Hiring your first employee is a great investment in your business’s growth, but the hiring process can be intimidating. Between paperwork, employer taxes, and labor laws, there are a lot of hiring regulations to account for.
As a business owner in Michigan, it’s crucial to know your state’s employer obligations. Luckily, we’ve got you covered. Here are six steps to hiring employees in Michigan:
Step 1: Take care of logistics
Set yourself up for success by handling these administrative tasks right now:
Apply for an employer identification number (EIN) on the IRS website
If you’re registered as a partnership, multi-member limited liability company (LLC), C corporation, or S corporation, you likely already have an EIN, also known as your federal tax ID. However, if you run a sole proprietorship or single-member LLC and haven’t yet obtained an EIN, you need to get one before hiring employees.
You can apply for an EIN on the IRS website by completing an application.
Register with the Michigan Department of Treasury
Every Michigan employer that is required to withhold federal income taxes also has to withhold state income taxes. If you haven’t already registered with the Michigan Department of Treasury, you can start by creating an account with Michigan Treasury Online (MTO).
Once you provide your business details and personal information, you’ll receive a Michigan tax ID number and can file returns and make tax payments. Create an MTO account.
Register for Michigan’s unemployment insurance agency
Employers in Michigan need to register with the Michigan Unemployment Insurance Agency (UIA) to pay unemployment insurance taxes. The state of Michigan requires all employers with employees covered by unemployment insurance (UI) law to make unemployment insurance contributions. Those contributions help financially support Michigan workers who become unemployed through no fault of their own.
Register with the Michigan Department of Labor and Economic Opportunity or read the UIA’s employer resource page for additional information.
Get workers’ compensation insurance
Almost all Michigan employers are subject to the state’s Workers’ Disability Compensation Act, which requires employers to provide benefits to employees in the event of an injury on the job. Workers’ compensation insurance doesn’t just give employees medical and wage-loss benefits—it also offers some liability protection for the employer.
The Michigan Department of Labor and Economic Opportunity requires employers to obtain workers’ compensation insurance if they have one or more employees working at least 35 hours a week for 13 weeks or longer in a calendar year. To get workers’ compensation insurance in Michigan, the best option is to search for a private carrier within the state.
For more resources and information, check out Michigan’s Employer Insurance Requirements guidebook.
Register for Michigan city taxes
If you have a business location or conduct business in certain Michigan cities, you’re also required to withhold city income taxes for your employees.
Here are the cities that impose withholding taxes for employers:
- Battle Creek
- Benton Harbor
- Big Rapids
- East Lansing
- Muskegon Heights
- Port Huron
- Grand Rapids
- Highland Park
To pay these taxes, you need to register with the city’s local office and make payments through their treasury department.
Step 2: Understand your hiring costs and tax liability
Hiring employees in Michigan can be costly, so it’s helpful to conduct a budget breakdown. There are three main areas for your budget planning: 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 Michigan employer 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 Michigan is 2.7% on a wage base of $9,500.
- 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%, potentially dropping your FUTA tax liability to 0.6%.
- If you have employees, you have to withhold state income tax from their pay. As a Michigan employer, you’ll pay a 4.05% withholding tax rate and report that on a monthly, quarterly, or annual basis depending on what the Michigan Treasury determines. Learn more about Michigan withholding tax.
- If you conduct business in one of the 24 Michigan cities listed above, you’re also required to withhold city income taxes for your employees. Local taxes vary, so make sure you check with your city’s Department of Revenue.
Do you have enough in your budget to hire an employee in Michigan? Use this calculator to find out.
Step 3: Check Michigan labor laws
Before you hire a new employee in Michigan, take the time to review federal labor laws and state employment laws. That includes state law around minimum wage, overtime, pay transparency and reporting, pay equity, and classification differences between full-time employees and independent contractors.
Here are a handful of key Michigan labor laws from the Michigan Department of Labor and Economic Opportunity:
- The minimum wage for employees in Michigan is $10.10 per hour as of January 1, 2023. See additional information about Michigan wage and hour laws.
- Per federal law, Michigan employees who work more than 40 hours in a week must be paid overtime pay, which is 1.5 times their regular rate of pay, unless they fall into the exempt category.
- Michigan law stipulates that it’s an employment-at-will state, meaning employers have the right to 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.
- The state of Michigan doesn’t require employers to provide paid sick leave, vacation time, jury duty pay, or severance—that’s up to the individual employer.
- Under the Equal Employment Opportunity Commission’s Equal Pay Act, it’s illegal for Michigan employers to pay an employee less than the opposite sex for the same work.
- Michigan’s Elliott-Larsen Civil Rights Act means Michigan employers can’t discriminate against job applicants or employees on the basis of race, religion, nationality, sex, age, height, weight, or marital status.
- Michigan has a “ban the box” law that prevents employers from requesting a potential employee’s criminal history on a job application.
Step 4: Fill out the Michigan new hire reporting form and furnish forms to employee
When you hire a new employee in Michigan, you need to report information about that employee to the state’s child support program within 20 days of the employee’s official hiring date (rehired employees also count). 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 a commission.
Create an online account with the Michigan New Hires Operation 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, carve out some time to complete these other important hiring documents, including:
- Employment contract: It’s a good idea to write an employment contract detailing the job responsibilities your employee will have, the wages you’ll pay, and a summary of 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 Form I-9 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 from 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 MI-4: You also need to give employees Form MI-4, the Employee’s Michigan Withholding Exemption Certificate, to fill out. If you hire in a city that imposes local withholding taxes, you also need to have your employee fill out the correct withholding form. See a list of forms here.
Make sure you keep copies of all the above documents as part of your business’s records.
Step 5: Set up your payroll system
Now that you have employees, 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. Regardless of which payroll method you use, don’t forget to account for the following taxes:
- 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 on a quarterly basis and Form 940 annually.
- State income withholding taxes: Michigan employers also have to file sales, use, and withholding tax returns. Download the forms here.
- Social Security and Medicare taxes
- Unemployment taxes
Need help determining withholdings for your employees? Check out Gusto’s Michigan hourly paycheck and payroll calculator and Michigan’s salary paycheck and payroll calculator.
Step 6: Display labor law posters and required notices
Michigan requires employers to post certain labor law signs in the workplace, so employees know their rights, benefits, and obligations on the job.
Automate payroll with Gusto
Instead of spending hours a month running payroll manually, consider upgrading to a smarter system. Gusto’s full-service payroll platform is designed for small business owners. Automated payroll and straightforward tax filing make it easier to pay your new employees on time and keep up with business taxes. Create an account today to get started or check out Gusto’s guide to Michigan payroll services and regulations.