What are the payroll requirements for processing a new employee?

An employer has several responsibilities when a new employee is hired. First is to determine whether or not an employer-employee relationship exists, which results in employment tax obligations. In addition, the employer must comply with new-hire reporting requirements and with employment verification requirements under federal immigration law.

• Determine if the worker is classified by law as an employee by the IRS.
• If the worker does not fall within the statutory rules, assess the worker's status under the 20-factor right to control test.
• Determine if the worker falls within the "safe harbor" rules, which do not allow the IRS to challenge the status of workers as independent contractors.

Be sure to record the employee's name and social security number exactly as they appear on the employee's social security card.

• If the employee has neither a social security number nor a receipt indicating that an application has been received, ask for a dated and signed written statement containing the employee's name, address, gender, and date/place of birth.
• If the employee has not given you a social security number, you must request it, stating that it is required by law.
• If an employee fills out an invalid Form W-4, inform the employee that the certificate is invalid and request a new one. If the new employee refuses, you must withhold from the employee as if he or she were single, claiming no exemptions.

• You must submit the following information to the appropriate state agency with respect to each new hire: the newly hired employee's name, address and social security number, and the employer's name, address and federal EIN number.
• You may have to submit additional information based on state law.
• You may submit new-hire information via first class mail, by fax, electronically, or using magnetic media. Check with your state to determine the methods of data transmission available in that state. If sent by mail, new-hire reports must be submitted within 20 days of the date of hire. Reports submitted electronically or magnetically must be submitted twice a month, not fewer than 12 days nor more than 16 days apart.

• Instruct employees to fill out their portion of Form I-9 when they begin work.
• Check documents establishing employees' identities and eligibility to work.
• Complete the employer portion of Form I-9.
• Retain I-9 forms for at least three years or until one year after an employee leaves employment, whichever is later.