Employment Law Issues for Startups, Entrepreneurs and Growing Businesses: Part One

Entrepreneurs and startup business owners often focus their time and energy on financing the business and developing and marketing their core products or services. As their businesses grow and they hire more employees, complying with the numerous federal, state and local employment laws is not generally of primary concern as they attend to other business demands. However, non-compliance with these laws can pose substantial risks. Determining who will oversee employment and
human resources-related issues, and how to handle them, should be among the key considerations for startups.


EMPLOYMENT-RELATED FILING, REPORTING AND INSURANCE REQUIREMENTS
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When hiring their first employees, even startups must comply with numerous filing, reporting and insurance requirements. In addition to federal requirements, many states require businesses to report information about their employees. For example,
before hiring any employees, a business owner must:

• „„Obtain a federal Employer Identification Number (EIN) with the Internal Revenue Service (IRS).
• „„Require each new employee to complete and return an IRS Form W-4 designating the appropriate federal tax withholding.
• „„Retain each W-4 for at least four years.

State and local tax authorities typically require similar forms and withholding information. Additionally, most states require some form of employee registration for purposes of tracking child support obligations, state taxes, workers’ compensation and unemployment insurance. Employers should review and comply with the new hire reporting requirements in any state where the business will operate or employ workers.

IMMIGRATION ISSUES AND FORM I-9 COMPLIANCE

The federal Immigration Reform and Control Act of 1986 (IRCA) prohibits:

• „„All employers from hiring or continuing to employ workers who are not legally authorized to work in the US.
• „„Employers with four or more employees from discriminating based on:
  • national origin; or
  • citizenship.

To comply with IRCA, all employers must:

• „„Have each new employee complete Section 1 of Form I-9, an employment eligibility verification form, by the first day of work.
• „„Review original documents presented by the employee to establish identity and employment authorization.
• „„Complete Section 2 of Form I-9, generally within three days of hire.
• „„Retain Form I-9 on file for each current employee for the longer of:
  • three years from the date of hire; or
  • one year after the employment ends.
• „„Make all Form I-9s available for inspection by the US government in the event of a request.
• „„Determine whether the business:
  • operates in a state or an industry which requires the use of the E-Verify system; or
  • should use E-Verify on a voluntary basis.

Employers do not need to file Form I-9s with any federal or state government agency, but must maintain proper records.

EMPLOYMENT-RELATED INSURANCE REQUIREMENTS
In most states, businesses are required to maintain or pay into funds to support insurance to protect their workforce, including:

• „„Workers’ compensation insurance.
• „„Unemployment insurance.
• „„State disability insurance.

These insurance schemes are administered by state law, and apply in all jurisdictions where a business has employees.