New Business ... New Employees ... Now What?

Author: Ray & Barney Group

June 2009

So all you wanted to really do was start a company and now people are throwing out all kinds of crazy words, like “compliance… regulation … government reporting… fines”. It can be an overwhelming task to the newly appointed business owner and entrepreneur. Don’t worry, we are here to help!

This is the people stuff you HAVE to do under State and some Federal Laws.First of all, you know what they say about Death and Taxes. Second of all, there are numerous considerations with regards to taxes when starting a business. You should try to be as informed as possible in this area because it IS extremely important to your business.

The People Stuff you Have to do:
1. Many businesses are identified by their Federal Employer Identification Numbers or FEIN’s. The IRS has an online application process that can be completed on their website at www.irs.gov. In addition, as soon as you begin paying an employee, you must register as an Employer with the Ohio Department of Taxation by filing Form IT-1 (Combined Application for Registration as an Ohio Withholding/School District Withholding Agent). You should also check with your local tax office to see if city income taxes will
need to be withheld based upon where your business is located.

2. Employees have a variety of taxes withheld from their pay including Federal Income taxes (FICA); however, Ohio imposes a state income tax and most cities and some school districts impose taxes as well. The Ohio Department of Taxation is an excellent resource to help address questions with payroll taxes for your employees. 

3. We also recommend documenting your conversations to show a good faith effort of getting everything set up correctly. This can go a long way if any mistakes are found or if you are ever audited down the line.

4. Under the Ohio Unemployment Compensation Law most employers are liable to pay Unemployment Compensation taxes and report wages paid to their employees on a quarterly basis. You will be required to pay state unemployment taxes based on the amount of wages paid IF you employ one or more employees in each of 20 weeks during the current or preceding calendar year OR if your payroll amounts to $1,500 in any calendar quarter in either year.

5. When you are subject to the unemployment tax you must register with the Unemployment Compensation Division of the Bureau of Job and Family Services (Form JFS-66300). The tax rates vary by industry but for most new employers are 2.7%,  construction being the exception.

6. Workers Compensation Insurance is another area you will need to consider. Workers’ compensation laws were put into place to protect both the worker (and their dependents) and the employer. It provides money and medical benefits to an employee who has an injury as a result of an accident injury or occupational disease on-the-job. Workers’ compensation is designed to protect workers and their dependents against the hardships from injury or death arising out of the work environment. The employee receives money (usually on a weekly or biweekly basis) and medical benefits in exchange for forfeiting the common law right to sue the employer. The employer has some perks too! You benefit by receiving immunity from court actions by the
employee in exchange for accepting liability that is limited and determined. The system is a “no-fault” system and allows both parties to share some protections. In Ohio, all businesses with one or more employees are required by law to have workers’ compensation insurance through the Ohio Bureau of Workers Compensation (BWC) – except those able to self-insure. It is worth noting that the following individuals are generally not considered employees for this law: a sole proprietor, a partner in a partnership, or an officer in a family farm corporation; however, coverage may still be selected for these individuals. Officers of a corporation ARE considered employees. Employers must use the U-3 Form to establish workers’ compensation coverage with the State of Ohio. BWC offers new businesses a kit to help them become familiar with the Ohio’s workers’ compensation system on their website (www.ohiobwc.com).

7. You MUST report New Hires – You have 20 days to report new hires (or rehires) under the Federal Welfare Reform laws and state law to the Ohio New Hire Reporting Program administered by the Ohio Department of Job and Family Services. Their website is easy to use and you can register at http://newhire-reporting.com/OH-Newhire/default.aspx.

8. You MUST pay your employees frequently – In general you are required to pay them at least twice a month. Some employers are small enough and do not engage in interstate commerce and therefore are not subject to federal minimum wage and overtime laws. Even though the federal laws may not apply, there are Ohio laws that do. In Ohio, effective January 1, 2008 an increase to Ohio’s minimum wage took effect requiring $7.00 per hour for most employees (except for $3.50 per hour for tipped employees - plus tips); however, on July 24, 2008 the Federal minimum wage increased to $6.55. Accordingly, those changes applied to Ohio’s employers grossing under $255,000 and also to 14 & 15 year olds ($6.55 per hour for those employees whose employers gross under $255,000 and $6.55 for 14 & 15 year olds). Under Federal Wage and Hour laws, certain employees are exempt from overtime based upon being in certain classes, such as administrative, executive and professional statuses. These employees are also exempt from being paid overtime under Ohio law. If your business grosses $150,000 in sales in a year, you are required to pay time-and-a-half for overtime hours worked in excess of 40 hours in a workweek, which is also true under Federal laws for any employees who do not meet the exemptions statuses mentioned above. If you meet these requirements, you will also need to have State and Federal Wage & Hour Posters in your workplace in a conspicuous place where your employees will have access and be able to see them.

9. Health and Safety in the workplace is another important element that cannot be ignored. You must comply with state and federal job safety laws designed to protect and prevent injuries that result from unhealthy or unsafe practices or conditions in your workplace. Ohio relies on the Occupational Safety and Health Administration (OHSA) to enforce the requirements in Ohio. OSHA’s On-Site Consultation Service offers free and confidential advice to small and medium-sized businesses in all states across
the country, with priority given to high-hazard worksites. Consultation services are totally separate from enforcement and do not result in penalties or citations. As stated on the OSHA website: It’s confidential, too. Your name, your firm’s name, and any information you provide about your workplace, plus any unsafe or unhealthful working conditions that the consultant uncovers, will not be reported routinely to the OSHA inspection staff. Your only obligation will be to commit yourself to correcting serious job safety and health hazards – a commitment which you are expected to make prior to the actual visit and carry out in a timely manner. For more information on these services you can visit http://www.osha.gov/dcsp/smallbusiness/consult.html.

10. Most businesses are also subject to Child Labor Laws which put restrictions on the kinds of work and the working hours in which individuals under the age of 18 may engage. Ohio also requires proper certificates from the superintendent of education stating the child’s age and schooling and an authorization to work. The exception is made for summer work arrangement where sixteen- and seventeen-year-olds can provide proof of age and written consent from a parent to work. Another interesting item to note is that if you employ a minor, you must post a notice that states all the minors who are employed at your site in the workplace at all times.

11. You MUST NOT discriminate – You must comply with Federal anti-discrimination laws and employers with 4 or more employees must also comply with Ohio Civil Rights laws which prohibit discrimination based on the basis of race, color, religion, sex, national origin, disability, age or ancestry. I hope you have a BIG WALL, because here is another poster you will need. You can receive a poster from the Ohio Civil Rights Commission at http://crc.ohio.gov/pdf/FEP%20Poster%2003-08.pdf

Ray & Barney Group is a business consulting organization that specializes in Workforce Strategy and Information Technology. Our focus is on helping our clients achieve their business goals by implementing practical strategies and best practices for their PEOPLE, PROCESSES, and TECHNOLOGIES.