Are you getting ready to hire a new employee in Arizona? If you are, it’s a good idea to brush up on Arizona’s hiring regulations, employer taxes, and employment laws.
Our guide to hiring in the Grand Canyon state has you covered. Read on for six steps to hiring employees in Arizona:
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 an employer identification number (EIN) on the IRS website
Before hiring employees anywhere, you need to get a federal employer identification number (EIN), also known as a federal tax ID. If your business is already up and running (whether you’re a partnership, multi-member limited liability company (LLC), C corporation, or S corporation), you’ve probably already registered for an EIN.
Register with the Arizona Department of Revenue
If you hire an employee in Arizona, you’re required to withhold state income taxes for that employee. To pay withholding taxes, you need to register with the Arizona Department of Revenue (ADOR) by creating an account on AZtaxes.gov then completing the Arizona Joint Tax Application (Arizona Form JT-1).
Once you provide your business details and personal information, you’ll receive an Arizona withholding ID number.
Register for an Arizona Unemployment Insurance Employer Account Number
Arizona employers must also register with the Arizona Department of Economic Security (DES) to pay unemployment taxes, which help financially support Arizona workers who become unemployed through no fault of their own. In Arizona, you’re required to pay unemployment insurance 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.
Register with DES to apply for an unemployment insurance tax account number. The good news: If you’ve already filled out and submitted Arizona’s Joint Tax Application, you’re a step ahead.
Get workers’ compensation insurance
The Industrial Commission of Arizona requires all employers to obtain workers’ compensation insurance. Workers’ compensation insurance gives employees medical and compensation benefits in the event of a job-related injury while giving you liability protections as an employer.
You can get workers’ compensation insurance in Arizona by applying to become self-insured or by searching for a private insurance carrier in the state. For resources and additional information, check out Arizona’s Workers’ Compensation Insurance FAQs for Employers guidebook or the Arizona Department of Insurance and Financial Institutions website.
Step 2: Understand your hiring costs and tax liability
Hiring a new employee in Arizona means you’ll be covering three main costs: 1) recruiting expenses, like job site subscriptions, 2) your employee’s compensation package, which usually includes a salary, health insurance, paid time off, and other worthwhile employee benefits, and 3) payroll taxes.
Here are the specific Arizona employment taxes to know about:
- 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.
- The annual state unemployment insurance (SUI) tax rate for new employers in Arizona is 2% on a wage base of $8,000.
- 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%.
- As an Arizona employer, you must withhold state income tax from your employees’ pay. Learn more about Arizona withholding tax, including filing deadlines and tax rates.
Do you have enough money to hire an employee in Arizona? Use this calculator to find out.
Step 3: Check Arizona labor laws
As an employer, you need to abide by federal labor laws and state employment 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 key Arizona labor laws from the Industrial Commission of Arizona:
- The minimum wage for employees in Arizona is $13.85/hour through December 31, 2023. See additional information about Arizona wage and hour laws.
- Under federal law (the Fair Labor Standards Act), Arizona 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.
- Arizona 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.
- Under the state’s Fair Wages and Healthy Families Act, Arizona employers must provide their employees with paid sick leave. If you have fewer than 15 employees, your employees accrue one hour of paid sick time for every 30 hours they work, not to exceed 24 hours of paid sick leave per year (unless you decide to allow more as the employer). See the full sick time FAQs from the Industrial Commission of Arizona.
- Under the federal Equal Pay Act, Arizona employers can’t pay an employee less than the opposite sex for the same work.
- Arizona is a “right to work” state, meaning Arizona employers can’t deny a person the opportunity to work based on whether or not that person is part of a labor union.
- Arizona doesn’t require employers to provide paid vacation time or parental leave.
Step 4: Fill out the Arizona new hire reporting form and furnish forms to employee
When you hire new employees in Arizona, you’re legally obligated to report information about those employees to the state within 20 days of the employee’s official hiring date. 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. This applies to newly hired employees and re-hired employees.
First, create an online account with the Arizona New Hire Reporting Center 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.
Next, fill out these other important hiring documents:
- Employment contract: It’s helpful to write an employment contract detailing the employee’s job responsibilities, the wages you’ll pay, and the workplace policies 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. Form W-4 determines how much federal income tax will be withheld from the employee’s paychecks. Download the form.
- Form A-4: You also need to give employees Form A-4, the Arizona Employee’s State Tax Withholding Form, to fill out.
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 federal and state taxes, including the following:
- Federal income withholding taxes: You’ll use Form W-2 to file federal income tax withholding reports to the IRS. You’ll also file Form 941 every quarter and Form 940 annually.
- State income withholding taxes: Arizona employers must also file monthly, quarterly, or annual withholding tax returns using Form A1-APR, the Arizona Annual Payment Withholding Tax Return. Learn more about filing deadlines and instructions here.
- Social Security and Medicare taxes
- Unemployment taxes
Check out our Complete Guide to Arizona Small Business Taxes for more information.
Need help determining withholdings for your employees? Here’s Gusto’s Arizona Hourly Paycheck and Payroll Calculator and Arizona’s Salary Paycheck and Payroll Calculator.
Step 6: Display labor law posters and required notices
Like other states, Arizona 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 Arizona’s posting requirements 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.
Upgrade payroll with Gusto
Being an employer is enough work without having to manually process payroll, too. To save time and effort, consider switching to an all-in-one payroll software. Gusto’s full-service payroll platform makes it easier to pay your employees and file your Arizona small business taxes. Create an account today to get started.