The hiring of new employees is usually a time of optimism and confidence for a business, whether it’s a new business or one that’s been around for a while. It’s important to remember, though, that adding staffing triggers many obligations. When you hire employees in Washington, D.C., you should take the steps below to help ensure your continued compliance with both federal laws and requirements specific to the District of Columbia.
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1. Register for tax purposes
If you haven’t already done so, you need to register as an employer with the IRS and the District of Columbia.
The first step is to obtain a federal employer identification number. You can apply for that using IRS Form SS-4, “Application for Employer Identification Number.”
Once you have your federal employer identification number, you can register with the District of Columbia Office of Tax and Revenue. You must do this online at MyTax DC with Form FR-500, “New Business Registration.”
To complete the form, you’ll need:
- Your federal employer identification number and/or Social Security number,
- Your legal form of business (for example, partnership, corporation, or sole proprietor),
- Your business address,
- The names, titles, home addresses, and Social Security numbers of the proprietor, partners, or principal officers,
- The former Entity Information if previously registered with the District, and
- The addresses for all locations where you will collect sales tax in the District of Columbia.
For new registrations, you’ll also need to provide the following documentation with your Form FR-500:
| Business type | Required documents |
| Corporation | Articles of Incorporation |
| Limited Liability Company | Articles of Organization |
| Register with Trade Name | Certificate of Trade Name Registration |
2. Confirm employee eligibility
Every new employee must complete the U.S. Citizenship and Immigration Services’ Form I-9, “Employment Eligibility Verification.” The new employee is required to fill out Section 1 of the form by their first day of employment. You’ll need to complete Section 2 by the end of the third business day after the employee begins work. Keep it on file for three years after the date of hire or one year after the employment ends, whichever is later.
D.C. doesn’t require employers to use the federal E-Verify system.
3. Keep up with your new hire reporting
Under the federal Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), all employers must report certain information on their newly hired employees to a designated state agency. This new hire reporting is intended to help track down individuals who are delinquent on child support payments.
New employers can register with the District of Columbia Directory of New Hires online. You must have your federal employer identification number and a valid email address.
Newly hired, rehired, and recalled employees must be reported within 20 days of their hire, rehire, or recall date, whether they’re considered full-time, part-time, or temporary.
Rehired employees are employees who return to work after 60 days, or more, of being laid off, furloughed, separated, or granted a leave without pay or terminated from employment. Recalled employees include anyone who remains on the payroll during a break in service or gap in pay and then returns to work (for example, seasonal workers and teachers).
If an employee filled out an IRS Form W-4, ”Employee’s Withholding Certificate,” you must report them, even if they only worked for a few hours. Useful information such as home address and work history can be obtained from their new hire report.
The District of Columbia provides several methods to report new hire information, including:
- Online
- Electronic with forms you create
- District of Columbia New Hire Registry Reporting Form
- IRS Form W-4
Employers that submit reports magnetically or electronically are to send them in two monthly transmissions, no more than 16 days apart.
4. Check your noncompete agreements
As of Oct 1, 2022, the District of Columbia has made it illegal for employers to impose noncompete clauses and policies that limit employees’ ability to work for competing businesses—or, in some cases, start their own businesses—on many District employees.
Specifically, you’re prohibited from imposing noncompetes on most District employees who make under $150,000 per year. Employees who earn over $150,000 can be subject to only a one-year noncompete, and only if the worker is notified in advance, except that medical specialists who earn over $250,000 per year can be subject to a two-year noncompete.
The prohibition also applies to nonsolicitation agreements that prohibit an employee from performing work for another for pay or from operating the employee’s own business.
For employees not covered by the new law, a noncompete provision may still be illegal and unenforceable under other District laws related to contracts and antitrust.
5. Understand your D.C. income tax withholding duties
Employers that pay wages to D.C. residents generally must withhold D.C. income tax from the wages. (This is in addition to federal tax withholding for Social Security, Medicare, and federal unemployment taxes.) For District of Columbia income tax purposes, a D.C. resident is any individual who maintains a place of abode within the District for a total of 183 days or more during the taxable year, regardless of whether the individual is domiciled in the District.
You’ll need to obtain a Form D-4, “Employee Withholding Certificate Form,” from every employee. You use those forms and the District of Columbia withholding tables to determine how much to withhold from each employee’s pay.
You must file regular returns, even for periods in which you have no withholding to remit. Monthly and quarterly filers use Form FR-900Q, “Employer/Payer Withholding Quarterly Return,” which must be filed electronically on MyTax.DC.gov. Quarterly filers file according to the following schedule:
January, February, March: Due April 30
April, May, June: Due July 31
July, August, September: Due Oct. 31
October, November, December: Due Jan. 31
Annual filers use Form FR-900A, “Employer/Payer Withholding Tax Annual Return.” This form is due by Jan. 31, for the previous year.
Monthly deposits of the tax withheld from wages are due by the 20th day of the month. Quarterly deposits must be paid on or before the 20th day of the month after the close of each quarter. Annual deposits of tax withheld from wages are due on or before the 20th day of the month following the close of the yearly period. If you’re not paying electronically and are remitting less than $5,000, you can use Form FR-900P, “Payment Voucher for Withholding Tax.”
6. Prepare for your federal payroll tax obligations
If you don’t collect Forms W-4 for new hire reporting, you still need to collect it for federal payroll tax withholding purposes. You aren’t required to submit the form to the IRS, but you must keep a copy on file for at least four years. It provides verification that you’re withholding federal income tax according to the employee’s instructions and must be available for IRS inspection upon request.
You must also withhold each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). FICA is a federal tax that employers and employees split.
The 2024 tax rates for both employees and employers are 6.2% of the first $168,600 of an employee’s earnings for Social Security (for a total tax of 12.4%) and 1.45% of all wages for Medicare (a total of 2.9%).
You also may be required to withhold the Additional Medicare Tax, which is 0.9% of an individual’s wages exceeding $200,000 in a calendar year.
You must deposit federal income tax withheld and both the employer and employee portions of Social Security and Medicare taxes. You should determine which schedule you’re required to use—monthly or weekly—before the beginning of each calendar year.
In addition, you’ll need to pay federal unemployment taxes (FUTA) if you:
- Paid wages of $1,500 or more to employees in any calendar quarter during the current or previous tax year, or
- Had one or more employees for at least some part of a day in any 20 or more different weeks in the previous year or 20 or more different weeks in the current tax year, counting all full-time, part-time, and temporary employees.
The tax due is 6% of the first $7,000 of an employee’s wages during the year.
Deposits for the federal unemployment tax are required for the quarter within which the tax due exceeds $500. Deposits must be made by the end of the month following the end of the quarter.
You’ll want to stay on top of your reporting, in addition to your deposits, on all of these. You do that on IRS Form 940, “Employer’s Annual Federal Unemployment Tax Return,” and IRS Form 941, “Employer’s Quarterly Federal Tax Return.”
Form 940 is due by Jan. 31, but, if you deposited all FUTA tax when due, you have until Feb. 10 to file.
File your initial Form 941 for the quarter in which you first paid wages that are subject to Social Security and Medicare taxes or subject to federal income tax withholding. The form is due by the last day of the month that follows the end of the quarter.
If you made timely deposits in full payment of your taxes for the quarter, you can file Form 941 by the 10th day of the second month that follows the end of the quarter. For example, you may file it by May 10 for the first quarter (as opposed to April 30 if you didn’t).
Going forward, you must file Form 941 every quarter (i.e., three months), regardless of whether you have any taxes to report—unless you’re a seasonal employer or are filing your final return.
You must also file IRS Form W-2, “Wage and Tax Statement,” to report each employee’s annual wages, deductions, and tax withholding to the IRS and furnish a copy to each employee by the last day of January each year. Form W-2 shows the amounts of income, Social Security, and Medicare taxes you withheld in the prior year. You’re also required to send copies to the Social Security Administration and the D.C. Office of Tax and Revenue.
7. Bone up on the D.C. unemployment insurance and paid family leave requirements
Employers that pay wages to one or more employees for performing services in the District of Columbia must pay unemployment insurance taxes on the first $9,000 of wages paid to each employee (the state unemployment insurance tax is on top of the federal unemployment tax). It doesn’t matter whether the services are performed on a full-time, part-time, or temporary basis. An employer becomes liable the first day that wages are paid for services provided in the District of Columbia and must register online with the Department of Employment Services.
New employers are assigned a standard tax rate equal to the average rate of contributions paid by all employers the preceding year, or 2.7%, whichever is higher. After 36 months of liability, your account will be rated on your claims experience as of the rate computation date (June 30).
Generally, higher rates are assigned to employers with high employee turnover because their unemployment experience results in greater employee payouts. But several factors determine the actual experience rate, including:
• The amount of benefits paid to former employees and charged to your account (every quarter, employers receive a charge statement detailing all charges against the account for that quarter),
• The amount of unemployment insurance taxes paid, and
• The average size of the employer’s annual taxable payroll for the three preceding years.
Your tax rate is also affected by the status of the Unemployment Insurance Trust Fund. During each calendar year, one of six tax tables is in effect, depending on the balance in the Trust Fund as of the prior September 30. You should receive a tax rate notice every December or January.
The Department of Employment Services requires all employers with five or more employees to file Contribution and Wage Reports online. Employers with fewer than five employees may submit the quarterly contribution and wage report by paper using Form UC30, “Employer’s Quarterly Contribution and Wage Report.”
Quarterly reports are due on the last day of the month following the quarter’s end. For annual filers, the report deadline is April 15.
Any business that pays unemployment insurance taxes for its employees in the District of Columbia is also required to pay paid family leave contributions. D.C.’s Paid Family Leave Act provides covered employees paid time off from work for qualifying parental, family, medical, and prenatal events.
The leave program is funded by a quarterly employer payroll tax of 0.62% of covered employees’ total gross wages. These quarterly contributions are based on the immediate past quarter of wages paid, on the same reporting schedule as the unemployment insurance tax. Unlike unemployment insurance contributions, though, no wage cap applies to the amount of wages subject to contribution. And you must pay the tax even if you provide additional leave benefits to your workers.
Finally, Washington, D.C., also requires employers to pay an administrative assessment of 0.2% on taxable wages reported each quarter. The assessment rate is applied to the same $9,000 wage base as the unemployment insurance tax rate. The maximum amount is $18 per employee.
8. Secure workers’ compensation insurance coverage
D.C. employers are required to have workers’ compensation insurance if they have at least one employee. Most employers secure coverage by purchasing a policy from an insurance company licensed in the District of Columbia.
Employers may apply to the Office of Workers’ Compensation to be certified as self-insured, meaning they would be liable for any benefits owed to injured or ill employees. Applicants for self-insured status may be required to post a substantial bond. They must also secure and maintain coverage until their self-insured status is approved. Failure to do so can result in a fine of up to $10,000.
9. Post the mandatory labor law posters
Employers must display a variety of federal and state employment law-related posters in a conspicuous location in the workplace. The posters generally inform employees of their rights and their employers’ responsibilities.
Federally mandated posters may include:
- Fair Labor Standards Act Minimum Wage
- Know Your Rights: Workplace Discrimination is Illegal
- Job Safety and Health: It’s the Law
- Your Employee Rights Under the Family and Medical Leave Act
- Your Rights Under USERRA
The U.S. Department of Labor has an online “poster advisor” to help employers determine which posters they need to display.
Mandatory posters for D.C. employers include:
- DC Family and Medical Leave Act
- Notice to Employees: Information on Paid Family Leave in the District of Columbia
- Equal Employment Opportunity
- DC Parental Leave Act
- Protecting Pregnant Workers Fairness Act
- District of Columbia Minimum Wage
- Information on Unemployment Compensation
- Office of Workers’ Compensation Employee’s Rights and Obligations
10. Know the relevant laws
Employers are subject to a wide range of federal and state employment-related laws, including the following:
- Fair Labor Standards Act
- Title VII
- Americans with Disabilities Act
- Age Discrimination in Employment Act
- Pregnancy Discrimination Act
- Affordable Care Act
- Family and Medical Leave Act
- Occupational Safety and Health Act
- District of Columbia Human Rights Act
- District of Columbia Family and Medical Leave Act
- District of Columbia Paid Leave Law
Also, beginning July 1, 2023, the minimum wage in D.C. is $17 per hour for all workers, regardless of the size of the employer.
Failure to comply with any of these D.C. or federal laws can lead to costly fines, penalties, lawsuits, and reputational damage.
Including the steps outlined above as part of your regular hiring process will help you to stay on the right side of the law and avoid administrative headaches, or worse, down the road. Gusto’s payroll service can simplify matters by making it easier to pay employees and automatically file your payroll taxes.
