Best Practices and Legal Requirements When Hiring Employees

Growing your team is an exciting milestone for any business. But with growth comes responsibility—especially when it comes to navigating the legal requirements when hiring employees. That’s because successful recruitment goes beyond finding the right talent. It also requires you to understand the impacts of applicable laws. If you run afoul of these laws, you could face penalties or be subject to litigation that could cost your business money or harm your reputation.

Taking the time to create the right foundation for your team is important. Consider the roadmap below for hiring—and sidestep the potential problems that can occur when hiring.

Before Hiring an Employee

Hiring your first employee can feel like a big step, but it all starts with proper preparation. You may have already performed all these steps, but review these quick reminders:

1. Obtain an Employer Identification Number (EIN)

Before you hire anyone, you need to get an Employer Identification Number (EIN) from the IRS. This 9-digit identifier allows your business to process payroll and file taxes. Applying for an EIN is simple and can be done directly through the IRS website. This step is mandatory.

2. Register With the State Unemployment Insurance Office

Most states require employers to register with their state unemployment insurance office to provide unemployment benefits to workers. Check your state’s specific unemployment insurance requirements, as laws vary depending on the number of employees and wages paid.

3. Apply for Workers' Compensation Insurance

In most states, employers must carry workers’ compensation insurance. This insurance pays for medical bills and lost wages if an employee is injured or ill as a result of their job. While small businesses with fewer than 5 employees may be exempt in some states, you’ll need to confirm your state’s laws to avoid noncompliance.

4. Follow OSHA Regulations

To support workplace safety, companies must follow Occupational Safety and Health Administration (OSHA) regulations. Some of the requirements may include creating a safety program that provides training to employees in safety practices, identifies and reduces workplace hazards, and implements injury prevention methods. There are also guidelines regarding recording and reporting workplace injury and illness. Employers should also conduct regular safety checks and perform ongoing inspections to find and fix potential dangers.

5. Develop Job Descriptions

Creating a compelling, non-discriminatory job description can help set the tone for your hiring process. Focus on necessary skills and qualifications, including the minimum experience someone in the role would need to perform the job. Avoid language that could unintentionally exclude applicants—like references to age, gender, or other protected characteristics under Equal Employment Opportunity (EEO) laws. Also consider any pay transparency requirements that may apply.

During the Hiring Process

The hiring process is a critical phase where you assess candidates, ensuring continued compliance with applicable employment laws.

6. Conduct Interviews

When conducting interviews, consider:

• What you can ask: Questions about the applicant’s skills, experience, and qualifications. “Remember to be objective,” says Heather Whitney, HRRT Program Manager at Paychex. “Ask questions that tell you how a candidate would handle real situations or may have in the past. Don't be afraid to ask probing questions if you get short answers.”
• What to avoid: Topics like medical history, family planning, or salary history (especially in states with salary history bans). Says Whitney, “Also avoid any questions on criminal history in the interview process. In many states you cannot ask those until after an offer is made and contingent upon a background check.”

Ask the employee if they can perform the essential functions of the job as you have described them or provided in the job description, with or without reasonable accommodation. Be prepared to engage in an interactive discussion should the applicant require reasonable accommodation to take part in the recruiting process or to perform the job.

7. Run Background Checks Legally

When running a background check, you must follow the guidelines outlined in the Fair Credit Reporting Act (FCRA) and any applicable state or local law. This includes gaining the applicant's written permission and letting them know if their employment offer is affected by the findings. This authorization must be separate from any other form, i.e., the employment application. Familiarize yourself with your state’s background check restrictions as well.

Understanding Applicable Employment Laws

Employment laws affect every part of bringing in, hiring, and managing new staff, including job advertisements and formal employment offers.

Your company should examine its recruitment and management procedures to confirm policies and practices are non-discriminatory and do not violate local, state or federal anti-discrimination laws including but not limited to:

• Age Discrimination in Employment Act (ADEA): Protects employees over 40 from age-based discrimination.
• Americans with Disabilities Act (ADA): Requires that employers provide reasonable accommodations for employees living with disabilities.
• Title VII of the Civil Rights Act of 1964: Outlines broad anti-discrimination protections in the workplace.
• State Human Rights Laws: Prohibit discrimination based on race, gender, age, disability, and other protected classes.
• Equal Pay Act: Ensures men and women receive equal pay for equal work.
• Genetic Information Nondiscrimination Act (GINA): Prohibits genetic information discrimination in employment decisions.

Keep in mind that having standard interview questions may keep you or any managers from asking any questions that may violate one of the above unintentionally.

Mitigating Hiring Risks

Employers can reduce legal risks and promote fair hiring practices by implementing clear policies while ensuring their teams receive proper training on applicable employment laws. To help maintain compliance:

• Write accurate job descriptions that include essential functions of the job and avoid biased wording.
• Keep interviews job-related by staying away from questions about salary history, medical conditions, or other protected categories.
• Update your hiring guidelines to stay current with federal, state, and local law changes.

State-Specific Hiring Regulations

Employment laws can vary by state or local jurisdiction, requiring businesses to stay informed on regulations such as:

• "Ban the box" requirements: Some states and localities prohibit employers from asking about an applicant's criminal history on job applications, allowing candidates to be evaluated on qualifications first.
• Salary history bans: Some jurisdictions prohibit employers from asking about past salaries to promote fair pay.
• Background check restrictions: Laws differ on how and when employers can conduct background checks.
• Pay transparency laws: Some jurisdictions have passed laws to require employers to disclose salary ranges, pay rates and other compensation in job postings.
• Employers should consult a trusted HR professional, agency websites, or legal professionals to help ensure compliance.

8. Verify Applicants’ Work Eligibility

Federal law requires employers to verify that each new hire is eligible to work in the U.S. This is done by completing Form I-9 and reviewing valid identity and employment authorization documents. Employers must keep I-9 forms for at least 3 years after hiring or 1 year after the employment ends, whichever is later.

If your company is enrolled in E-Verify, you will use the system to further verify employment eligibility.

9. Establish Payroll and Tax Withholding

Employers are responsible for withholding and remitting payroll taxes, including:

• Federal income tax
• Social Security and Medicare taxes (FICA)
• State and local income taxes (if applicable)

Establishing an organized payroll helps you meet your legal requirements and avoid tax penalties.

10. Ensure All Employees Complete Form W-4

When hired, new employees must complete Form W-4, which determines their federal tax withholding. While employers must provide the form and process the information correctly for payroll, the employee must ensure the form is completed accurately based on their financial situation.

11. Report New Hires to the State Registry

Employers must report new hires to their state's new hire reporting registry—usually within 20 days of hire—to follow federal and state laws that track wages and enforce child support obligations. This requirement applies to all businesses with employees in states that mandate new-hire reporting. Ensure your compliance with federal and state laws.

After Hiring an Employee (Onboarding)

Onboarding is a critical step in setting your new hires up for success and ensuring they feel welcomed and prepared in their new role.

12. Provide New Hire Notices and Employee Handbooks

Employees should be provided with applicable federal, state, and local new hire notices depending on the state and size of the company. And although not mandatory, developing and distributing a compliant employee handbook is a smart business practice.

Managing Ongoing Hiring and Compliance

Compliance doesn't stop after you hire someone. Employment laws keep changing, requiring you to stay informed to better ensure your compliance and mitigate risk for your company.

Paychex offers HR tools and expertise to help you manage requirements of employers, stay current with new laws, and streamline your operations.

To maintain compliance, employers should:

• Regularly audit HR practices to examine hiring procedures
• Keep current on employment laws at all levels of government
• Ensure HR staff receives training on compliance requirements