The 5 Fundamentals of Setting Up a New Business
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The 5 Fundamentals of Setting Up a New Business

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Setting up a business can be a confusing and complicated process. Every day at Justworks, we help companies do just that: set up their businesses compliantly. Before you open your doors and make way for all of your amazing customers, make sure you understand the fine print and complete the items below. Have a notebook handy (or bookmark this page) and get ready to learn the fundamentals of setting your business up right. Let’s get started!

Set Up an EIN

An Employer Identification Number (EIN) (also known as) a Federal Tax Identification Number, is used to identify a business entity. EINs are issued for the purpose of tax administration. Anyone who has started a new business or hired or will hire employees is required to have an EIN. Once you’ve successfully applied, you’ll receive the number along with an SS-4 confirmation letter, which you should retain for your records.

How: You can obtain an EIN for free via the IRS website.

What you’ll need: your SSN

Get SUI  # + Set Up Withholding

SUI stands for State Unemployment Insurance. Unemployment insurance is an employer-funded program required by both state and federal law. Unemployment insurance pays unemployed workers benefits while they are looking for work.

There are two components to how SUI tax is calculated: “Wage base” and rate. Wage base is the maximum amount of earnings that can be taxed in a given calendar year. This is established on a per-state basis and may change from year to year. Your SUI tax rate is determined based on how many of your former employees have filed an unemployment claim in the past. New companies are taxed at a “new employer” rate and then the rate is updated on an annual basis by the state based on unemployment claim activity. New employer rates generally range from 2-4%.

How: Each state has its own requirements. For example, the New York State Employer Registration Unemployment Insurance, Withholding, and Wage Reporting (NYS100) is for businesses and household employers to register for an Employer Registration Number.

What you’ll need: an e-mail address and your EIN.

Set up Workers’ Compensation

Workers’ compensation insurance protects employers and employees against financial losses in the case of injury. Not carrying this insurance for employees is a crime and the business owner can be prosecuted for a misdemeanor or felony. Worker’s compensation insurance is mandatory for most businesses in every state except Texas. This insurance is the responsibility of the employer.

How: Workers’ Compensation Board / Work Comp One

What you’ll need: Name of Company and census data (salary, job type, location).

Open Up a Business Bank Account

It’s important to not co-mingle your personal and business bank accounts. If you mingle your finances, a court can potentially go after the individual running the company because it looks like you and the corporation are one and the same. In addition, using a separate business account makes it much easier come tax time, as you will need to file your business income and expenses separately from your personal transactions.

How: We like Nerd Wallet’s research on how to find the best free checking accounts by state.

You’ll need: Required to have a business name and an EIN number.

W-4 / I-9 / New Hire Reporting

Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. Both employees and employers (or authorized representatives of the employer) must complete the form.

You may use the information on W-4 forms to submit your new hire reporting. All hired or rehired employees must be reported within the first 20 days of employment (date of hire is the first day). Failure to report new hires can result in a fine of $20x the number of employees that you failed to report.

How: All 50 states can get this set up here.

You’ll need:

  • employee name (first, middle initial, last)

  • employee address (street, city, state, and ZIP code)

  • employee social security number

  • employee hire date

  • employer name

  • employer address (street, city, state, and ZIP code)

  • employer identification number (assigned by the Internal Revenue Service)

  • if dependent health insurance benefits are available to the employee and if so, the date the employee qualifies for the benefits

Justworks is a resource for the small business community: we’re here for all of your questions about payroll, compliance, health insurance, taxes, and questions about incorporation, setting up a trademark, and more. We even do brown bag sessions covering these topic – want one in your area? Let us know!
About the Author:

Karen Schoellkopf is the Head of Community at Justworks, the best way to do payroll, compliance, and benefits online. Formerly of Harvest and organizer of WalkaboutNYC, Karen has worked with small businesses and business applications to push forward the way people get work done. Get in touch with her here, or tweet her @JustworksHR.

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