Finding Solutions for Growing Businesses

EMPLOYEES

The decision of whether or not to hire employees can be a difficult one. There are a number of critical questions you must answer in making this decision, such as:
  • Do you have the skills necessary for the operation of your business or do you need to hire someone with those skills?
  • If you need to hire someone with necessary skills, should the individual be an employee of your business or should he or she be an outside contractor?
  • If you hire employees, do you have the necessary management procedures in place to ensure that hiring and managing your employees conforms to all necessary government regulations?
  • Do the expenditures related to hiring employees (salary or wages, benefits, federal taxes, and so on) make sense given the projected financial situation of your business?
    Examining these questions and others before you hire employees can help you avoid many potential problems. You also need to understand your legal obligations as an employer. The most important of these obligations are discussed below:

    UNEMPLOYMENT INSURANCE

    Unemployment insurance protects workers who lose their jobs through no fault of their own. The funds used to pay workers who are covered under this type of insurance are accumulated from taxes on the wages of employees during their employment. Both state and federal unemployment taxes are paid by employers. No deductions can be made from an employee's wages to cover these taxes.
    The "Business Guide to Understanding Unemployment Insurance" provides a good, easy-to-understand overview of Michigan's unemployment system. To obtain a copy, of this publication, or to obtain registration forms, contact:
    Michigan Employment Security Commission
    7310 Woodward Avenue
    Detroit, MI 48222
    (313) 876-5146 or (800) 638-3994
    Federal Unemployment Insurance (FUTA) is collected by the IRS. When you file your application for a Federal Employer Identification Number (FEIN) with the IRS and indicate you have employees, the IRS will send you a packet of forms.

    INCOME TAX WITHHOLDING

    Any employer with one or more employers must withhold federal and state income taxes from wages paid to the employees. A city income tax may also apply.
    There are various requirements for documentation concerning withholding. There are also various requirements regarding how and when withholding is remitted to the federal, state and local governments. For information contact:
    Internal Revenue Service (800) 829-1040 or
    Michigan Department of the Treasury (517) 373-3190
    Contact your city treasurer for information concerning any local income taxes.

    SOCIAL SECURITY TAXES

    In addition to federal incomes taxes, federal law also requires that employers withhold social security taxes from employee's wages. As an employer, you contribute a matching amount. For more information, contact:
    Internal Revenue Service (800)829-1040

    WORKER'S COMPENSATION INSURANCE

    All employers that regularly employ three or more part-time employees at one time, or employed one or more persons for at least 35 hours per week for at least 13 weeks during the preceding 52 weeks, are required to have workman's compensation insurance. The majority of employers in Michigan obtain workers' compensation coverage through policies purchased from commercial insurance companies. Premium rates may vary widely, so it may pay to shop carefully.
    The Michigan Department of Commerce provides "The Business Guide to Understanding Workers' Compensation Insurance", which may be obtained by calling (517)373-1717.

    ALIEN EMPLOYEES

    The Immigration Reform and Control Act of 1986 not only makes or recruiting "unauthorized aliens" illegal, but it also places the responsibility for enforcing the law on the employer. The law applied to all employers, no matter what their size. Under the law, you are required to check the citizenship status of every employee and to have proper documentation for those employees with temporary residency.
    Contact the Immigration and Naturalization Service at (313) 259-8560 for more information and the required forms.

    EMPLOYEES vs. CONTRACT WORKERS

    Individuals may provide services to your business as either employees or as contractors. Which status an individual has affects your taxes, liability, benefits costs and many other areas of your business. The question of employee vs. contractor is therefore critical, but it is not simple. There are many different tests the IRS may apply to determine whether an individual is an employee or contractor. Improperly classifying someone whom the IRS considers an employee as a contractor can result in very stiff penalties. If you wish to consider using contractors instead of employees in your business, it is important that you consult with a competent tax advisor prior to making a decision.
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