Hiring Employees? You'll Need a FEIN - Here's Why

Hiring Employees? You’ll Need a FEIN – Here’s Why

So, you’re taking the leap! You’re expanding your business, growing beyond the one-person show, and hiring employees. Congratulations! It’s a significant milestone, but one that also brings a host of new responsibilities and regulations. Among the many forms and compliance requirements you’ll encounter, one acronym will pop up frequently: FEIN. But what is a FEIN, and why is it absolutely essential for hiring employees?

A FEIN, or Federal Employer Identification Number, is essentially a tax identification number for your business, issued by the Internal Revenue Service (IRS). Think of it as a Social Security Number, but for your company. While sole proprietorships and single-member LLCs without employees can sometimes operate using the owner’s Social Security Number, hiring employees mandates you obtain a FEIN.

Why is a FEIN mandatory for employers?

The requirement stems from the IRS’s need to accurately track and collect employment taxes. Here’s a breakdown of the key reasons:

Tax Identification and Reporting: The primary function of a FEIN is to identify your business to the IRS for tax purposes. You’ll need it to report and pay employment taxes, including:
- Federal Income Tax Withholding: You’re responsible for withholding a portion of your employees’ wages for federal income taxes and remitting it to the IRS.
- Social Security and Medicare Taxes (FICA): You’re required to withhold Social Security and Medicare taxes from your employees’ wages and match those amounts with your own employer contributions.
- Federal Unemployment Tax (FUTA): You’ll need to pay FUTA tax, which funds unemployment benefits for eligible workers.

Payroll Processing: Payroll software and services require a FEIN to accurately calculate and remit employment taxes. Without it, you won’t be able to properly process payroll.

Opening a Business Bank Account: Most banks require a FEIN to open a business checking or savings account. This is crucial for managing payroll and other business finances.

Applying for Business Licenses and Permits: Many states and local jurisdictions require a FEIN to obtain various business licenses and permits.

Establishing Credit: A FEIN helps establish credit for your business. This is important for securing loans, lines of credit, and other forms of financing.

Protection from Identity Theft: Using a FEIN instead of your Social Security Number for business transactions helps protect your personal identity from theft.

Operating as a Corporation or Partnership: Corporations and partnerships are always required to have a FEIN, regardless of whether they employ people.

How to Obtain a FEIN

The good news is obtaining a FEIN is free and relatively straightforward. You can apply online through the IRS website. Here’s a quick overview of the process:

Determine your eligibility: Ensure you meet the IRS’s requirements for obtaining a FEIN. Generally, you must be operating a business in the United States or U.S. territories.

Gather necessary information: You’ll need information about your business, such as its legal name, address, type of business (e.g., sole proprietorship, LLC, corporation), and the names and Social Security Numbers of the responsible parties.

Complete the online application: Visit the IRS website and complete the online application form (Form SS-4). Be prepared to answer questions about your business structure and activities.

Submit the application: Once you’ve completed the form, submit it electronically.

Receive your FEIN: If your application is approved, you’ll receive your FEIN immediately online. You can then print or save a copy for your records.

Beyond the FEIN: Other Important Considerations for Hiring

While a FEIN is a critical first step, it’s just one piece of the puzzle. When hiring employees, you’ll also need to:

Comply with labor laws: Understand and adhere to federal and state labor laws regarding minimum wage, overtime pay, workplace safety, anti-discrimination, and other employment regulations.

Implement a robust payroll system: Choose a payroll system or service that accurately calculates and remits taxes, tracks employee hours, and provides pay stubs.

Obtain workers’ compensation insurance: This insurance protects your business from financial liability if an employee is injured on the job.

Develop clear employment contracts or offer letters: Outline the terms of employment, including job duties, compensation, benefits, and termination policies.

Implement proper onboarding procedures: Ensure new employees are properly trained and integrated into your company culture.

Set up Merchant Processing: Once you’ve started making money it’s time to establish a way to collect payment. This is where a merchant processor comes into play. I recommend researching different providers to fit the needs of your company. You can start by checking out a few options like PaymentCloudInc.com or https://authorize.net

FAQs about FEINs and Hiring

Can I use my Social Security Number instead of a FEIN? Generally, no, especially if you’re hiring employees. Using a FEIN protects your personal identity and is required for tax reporting and compliance.

How long does it take to get a FEIN? Applying online usually results in immediate issuance of your FEIN.

Is there a fee to get a FEIN? No, the IRS provides FEINs free of charge.

What if I lose my FEIN? You can request a confirmation letter from the IRS with your FEIN on it.

Do I need a new FEIN if I change my business name? Generally, no, unless you also change your business structure (e.g., from sole proprietorship to LLC).

What if I hire independent contractors instead of employees? While you don’t need a FEIN specifically for hiring independent contractors, you will need to obtain their Taxpayer Identification Numbers (TINs) and report payments to them on Form 1099-NEC.

Conclusion

Hiring employees is a pivotal moment for any business, signaling growth and opportunity. However, it also comes with a significant increase in administrative and legal responsibilities. Obtaining a FEIN is a fundamental requirement for employers, ensuring proper tax identification, reporting, and compliance. Don’t overlook this crucial step.

While you are getting your FEIN setup and all the details involved to successfully hire employees, don’t forget that you’re in business to generate revenue. As your sales increase, you’ll want to start thinking about establishing a merchant account with a merchant processing company. I recommend contacting Payminate.com for help with getting merchant processing for your business!