When you need to hire new employees, odds are that your business is thriving and you already have your hands full. But hiring brings with it more than just more hands on deck—it also brings myriad legal obligations after the hiring process is over.
Here are nine steps Maine employers should take to help ensure they stay on the right side of federal and state employment laws.
1. Register as an employer for taxes
The first step is to register as an employer with the Internal Revenue Service and Maine Revenue Services (assuming you haven’t already done so).
You must obtain a federal employer identification number (FEIN) from the Internal Revenue Service before registering with Maine. You can apply for a FEIN with IRS Form SS-4, “Application for Employer Identification Number.”
Then visit the Maine Tax Portal to register with the state online. You’ll need your:
- FEIN (for sole proprietors, your Social Security Number)
- Business legal name
- Activity start date for the business
- Contact information for a business representative
- Contact information for your business officer(s) including title(s) and Social Security Number(s)
- Physical and mailing address information
- Activity start dates, filing frequencies, and fiscal months for each tax type for which you’re registering (for example, income tax withholding)
You can also download a registration application on the Maine Revenue Services General Forms Page or order an application by calling (207) 624-7894.
2. Verify employee eligibility
All new employees must complete the U.S. Citizenship and Immigration Services’ Form I-9, “Employment Eligibility Verification.” The new hire 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. You must keep it on file for three years after the date of hire or one year after the employment ends, whichever is later.
Maine doesn’t currently require employers to use the federal E-Verify system for new employees.
3. Be prompt with your new hire reporting
The federal Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) requires all employers to report certain information on their new employees, rehired employees, and independent contractors to the Maine Division of Support Enforcement and Recovery. The information is used to locate parents who owe child support.
Under Maine law, you must report information on new hires or rehired employees within seven days of the date of hire—even if they quit before the report is due. You should report any individual who receives an IRS Form W-2, “Wage and Tax Statement,” and any independent contractor when reimbursement for their services is anticipated to equal or exceed $2,500 in a year.
Maine provides three methods for reporting your new hires:
- If you’re reporting more than 25 New Hires, you must use one of the electronic options. Send an email to [email protected] to set up electronic reporting.
- Register through the New Hire Portal. If you have multiple new employees to report, you can upload a text file rather than entering them individually.
- Fax the New Hire Report Form to (207) 287-6882 or (800) 437-9611 (in state only).
Maine employers that fail to meet the reporting requirements are subject to a civil penalty of up to $200 per month for each violation.
Note that Maine also uses new hire reports to fight unemployment compensation fraud. It cross-matches the New Hire Database against its database of those receiving benefits.
4. Prepare for your Maine unemployment compensation duties
The Maine Employment Security Law requires employers to pay taxes (or “contributions”) on wages paid to workers. Generally, an employer becomes liable for the taxes when it pays workers $1,500 or more in gross wages in a calendar quarter or for work performed in employment in any part of the day in 20 weeks in the calendar year.
The Maine Department of Labor has developed a secure online application on ReEmployME where you can register to determine your liability for the unemployment insurance tax. You’ll receive a notice of liability status a few days after you complete your online registration.
If you’re found liable, you’ll need to create an account in ReEmployME so you can electronically file quarterly wage reports and pay your unemployment compensation contributions. The notice of liability will include your account number. Several factors will affect your unemployment compensation insurance tax rate.
The Bureau of Unemployment Compensation recalculates the Reserve Ratio for each Maine employer every year, which may result in a rate change. All employers are then arrayed into a list in descending order by their Reserve Ratios, divided into 20 categories. The most positive ratios are in the lowest rate categories and are designated as “1.” The highest rate category has the most negative Reserve Ratios and is designated as “20.”
Your individual experience rate is calculated each year after July 31, and takes into account all payments and benefits charges made to your account before that date. Three variables are used to compute your rate:
- Your three-year average taxable payroll,
- The amount of benefits charged to your account in the past year, and
- The taxes paid from July 1 of the previous year to July 31 of the current year.
A monthly statement, “Record of Charges Under Experience Rating” (Form Me. B-29), will be sent to you with the names of former workers who have received unemployment compensation benefits and the amount of such benefits that have been charged to your experience rating. These charges may affect your annual unemployment compensation tax rate.
Maine’s unemployment compensation insurance tax rates for 2023 range from 0.22 percent to 5.69 percent. The new employer tax rate for 2023 is 2.19 percent. The tax is paid on the first $12,000 only of the gross wages you pay a Maine employee in a calendar year.
Your minor children, spouse, and parents are exempt from taxation. Sole proprietors are exempt, too. Other exemptions might also apply.
You make quarterly contributions online with Form ME-UC1, “Maine Unemployment Contributions Quarterly Report.” Your quarterly wage report goes on Schedule 2, “Maine Unemployment Contributions Wages Listing.”
These forms are due on or before the last day of the month following the close of each calendar quarter, even if you had no employment for that period. The due dates are:
- January 1 – March 30: April 30
- April 1 – June 30: July 31
- July 1 – September 30: October 31
- October 1 – December 31: January 31
Dropping the ball on your Maine unemployment compensation obligations can result in two types of penalties:
- Contribution penalties accrue to your account when you‘re late making your unemployment compensation contributions. The current contribution penalty is 1 percent of the unpaid contributions due per month, up to a maximum of 25 percent of the amount unpaid.
- Payroll penalties accrue to your account every quarter that you’re late submitting your quarterly wage reports. Currently, the payroll penalty is the greater of $25 or 10 percent of the taxes due.
5. Comply with Maine’s income tax withholding rules
All Maine employers must withhold state income tax from their employees’ pay. Several forms are required as part of the withholding process, including:
- Form W-ME, “Maine Employee’s Withholding Certificate,” to determine the amount to withhold
- Form 941ME, “Employer’s Return of Maine Income Tax Withholding (quarterly or semiweekly)
- Form W-3ME, “Reconciliation of Maine Income Tax Withheld” (annual)
You may make payments electronically using either the portal (via an ACH debit) or an Electronic Funds Transfer (via an ACH credit). Payments are made semiweekly or quarterly:
Semiweekly: If you reported Maine income tax withholding of $18,000 or more for the 12-month lookback period ending June 30 of the prior calendar year, you must make your income tax withholding payments on a semiweekly schedule. Once you’re required to begin making semiweekly payments, you must continue on that schedule regardless of the amount reported during the lookback period.
Semiweekly payments are based on payment of wages and are due according to the following schedule:
- For wages paid on Wednesday, Thursday, or Friday, remit withholding payment on or before the following Wednesday.
- For wages paid on Saturday, Sunday, Monday, or Tuesday, remit withholding payment on or before the following Friday.
Quarterly: Employers that reported Maine income tax withholding of less than $18,000 for the 12 months ending June 30 of the prior calendar year are required to make payments quarterly.
Quarterly payments are due the last day of the month following the end of the quarter or the next business day if the last day falls on a Saturday, Sunday, or a holiday. The payment is due on the same day as the quarterly return.
6. Know your federal payroll tax obligations
In addition to Maine state income tax, you 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 to determine how much of an employee’s paycheck you should withhold for federal income taxes. Make sure your employees complete it properly.
You don’t need to submit Form W-4 to the IRS, but you must keep a copy on file for at least four years. It verifies that you’re withholding federal income tax according to the employee’s directions and must be available for IRS inspection upon request.
You’re also required to 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 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 (for a total tax of 12.4 percent) and 1.45 percent of all wages for Medicare (a total of 2.9 percent).
You also may be required to withhold an Additional Medicare Tax. Employers must withhold the 0.9 percent tax from 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. Before the beginning of each calendar year, you’re required to determine which schedule you must use (monthly or weekly) for that 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 6 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. Deposits must be made by the end of the month following the end of the quarter.
You’ll want to stay up-to-date on your reporting, as well as your deposits, for all of these types of taxes. You report 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 January 31, but if you deposited all FUTA taxes when due, you have until February 10 to file.
File your initial Form 941 for the quarter in which you first paid wages subject to Social Security and Medicare taxes or federal income tax withholding. The form is due by the last day of the month that follows the end of the quarter.
If you make timely deposits in full payment of your quarterly taxes, you can file Form 941 by the tenth 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).
After filing your first Form 941, you must file for every quarter, regardless of whether you have any taxes to report—unless you’re a seasonal employer or are filing your final return.
In addition, 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 you withheld in the prior year. You’re also required to send copies to the Social Security Administration and Maine Revenue Services.
7. Line up workers’ compensation coverage
Almost all Maine employers must have workers’ compensation coverage, including a sole proprietor with employees. You can obtain it from a licensed broker who sells property and casualty insurance and specializes in or is familiar with business insurance. Some employers may qualify to self-insure.
Certain exemptions are available. For example, a “bona fide” owner of at least 20 percent of the outstanding voting stock of a corporation can waive, in writing, all of the benefits provided by workers’ compensation for themselves. The parent, spouse, or child of a sole proprietor, partner, or bona fide owner of 20 percent of the voting stock can also waive, in writing, all the benefits provided by workers’ compensation.
The Maine Workers’ Compensation Act doesn’t require owners of limited liability companies to be covered by workers’ compensation insurance, but they don’t need to fill out waiver forms. The parent, spouse, or child of a member of a limited liability company who’s employed by the company may waive the workers’ compensation benefits for themselves but must do so in writing.
The cost of workers’ compensation insurance is based on the hazards associated with the type of jobs related to your business classification. Each business has a major classification or governing class that identifies it as a certain business type. It’s the business itself that’s classified—not the individual jobs within that business. For example, a manufacturing business has one major governing class assigned to its manufacturing type, such as die casting or lime manufacturing.
Workers’ compensation insurance premiums are determined by multiplying the rate assigned to a specific classification for every $100 of payroll in that classification. Rates vary by classification and by insurer. Many insurers have more than one rate level, with lower rates assigned to employers with strong safety plans and better “experience ratings” (essentially, claims histories) than other employers.
Experience rating is a procedure where an employer’s premium is modified to reflect its expected experience based on its prior workers’ compensation claim history. It compares your loss history to what was expected for your type of business based on the reported payrolls. The experience rating calculation gives more weight to the frequency of injuries; it doesn’t overly penalize an employer for the seriousness of one particular claim.
You’ll qualify for an experience rating when you reach a workers’ compensation premium of at least $9,000 within the most recent 24 months of the experience period. Once you have more than the 24 months’ experience, you qualify when you reach an average annual premium of at least $4,500.
8. Hang your mandatory labor law posters
Under both federal law and Maine law, employers must post several posters in a conspicuous location in the workplace. The federal posters may include the following:
- Fair Labor Standards Act Minimum Wage
- 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
The U.S. Department of Labor has an online “poster advisor” to help employers determine which posters they need to display.
Maine also requires the following:
- Child Labor Laws
- Minimum Wage
- Regulation of Employment
- Whistleblower’s Protection Act
- Workers’ Compensation
Maine encourages employers to post the following optional posters:
- Maine Human Rights Act – Equal Employment Rights
- Equal Pay Poster
- Domestic Violence in the Workplace Poster
- Maine Workplaces Support Nursing Moms
- Nursing Mother
- Social Media
- Service Dogs Welcome
9. Brush up on the applicable employment laws
Maine employers are subject to a wide variety of federal laws and state laws that give their employees certain protections. Those may include:
- Fair Labor Standards Act (minimum wage and work hours)
- Title VII
- Americans with Disabilities Act
- Age Discrimination in Employment Act
- Pregnancy Discrimination Act
- Affordable Care Act (health care insurance)
- Family and Medical Leave Act
- Occupational Safety and Health Act (OSHA)
The state also has several laws that may require you to provide Maine employees with time off, including:
- Maine Family and Medical Leave Requirements Act
- Earned Paid Leave Law
- Employment Leave for Victims of Violence Law
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