding information
Federal Form W-4, Employee‘s Withholding Allowance Certificate, is used to determine the amount of federal income tax withholding and in most cases, the Minnesota income tax withholding. Minnesota form, W-4MN, should be completed in addition to federal form W-4 in some situations. Employers are required to keep copies of completed federal Forms, W-4 or state Form W-4MN for their employees in their files. The forms serve as verification that federal and state income taxes are being withheld according to the employee’s instructions and needs to be available for inspection if the IRS or the state request it. You must send copies of Form W-4MN to the Minnesota Department of Revenue if the employee:
- Claims more than 10 Minnesota withholding allowances
- Claims to be exempt from Minnesota withholding and you reasonably expect to the employee’s wages to exceed $200 per week (Exception: if the employee is a resident of a reciprocity state and has completed Form MWR)
The Forms W-4 and W-4MN generally are valid until the employee provides new ones. However, employees who claim exemption from withholding must renew the exemption annually by filing new Forms W-4 or W-4MN by February 15 each year.
8) New hire reporting
All employers to report all newly hired, re-hired and returning to work employees to the Minnesota Department of Human Services within 20 days of the date they are hired, rehired, or return to work. Employers who submit reports electronically must do so in two monthly transmissions not more than 16 days apart.
File online at Minnesota New Hire Reporting Employer Registration. File by mail at Minnesota New Hire Reporting Center, P.O. Box 64212, St. Paul, MN 55164-0212. Fax reports to 800-692-4473.
Employers are required to ask all new employees whether they have court-ordered medical support or dependent insurance obligations that must be withheld from income, and the terms of any court order. If amounts for medical support must be withheld, the employer must do the appropriate withholding. If the employee is required to obtain dependent insurance the employer must tell the employee about the application process and enroll the employee and the dependents in the plan. Employers are required to make such withholdings within a specific time period, and there are limits on the percentage of wages that can be withheld.
9) Withhold federal income tax and FICA tax and withhold Minnesota income taxes
No specific form is required. These are accounting entries on the employer’s books. The amounts also must be listed on the employee's pay statement. The taxes are paid through periodic deposits and quarterly tax returns. Withholding must be done each time wages are paid.
Tables showing amounts to be withheld are provided by the Internal Revenue Service (see Publication 15 (Circular E) Employer’s Tax Guide) and the Minnesota Department of Revenue (see Minnesota Income Tax Withholding Instruction Booklet and Tax Tables).
10) Account for employer’s share of payroll taxes
Payroll taxes include the employer‘s share of the FICA (Social Security and Medicare) tax, federal unemployment tax (FUTA) and Minnesota unemployment tax. These are accounting entries made on the employer‘s books each time wages are paid. The taxes are paid through deposits or with quarterly or annual tax returns. These taxes must be deposited in a bank as specified by, or paid directly to, the Internal Revenue Service and the Minnesota Department of Employment and Economic Development. Electronic filing may be required. The accounting entries are made each time wages are paid.
11) Deposit withheld federal income tax and employer’s and employees’ share of FICA tax and deposit federal unemployment (FUTA) tax
With few exceptions, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS) for all federal tax deposits. For federal income tax and FICA tax, the accumulated liability usually must be deposited monthly or semiweekly (or by the next day if the liability is $100,000 or more). FUTA tax deposits are made quarterly (by the end of the month following the end of the quarter), unless the amount of FUTA tax owed but not deposited is $500 or less. If the tax is $500 or less at the end of the quarter, no deposit is required. The tax is added to the tax for the next quarter.
Go to EFTPS for information or call the U.S. Treasury Department customer service at 800-555-4477.
12) Deposit withheld Minnesota income tax
Employers can make Minnesota tax deposits electronically using the Minnesota Department of Revenue e-Services; by telephone at 800-570-3329; or by creating and mailing payment voucher. Some employers are required to pay electronically. Employers must deposit Minnesota withholding tax following a semiweekly or monthly schedule. For deposit schedule information, see the Minnesota Income Tax Withholding Instruction Booklet and Tax Tables.
13) File federal quarterly withholding return (quarterly) or employment taxes (annually)
For quarterly filers: file IRS Form 941, Employer‘s Quarterly Federal Tax Return. Refer to the IRS Service Center designated on the form for where to file.
For yearly filers: file IRS Form 944, Employer’s Annual Federal Tax Return (optional) or Form 941. More information about Form 944 is available at Certain Taxpayers May Now File Their Employment Taxes Annually.
14) File Minnesota quarterly withholding return
Returns must be filed online through the Minnesota Department of Revenue e-Services, or by phone at 800-570-3329. A quarterly return must be filed even if the employer paid no wages subject to withholding, had no employees during the quarter or had not withheld tax.
15) File Minnesota unemployment insurance wage detail
All wage detail reports must be filed online with the MN Unemployment Insurance (UI) program, see Wages & Taxes. A quarterly wage detail report must be filed even if the employer paid no wages or had no employees during the quarter.
16) File federal unemployment tax (FUTA) return
IRS Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return must be filed annually, by January 31 of each year.
17) Provide Form W-2 to employee and others
Provide three copies to employees, one copy to the Social Security Administration and one copy to the Minnesota Department of Revenue. Employers keep one copy.
Employers must complete Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee. A copy of this form must be given to the employee by January 31st after the end of the year. If the employee stops working for the employer and requests the W-2 before the January 31 deadline, it must be provided within 30 days following the request. Employers must also send a copy of the W-2 to the Social Security Administration (SSA) by February 28 each year. Employers can prepare and file up to 20 W-2s at a time on the Social Security Administration’s Employer W-2 Filing Instructions & Information.
18) File Minnesota annual withholding return (approved annual filers only)
Employers file an Annual Withholding Tax Return with the Minnesota Department of Revenue. Returns must be filed online through e-Services, or by phone at 800-570-3329.
19) Information returns, pensions and other payments
Employers who make payments to consultants, independent contractors, and others who are exempt from withholding may be required to provide a federal Form 1099-MISC to those individuals, and file the form with the Internal Revenue Service. Employers who pay pensions are required to issue Form 1099-MISC to the recipients. The Internal Revenue Service and the Minnesota Department of Revenue have established special rules applicable to these situation.
Our Guide to Starting a Business in Minnesota covers this in the section Checklist for Hiring an Employee and An Employer's Guide to Employment Law Issues in Minnesota provide a deeper look at this and other issues that commonly arise in the workplace.
Consultants at our Small Business Assistance Office can help you understand more about all the factors you'll need to consider before you hire employees. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.