If you’ve started your small business and are now considering hiring your first employee, prepare to go through some massive headache even for hiring a single employee for part-time work, and even if it’s your own spouse or family member. We’ll assume you’ve already set up your business structure through your state, but if you haven’t, read this guide first.
Get set up to pay Federal and WA State employment-related taxes
Get an EIN from the IRS.
Then register at the Electronic Federal Tax Payment System. You can authorize your bank info directly like I did with my free novo.co business bank account, which I recommend.
When you submit your enrollment, you’ll get a PIN by snail mail (*facepalm*) later to login:
While you’re waiting for the Federal government’s tax collection machinery to grind into action, you can then also
First, have your employee fill out and sign a W-4 form for withholding of Federal taxes. Retain this form and use it to compute their income tax withholding later.
They also need to fill out and sign an I-9 form declaring them eligible to work in the US.
Washington state payroll taxes
If you haven’t already, create a SecureAccess Washington account.
Washington state unemployment taxes
Then add EAMS (Employer Account Management System) to your list of SAW services in order to pay unemployment taxes (not necessary as of May 2022 if you’re only employing your spouse.) Click ‘Add Service’ then browse services by name, then add EAMS:
You can then use EAMS to do all this stuff:
Washington state PFML payroll taxes
While you’re logged into SAW, also add Paid Family and Medical Leave (PFML) to pay those payroll taxes. After you add that service, click ‘Access Now’ and ‘Register your Business’ with your UBI number that you got from the state.
When I did this, for some annoying reason I had to ‘Create Employer’ since my UBI wasn’t immediately recognized. I then had to upload my Business License that I received from the state when I created my LLC. Perhaps the DOR and SAW system aren’t linked very well…
Washington state Worker’s Comp
You will probably also need to get a Workers’ Compensation Account (WCA) and purchase Worker’s Comp insurance through the state fund (you can’t buy it privately, and self-insuring requires at least $25 million on hand…)
If you already have a business license, renew it to indicate that you’re going to hire employees. There are a few exceptions listed here (and in state law here.)
One exception is if you’re a sole proprietor and you’re hiring your spouse, then your spouse would be exempt. Note that this truly means your biz structure is ‘Sole Proprietor’. I was hoping this would apply to me since I’m an LLC operating/taxed as a sole prop, but nope, that would make too much logical sense and I had to enroll my wife in WA Worker’s Comp to do the hazardous work of part-time data entry…
Worker’s comp required for contractors you hire?
Washington state also tries to scare you into believing you need Worker’s Comp for independent contractors, which, if they are truly independent contractors, you do NOT. You can read WA’s guide here to make that determination, or watch this LNI training.
Sign up for Worker’s Comp
Login at the DOR site, then click ‘Renew your business license’ to update it, assuming you did NOT previously say you were going to hire employees:
Then scroll down and click ‘Hire…’
Uncheck the evil ‘Add optional coverage for owners’ default…:
You’ll need your Federal EIN as well. Leave the ‘optional’ coverages as ‘No’ unless you wanna add even more headaches and cost to your life…:
Assuming you aren’t hiring any minors, switch this dumb default to ‘No’ as well:
The BLS will then charge you at least $19 just because, so have your business bank account ready, and then be prepared to wait up to 2 weeks for them to get back to you on what you’ll have to do next to set up and pay Worker’s Comp.
Pay your Federal payroll taxes to the IRS
Now that you’re registered with EFTPS, you can calculate and pay your Federal payroll taxes for Social Security and Medicare (FICA.) Currently the rates are 6.2% for social security and 1.45% for Medicare up to the social security wage ceiling of ~$140,000 (in 2022.) Note that both you–the employer– AND the employee each pay this amount, so the true tax is double this. You withhold the employee’s half from their pay and you pay the other half.
Pay your Washington state payroll taxes
Pay your Worker’s Comp, PFML (Paid Family Leave and Washington Cares (LTC)), Washington unemployment, Federal unemployement (FUTA) after recording them for all hours worked in a given pay period (no more than monthly.)
End of year
By Jan 31st for the previous years’ employee wages– follow this link for the official guidelines– give your employee(s) their W-2s for them to do their own income taxes. You also need to file copies of the W-2s and a W-3 with the IRS.
The Social Security Administration has a free online tool for generating and filing W-2s (one W-2 per employee) and your W-3. Go to this site to learn more. Then go to Business Services Online, log in to or register for an account, and follow the steps to create your W-2s and W-3, and file them.
You will need your employees’ Social Security Numbers (SSN), payroll information, and more. You can get the SSN from the W-4s. Get the payroll information (how much you paid, how much social security tax you paid, etc) from the spreadsheets or whatever you used to manage employee payroll.
Washington state excise (B&O) taxes on gross revenue
File your Washington state B&O taxes if you grossed more than ~$35,000 in revenue (NOT profits!) by April 15th for the previous years’ income.
File your business Federal income taxes
File your Federal business income taxes using the tax software of your choice– or hire an accountant– by April 15th for the previous years’ income. If you’re a sole prop or operating an LLC as a sole prop, just file your personal taxes and add your business income.