What are the legal responsibilities for employee compensation?

As an employer, you are responsible for documenting that your employee is eligible to work in the United States. To do this, the employee must complete Immigration and Naturalization Service Form I-9, Employment Eligibility Verification. You, the employer, must keep this form on file for as long as the employee works for you.

For small nonprofits unfamiliar with payroll taxes, finding a payroll service can be well worth the $50 monthly cost. They’ll walk you through the following:

  • Most state taxing authorities require you to register as an employer (contact your secretary of state’s office). Once registered, you will be assigned an account number for purposes of remitting unemployment insurance, as well as state income tax withheld from your employee’s paycheck. Some states do not require nonprofits to pay the unemployment insurance in advance—but only after someone leaves and files for coverage.You should check with the state taxing authorities in your foundation’s home state—and also your employee’s home state (if different)—to determine the appropriate registration process.
  • To determine income tax withholding from your employee’s paycheck, the employee should complete Internal Revenue Service (IRS) Form W-4, Employee’s Withholding Allowance Certificate. For a copy of Form W-4, call your local IRS office.

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