Payroll Checklist for Processing a New Employee

Issue: A payroll professional has several responsibilities when a new employee is hired. Most importantly, a determination must be made whether to treat the new hire as an employee or an independent contractor. An employer-employee relationship will give rise to employment tax obligations. In addition, new-hire reporting requirements and employment verification requirements under federal immigration law must be complied with. What should you do, as a payroll professional, upon the hiring of a new employee?

Step 1: Determine if the new employee is classified as an employee or an independent contractor for employment tax purposes.

• Determine if the worker is classified as an “employee” by the IRS.
• Use the 20-factor “Right to Control” test to assess the worker’s status if it does not fall within statutory rules.
• Review Sec. 530 of the Revenue Act of 1978 to see if the worker falls within the “safe harbor” rules, which do not allow the IRS to challenge the status of workers as independent contractors.

Step 2: Have the new hire fill out Form W-4.

• Record the employee’s name and social security card number exactly the same as they appear on the employee’s social security card.
• If the employee has neither a social security number nor a receipt indicating that he has applied for one, ask for a dated and signed written statement containing the employee’s name, address, gender, and date and place of birth.
• If the employee has not given you a social security number, you must request it, stating that it is required by law.
• If an employee fills out an invalid W-4 and refuses to fill out a new one, you must withhold from the employee as if he or she were single, claiming no exemptions.

Step 3: Comply with new-hire reporting requirements.

• For each new hire, the following must be submitted to the appropriate state agency:

1. the newly hired employee’s name, address, social security number; and
2. the employer’s name, address, and federal EIN number.

Additional information may be required based on state law.

• New-hire information may be submitted via first class mail, by fax, electronically, or using magnetic media. Methods of data transmission differ by state. If sent by mail, new-hire reports must be submitted within 20 days of the date of hire. Reports submitted electronically or magnetically must be submitted twice a month, and not fewer than 12 days or more than 16 days apart.

Step 4: Comply with employment verification requirements.

• Have employees fill out their portion of Form I-9 when they begin work.
• Check documents establishing employees’ identities and eligibility to work.
• Complete the employer portion of Form I-9.
• Retain I-9 Forms for at least three years or until one year after an employee leaves employment, whichever is later.

SOURCE: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.