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Hiring employees for your business

Key takeaways

Before hiring employees for your small business, be sure to consider costs such as Medicare and Social Security taxes, workers compensation and unemployment insurance.

The right benefits package, including health insurance, retirement savings, and employee incentive programs, can help attract and retain employees.

When you run your own business, at some point, you may want to hire employees to take on more work or supplement your existing skills. Employees represent a big cost, so make sure to define the type of work you need done to determine the type of employee you hire.

What you should consider before hiring

Once you’re clear on the job to be done, you’ll need to set up a basic payroll structure, prepare tax implications, and ensure you’re compliant with certain legal requirements, including required benefits. There’s a lot to learn and manage. Consider finding a company to help you manage your payroll or human resources so you can stay focused on the rest of your business.

Required employee benefits are:

  • Medicare and Social Security – Employers are required to withhold Medicare and Social Security taxes (sometimes referred to as FICA taxes) for their employees. They must also pay Medicare and Social Security taxes. In most cases, employers pay the same amount as the employee.
  • Workers’ compensation – As an employer, you must provide workers’ compensation insurance to cover costs associated with workplace injury. Employers can explore self-insurance, private insurance, or state-run insurance programs to provide this benefit.
  • Unemployment insurance – You must also contribute to unemployment insurance, which pays for government programs that support people who lose their jobs in certain circumstances. Rates and rules vary by state.

Other benefits some employers must provide are:

  • Family and Medical Leave Act (FMLA) – If you’re a “covered” employer (generally those with 50+ employees), you're required to provide leave of up to 12 work weeks in a 12-month period for certain family and medical reasons. The leave isn’t required to be paid. The Department of Labor provides more details on FMLA.
  • Health insurance – Under the Affordable Care Act (ACA), you may have reporting responsibilities and need to make additional payments to the IRS if you don’t meet certain coverage requirements for employees. Smaller companies may be eligible for tax credits to help provide coverage. provides more details on ACA Tax Provisions for Employers.

Some companies that offer health insurance must also provide COBRA, which allows workers to continue insurance coverage after job loss in certain circumstances. The Department of Labor provides more COBRA information.

Be sure to know your state’s laws. Some states have other employer requirements. For example, some require disability insurance. State laws can change frequently, and if you employ people in multiple states, you’ll need to know the rules in each.

Benefits can help you attract and retain talent

Setting up the right benefits package can be crucial to getting the people you need on board. This includes compensation, insurance (such as health, dental, disability, and life), retirement savings, and employee incentive programs. Consider what you can afford, market rates for key positions, as well as what your competitors are offering.

Employee incentive programs can boost morale and create more interest in open positions. Common incentives include flex time, wellness programs, corporate memberships, and company events.

If you decide to offer a health insurance plan that’s eligible for a health savings account (HSA), consider opening and contributing to an HSA for your employees. There are tax advantages for them and you.

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