Bringing on a new employee is often a time of promise and excitement. But it’s always a time that triggers numerous legal obligations that can trip you up if you’re unaware. Here are ten steps you should take to stay on the right side of the law when you hire a new employee in Iowa.
1. Register for tax purposes
If you haven’t already done so, you need to register as an employer with the IRS and the Iowa Department of Revenue (DOR).
First, you’ll obtain a federal employer identification number (FEIN). You apply for that using IRS Form SS-4, “Application for Employer Identification Number.” When you have a FEIN, you can complete your business permit registration with the Iowa DOR. You can register online or via paper form.
2. Check employment eligibility
To ensure that your workforce is eligible to work in the United States, you should require every new employee to complete the U.S. Citizenship and Immigration Services’ Form I-9, “Employment Eligibility Verification.”
The employee must fill out Section 1 of the form by their first day of employment, and you need to complete Section 2 by the end of the third business day after the employee begins work. Keep I-9s on file for three years after the date of hire or one year after the employment ends, whichever is later.
While some states require private employers to use the federal E-Verify system to check eligibility status, Iowa doesn’t.
3. Comply with new hire reporting requirements
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. The information is used to locate parents who owe child support.
Centralized Employee Registry
P.O. Box 10322
Des Moines IA 50306-0322
Alternatively, you can fax it to 800-759-5881.
Iowa also uses this information to combat unemployment insurance fraud. If an individual is properly reported on the new hire list and is receiving unemployment benefits, an investigation is conducted to determine if the individual is entitled to receive benefits or has made a fraudulent claim.
4. Determine your liability for unemployment insurance
Under the Iowa Employment Security Law, every individual (sole proprietor) or type of organization that currently has or previously had one or more employees within Iowa must register with Iowa Workforce Development. You will need to have the following items available:
- Social Security numbers, names, titles, and addresses of owners, partners, corporate officers, or members of your business (if the business is a limited liability company [LLC], you will also need to provide the percentage of ownership for each LLC member)
- Date employment began and first wages paid date
- Amount of wages paid to regular, agricultural, domestic employees, or corporate officers during the current and preceding year
- Number of weeks employees worked for you in Iowa during the current or preceding year
- Address for where work is performed in Iowa
- Name and address of the business you acquired, if applicable
- Physical address(es) and type of work performed in Iowa
Based on the information you provide, Iowa Workforce Development will determine whether you must pay unemployment insurance contributions.
If you’re found liable for contributions, you’ll need to submit your wage details and make electronic payments every quarter—even if you have no employees in a specific quarter.
Unemployment insurance taxes are collected from employers according to eight different tax rate tables, each of which has 21 rate brackets (or ranks). Rates vary from 0.000% to 9.000% in Table 1 and from 0.000% to 7.000% in Table 8. In other words, table 1 collects the most unemployment insurance tax, and Table 8 collects the least.
The tables are designed to help maintain the stability of the Unemployment Insurance Trust Fund. So, when the fund’s balance is low, a table that collects more revenue applies, and vice versa. For 2023, Table 8 is in effect.
New non-construction employers are assigned the rate from rank 12 of the table in effect (1.000% in 2023); new construction employers are given the rate from rank 21 (7.000% in 2023). The rate is applied to a wage base of $36,100 in 2023, meaning you need only pay unemployment insurance taxes on the first $36,100 of an employee’s wages.
5. Prepare for your Iowa withholding responsibilities
Iowa employers generally must withhold funds from an employee’s paycheck for state income taxes.
To determine the amount, you first should have the employee complete Form IA W-4, “Employee’s Withholding Exemption Certificate.” From there, the amount withheld is calculated using the Iowa withholding tax tables, withholding calculator, formulas, or percentages.
The due dates for filing your wage reports and making payments will depend on the type of filer you are:
- Quarterly: If you remit less than $6,000 tax per year (less than $500 per month), you must file a quarterly return for each calendar quarter for which you’re registered.
- Monthly: If you remit $6,000 – $120,000 tax per year ($500 – $10,000 per month), you must file two monthly deposits and one quarterly return for each calendar quarter.
- Semi-monthly: If you remit more than $120,000 tax per year (more than $10,000 per month; more than $5,000 semi-monthly), you must file six semi-monthly deposits and one quarterly return for each calendar quarter.
You must file for each applicable period during the calendar year, even if compensation was not paid during a period. If no wages or compensation was paid during a period, just enter zeros on the return/deposit for that period.
Notably, Iowa offers some tax credits that employers can claim against withholding — for example, the Iowa New Jobs Training Program Credit and the Supplemental Jobs Credit.
6. Know your federal payroll tax obligations
In addition to Iowa state income tax, employers generally must withhold federal income tax from an employee’s paycheck. You’ll need to collect IRS Form W-4, “Employee’s Withholding Certificate,” from each new hire on or before the day they start work. Like its state counterpart, the form is used to determine how much of their pay should be withheld for federal income taxes. Make sure your employees complete it properly.
You aren’t required to submit Form W-4 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. It must be available for inspection if the IRS ever requests it.
You also must withhold each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). FICA is a federal tax that both employers and employees pay.
The 2023 tax rates for both employees and employers are 6.2 percent of the first $160,200 of an employee’s earnings for Social Security and 1.45 percent of all wages for Medicare.
You also may be required to withhold an Additional Medicare Tax. Employers must withhold the 0.9 percent on an individual’s wages paid in excess of $200,000 in a calendar year.
You must deposit federal income tax withheld as well as the employer and employee Social Security and Medicare taxes. You’re expected to determine which schedule you’re required to use—monthly or weekly—before the beginning of each calendar year.
- 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 six percent 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. The tax must be deposited by the end of the month following the end of the quarter.
Take steps to stay up-to-date on your reporting, in addition to your deposits, on all of these.
IRS Form 940, “Employer’s Annual Federal Unemployment Tax Return,” is due by January 31, but if you deposited all FUTA tax when due, you have until February 10 to file.
File your initial IRS Form 941, “Employer’s Quarterly Federal Tax Return,” for the quarter in which you first paid wages subject to Social Security and Medicare taxes or federal income tax withholding. Your Form 941 is due by the last day of the month that follows the end of the quarter.
If you have made timely deposits (in full) of withheld taxes throughout the quarter, then you get an extra ten days to file your quarterly 941 taxes. So (assuming all of your deposits within the quarter have been prompt and complete), you should file by the 10th day of the 2nd month that follows the end of the quarter. For example, you may file Form 941 by May 10 for the 1st quarter (as opposed to April 30, which is when you would be required to file if your deposits within the quarter were not timely or complete).
Going forward, you must file Form 941 every quarter, regardless of whether you have any taxes to report—unless you’re a seasonal employer or are filing your final return.
And employers must furnish a completed wage and tax statement (IRS Form W-2, “Wage and Tax Statement”) to each employee by the last day of January each year. Form W-2 shows the amounts of income, Social Security, and Medicare taxes withheld in the prior year. You’re also required to send copies to the Social Security Administration and the Iowa DOR.
7. Maintain proper payroll records
Employers with employees in Iowa must keep accurate payroll records. The records should include the total number of employees and, for each employee, their:
- Social Security Number
- Days and calendar weeks worked
- Earnings for each period employed
You must keep the records for at least five years after the calendar year in which the wages were paid.
8. Obtain workers’ compensation coverage
All Iowa employers with at least one employee must have workers’ compensation insurance. The state program is administered through the Iowa Division of Workers’ Compensation.
Sole proprietors, partners in a partnership, and members of an LLC aren’t considered employees under Iowa law, so they aren’t covered by the state’s workers’ compensation law. Neither are bona fide independent contractors.
In addition, Iowa law offers several exemptions. For example, limited exemptions exist when the employment is casual and not performed for purposes of the employer’s trade or if the employee’s services are performed in or about the employer’s dwelling. Some exemptions apply only if the employee’s earnings from the employer are less than $1,500 annually. You can elect to cover some classes of exempt employees by purchasing an insurance policy that includes explicitly those employees.
The law allows a proprietor, LLC member, limited liability partner, or partner to elect not to be covered by workers’ compensation. This is done on the Iowa Division of Workers’ Compensation nonelection of coverage form.
Nonetheless, most Iowa employers will need unemployment insurance. You can purchase it from an insurance carrier or apply for self-insured certification.
9. Post legally required posters and notices
Both federal laws and state laws require employers to display a variety of employment law 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
- 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.
Iowa employers must also post the following:
- 9-in-1 Poster
- Equal Employment Opportunity
- No Smoking Iowa Smokefree Air Act (recommended)
- Summary of Work-Related Injuries and Illnesses (required of all employers in high-rate industries having more than ten workers; must be posted annually from February 1 until April 30)
- Safety & Health Protection on the Job (must be at least 8-1/2″ x 14″)
- Unemployment Insurance
- Your Rights Under Iowa’s Minimum Wage
10. Familiarize yourself with relevant employment laws
Employers are subject to a wide range of federal and state employment 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
Potentially relevant Iowa laws, include those addressing:
Failure to comply with these laws can lead to costly fines, penalties, lawsuits, and reputational damage.
The steps above might seem daunting, but automation makes it easier to stay in compliance with the many obligations. Gusto can help.