When you hire employees, several actions are required:
- You may need a Federal Employer Identification Number (EIN). Most businesses do, but you can find out for sure at the Internal Revenue Service EIN page – irs.gov. When you are ready to apply for the EIN, you can do it online with the IRS EIN form. If you do not acquire an EIN, then your Social Security Number (SSN) is used instead.
- Obtain a Missouri Withholding Number and an Unemployment Tax number. Complete the application for these numbers online or file form 2643 with the Department of Revenue and form 2699 with the Department of Labor and Industrial Relations.
- If you already have a Missouri Tax Identification (ID) Number, you can add withholding tax to your existing number by e-mailing the Department of Revenue at [email protected] or by calling (573) 751-5860.
Beginning with your first payroll, you must:
- Withhold state income tax and federal income tax at a percentage determined by salary and exemption information stated on the form W-4. See the Missouri Department of Revenue Missouri Employer Withholding site for questions about Missouri withholding. You can also link to the Internal Revenue Circular E, Employer’s Tax Guide for information on federal withholding.
- Withhold 6.2% of the employee’s salary for Social Security taxes.
- Withhold 1.45% of the employee’s salary for Medicare taxes.
- Pay the Social Security and Medicare taxes to an approved banking institution on the 15th of the month.
File required payroll reports with the Department of Revenue and the Department of Labor and Industrial Relations on a quarterly and annual basis; and issue W-2 reports to employees at the end of the year. For more information about payroll issues, visit the IRS website. A good resource is IRS Publication #15.
Once you hire an employee, you put on an entirely new hat as a business owner. There are state specific laws for paying employees. The rules are governed by Wage and Hour of the Department of Labor. Rules such as:
- Wages must be paid within 16 days of the close of each payroll period.
- Terminated employees should be paid at time of separation, however there is no governing agency monitoring this – no real recourse for employee
- The minimum hourly wage is $7.65
- Premium pay is required after 52 hours in seasonal amusement or recreation businesses.
- No law restricts the number of hours an employer can require the employee to work (except for child labor). (Hours are set by the employer based on need)
- Missouri requires 30-day notice to the employee before pay can be cut. In no case may it be reduced below the minimum wage.
- Overtime follows the federal standard and is defined as hours worked in excess of 40.
- If a dispute arises over the amount of wages due, the employee can send a demand letter via certified mail with return receipt. The employer has seven days to answer or pay, otherwise the employer is liable for damages (if any) in civil suit.
With respect to employee withholdings there are rules and obligations for the employer also. Rules such as:
- Child Support Payments, Garnishments, and Tax Liens are the most common involuntary payroll deductions, based on a Writ or Order. Instructions are usually included, requiring the employer to begin deducting and turning over the money from the employees pay at a certain time. The employer must comply with these orders, otherwise a default judgment could be filed against the employer.
- Wage assignments must be written and include the date of signing, specific amount, name of the employee, and name of assignee. Assignments can only apply to wages already earned, and any assignment of wages not yet earned is void.
- A provision for an assignment of wages in a Note or Credit Contact in which the wages are to be earned in the future from the date when it was signed is void.
- A Foreclosure Consultant shall not take a wage assignment in exchange for services rendered, and any such assignment is void.
- State Income Tax Withholding follows a Table Supplemental Wage / Bonus Rate is 6%.
- Paychecks not picked up by employees must be held and, after due diligence is exercised to deliver it to the employee, are to be turned over to the State Treasurer. This means that the employer (i.e., the “Holder”) should send a letter to the employee at the last known address, containing information about the unclaimed paycheck. If nothing results from the notification, then the Holder must report it to the state. Records should be kept at least five years after reporting. Reports must be filed by November 1 for all years ending June 30. Unclaimed Property Holder Report Forms (scroll down to Report/Remit Unclaimed Property): treasurer.mo.gov/mainUCP.aspx.
- If compensation is owed to an employee who dies, the employer should hold the compensation as a final pay amount, and tender it to the estate of the employee, or to the administrator or executor for distribution to the heirs in accordance with a will or according to law
Many small and startup businesses decide to outsource payroll and hiring to a payroll services company.