If you’re preparing to hire a new employee in Tennessee, it’s a good idea to review Tennessee’s hiring regulations, employer taxes, and employment laws first. We’re breaking down everything you need to know below. Read on for six steps to hiring employees in Tennessee:
Quick Links
Step 1: Take care of logistics
Make sure you register with the appropriate state departments before you begin the recruiting or hiring process. Add these items to your to-do list if you haven’t yet:
Apply for a federal employer identification number (EIN) on the IRS website
The first step to hiring employees in any state is applying for a federal employer identification number (EIN) with the Internal Revenue Service (IRS). Apply for an EIN on the IRS website. You’ll fill out an application, supplying personal details and business information, then receive your EIN immediately upon submission.
You may already have an EIN if you’re registered as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation. But if your business is a sole proprietorship or single-member LLC, you probably still need to get your EIN.
Register your business with the Tennessee Department of Revenue
To hire employees in Tennessee, you need to register with the Tennessee Department of Revenue, which you can do online here. However, unlike many other states, Tennessee doesn’t have a state income tax; as a result, Tennessee doesn’t require employers to withhold state income taxes for their employees.
Register for unemployment insurance taxes
Tennessee employers must register with the Tennessee Department of Labor and Workforce Development to get an employer account number and apply for unemployment insurance.
As an employer, you’re liable for unemployment taxes if:
- You pay wages of at least $1,500 in a calendar quarter or
- You employ at least one worker for some part of the day in 20 different weeks in a calendar year.
To register, complete the Report to Determine Status, Application for Employer Number (LB-0441) form, then email it to [email protected]. Once the department receives your information, they’ll mail you an employer account number.
Get workers’ compensation insurance
The Tennessee Workers’ Compensation Law—carried out by the Tennessee Bureau of Workers’ Compensation—requires certain employers to obtain workers’ compensation insurance. Workers’ compensation coverage is a type of insurance that protects you from liability as an employer in case your employees get injured on the job. It also gives injured employees medical and wage-loss benefits.
You’re required to get workers’ compensation insurance in Tennessee if:
- You have at least one employee and work in the construction business or a related trade.
- You have at least one employee and work in the coal mining business.
- You have five or more employees in any industry.
To get workers’ compensation insurance in Tennessee, you can either apply to become self-insured with the Tennessee Department of Commerce and Insurance or search for a private insurance carrier in the state. For additional information, browse the resources listed on the Tennessee Department of Commerce and Insurance’s website.
Learn how to optimize your workers’ comp policy.
Step 2: Understand your hiring costs and tax liability
Before you hire a new employee in Tennessee, take the time to go over your finances and create a hiring budget. After all, you won’t just be paying for your employee’s compensation package, which includes wages, health insurance, paid time off, and other worthwhile employee benefits. You’ll also be covering recruiting costs, which could include expenses like job site subscriptions, paid digital job ads, and local print advertisements.
Finally, you have to budget for Tennessee employment taxes, which include the following:
- Social Security and Medicare taxes: Under the Federal Insurance Contributions Act (FICA), the Social Security tax rate is 6.2% for an employer and 6.2% for an employee. The rate for Medicare taxes is 1.45% for an employer and 1.45% for an employee.
- Unemployment insurance taxes: The annual state unemployment insurance (SUI) tax rate for new employers in Tennessee is 2.7% on a wage base of $7,000.
- FUTA taxes: The Federal Unemployment Tax Act (FUTA) works alongside state unemployment insurance programs. The FUTA tax rate is 6% on the first $7,000 of employee wages. However, if you pay SUI taxes on time and in full, you can get a credit on FUTA taxes of up to 5.4%, dropping your FUTA tax liability to 0.6%.
For additional information on Tennessee small business taxes, check out the Tennessee Department of Revenue’s 2023 Tennessee Business Tax Manual.
Do you have enough money to hire an employee in Tennessee? Use this calculator to find out.
Step 3: Familiarize yourself with Tennessee labor laws
As an employer, you need to abide by federal labor laws and state laws around minimum wage, overtime, pay transparency and reporting, and pay equity. It’s also important to review classification differences between employees and independent contractors.
Here are a handful of notable Tennessee labor laws:
- Tennessee doesn’t have an established state minimum wage. However, under federal law, Tennessee employers must abide by the federal minimum wage of $7.25/hour.
- Per the federal Fair Labor Standards Act (FLSA), Tennessee employees who work more than 40 hours a week must be paid overtime pay, which is 1.5 times their regular pay rate, unless they fall into the exempt category.
- Tennessee is an employment-at-will state, meaning employers can fire employees at any time without reason or cause. Employees also have the right to leave their jobs at any time without reason or warning.
- Tennessee law requires employers to provide employees with a 30-minute unpaid meal or rest period if they’re scheduled for six consecutive hours.
- Under the federal Equal Pay Act, Tennessee employers can’t pay an employee less than the opposite sex for the same work.
- Tennessee is a “right to work” state, which means Tennessee employers can’t deny a person the opportunity to work based on whether or not that person is part of a labor union.
- Tennessee doesn’t require employers to provide any fringe benefits, including sick leave, vacation time, parental leave, severance, and healthcare. Which benefits you provide is up to you as an individual employer.
For more resources, download the Tennessee employer handbook.
Check out Gusto’s state-by-state guide to pay equity laws and our state-by-state guide to salary history laws.
Step 4: Fill out the Tennessee new hire reporting form and furnish forms to employee
When you hire new employees in Tennessee, you’re legally obligated to report information about those employees to the Tennessee New Hire Reporting Program within 20 days of the employee’s official hiring date. This applies to newly hired employees as well as re-hired employees.
The hiring date is generally considered to be the first date an employee performs services you’ll pay them for or the first day an employee on commission is eligible to earn commission.
Register online with the Tennessee Department of Human Services to start the new hire reporting process. You’ll provide your employee’s name, address, Social Security number, date of birth, and work start date. To learn more, visit Tennessee’s Department of Human Services Reporting Fundamentals FAQs.
After you complete that, fill out these other important hiring documents:
- Employment contract: It’s helpful to write an employment contract detailing your employee’s job responsibilities, the wages you’ll pay, and the workplace policies available in your employee handbook.
- Form I-9: The US Citizenship and Immigration Services (USCIS) uses Form I-9, the Employment Eligibility Verification Form, to verify that employees are able to work in the US. As an employer, you have to complete the I-9 form for every employee you hire, and each employee must attest to their employment authorization. You don’t have to file Form I-9 with the USCIS or Immigration and Customs Enforcement (ICE). Instead, you hold onto the form as a record for at least three years from the date of hire or one year after employment ends. Download Form I-9 and read the completion instructions here.
- Form W-4: Each new employee you hire needs to complete IRS Form W-4, The Employee’s Withholding Certificate, on or before the date of their employment. A W-4 form determines how much federal income tax will be withheld from the employee’s wages. Download the form.
Be sure to save copies of all the above documents as part of your business’s records.
Step 5: Set up your payroll system
Now that you’re an employer, it’s time to set up or update your payroll system. An all-in-one payroll platform simplifies the payment process and keeps you organized with employment taxes, including federal income withholding taxes, unemployment taxes, and Social Security and Medicare taxes.
Need help determining federal withholdings for your employees? Here’s Gusto’s Tennessee Hourly Paycheck and Payroll Calculator and Tennessee’s Salary Paycheck and Payroll Calculator.
Step 6: Display labor law posters and required notices
The state of Tennessee requires employers to post specific labor law signs in the workplace to inform employees of their rights and obligations on the job.
Take a look at Tennessee’s Department of Labor and Workforce Development required posters to see which notices you’re obligated to post and how to download them. While you’re at it, gather and download all the required federal labor law posters as well.
Streamline payroll with Gusto
Recruiting, hiring, training, and managing employees takes a lot of time—but you can gain back hours by upgrading your payroll software. Gusto’s full-service payroll platform makes paying employees easy and filing business taxes pain-free. Create an account today to get started.
