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Small Business Smarts: What Every New Business Needs to Know About Compliance

Part of a series  |  Small Business Smarts

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Navigating the hiring process as a small business owner involves understanding compliance, employee classification, and tax requirements to avoid costly mistakes. In this episode of Small Business Smarts, Victoria Jordan, founder and executive creative director of Pureworks, LLC., discusses how staying organized and partnering with experts can help retain a focus on growing your business while ensuring a smooth onboarding experience for your first employee.

As small business owners embark on the journey of hiring their first employee, many encounter a common challenge: knowing the right questions to ask. Onboarding the first employee is not just a significant milestone; it also demands a clear understanding of compliance and its implications for your business.

Understanding compliance

The word "compliance" can often seem intimidating, especially for those new to hiring. However, understanding the basics is crucial. Compliance involves adhering to various legal and regulatory requirements when bringing an employee into your organization. Knowing these essentials can help you avoid costly mistakes down the line.

Key considerations when hiring

1. Employee classification

One of the first decisions to make is how to classify your new hire. Are they a traditional W-2 employee or a contractor? Misclassifying an employee can lead to complex issues and financial penalties, so it's important to understand the distinctions and implications of each classification.

2. Tax requirements

As a business owner, you will have specific tax requirements to fulfill. This includes both filing and depositing taxes. Certain obligations are non-negotiable, so staying informed about these requirements is essential to ensure compliance and avoid penalties.

3. General considerations

Beyond payroll, there are additional factors to consider once you bring on your first employee. For instance, obtaining the right insurance and determining what benefits your employee will receive, such as retirement options (like a 401(k)), are critical steps. Even if you have just one employee, offering benefits can enhance your workplace culture and attract talent.

The importance of organization

As you navigate the hiring process, maintaining organized records is paramount. Keeping thorough documentation regarding employee classification, tax filings, and benefits offered will not only help you manage responsibilities but will also serve as a safeguard during any potential audits or compliance reviews.

Staying informed

Laws and regulations governing employment can change, so it's vital to stay up to date on any developments that may affect your business. This vigilance ensures that you are always prepared and compliant with current standards.

Partnering for success

Another important piece of the puzzle is finding the right partners and resources. Consider collaborating with payroll and HR professionals to help you navigate the compliance landscape. This support will allow you to focus on what you do best—running and growing your business—while also sharing or shifting compliance responsibilities.

Conclusion

Hiring your first employee is an exciting yet challenging journey for small business owners. Understanding compliance, keeping organized records, and knowing the right partners can make this process smoother. By addressing these aspects, small business owners can make informed decisions as they onboard their first employee, setting the stage for growth and success. Remember, compliance isn't just a box to check; it is vital for the health and sustainability of your business.

Download Plan, Launch, Thrive: The Small Business Owner's Toolkit today.

Video transcript of "What every new business needs to know about compliance"

Vicki: The challenge that I see most small business owners have is that they simply don't know what questions to ask as they get ready to onboard that first employee into their organization. This is exactly why I reached out to you. When you reach the point in your entrepreneurial journey where you're ready to hire, one of the things you need to keep in mind is compliance. Don't let the word intimidate you. There are experts who can help. I'm going to reach out to Erron Stark at ADP.

Vicki: Hey, Erron.

Erron: Hey, Vicki. How are you doing?

Vicki: I'm great. I've been thinking about hiring. I'm kind of almost at that point, but payroll compliance feels like a language that I am not fluent in. Where do I even start?

Erron: So, you're ready to hire that first worker, and you've now got to classify them. Are they a traditional W-2 employee or are they a contractor? Based on how you decide to classify them, if done incorrectly, can actually have implications for your business. That could be costly penalties down the road.

Vicki: Yeah, I don't want that.

Erron: Yeah, I don't blame you. There are going to be certain tax requirements both for filing and depositing those taxes that are simply just non-negotiables. However, there are other factors that a lot of people, even when you just have one employee, don't consider. And those could be around: I hire that first employee, and there might be certain considerations or requirements for things such as insurance or what type of benefits that I need to offer them, like a retirement plan, such as a 401(k), even if you're as small as just having that first one employee that you brought into your organization. It's a lot more than just running payroll. It's about following the rules around how I pay.

Vicki: 100% the challenges, what questions that you may not know to ask. Right. Which is exactly why I reached out to you.

Erron: It seems like what you've said so far is the key is really classifying people correctly, paying taxes accurately, keeping really organized records, and staying on top of any changing laws.

Vicki: I think you said it perfectly. The only piece that I would add is if you can find the right partners and the right resources, you might be able to share some of those responsibilities or shift them completely.

Erron: So that way you can go out there and focus on what you do best, which is running and growing your business.

Vicki: Thanks so much, Erron. This is so helpful. Compliance isn't just a box to check. It's what keeps my business healthy. Ease your mind and visit adp.com/smallbusiness to learn more about staying compliant from day one.