What makes an employer of record? The Internal Revenue Service (IRS) says you are automatically an employer if you have employees or are a partnership or corporation or file excise tax returns.
As you can see, it doesn’t take much for IRS to qualify you and require you to have an Employer Identification Number (EIN) (also known as FEIN for Federal Employer Identification Number). This is a 9-digit number that the federal government uses to identify your company, much like our social security numbers identify each of us.
The reason IRS lists a partnership or corporation is because those types of businesses automatically have employees. Even just two partners in a legal partnership become employees of the partnership entity. The same holds true for a one-person corporation; you are now an employee of the corporation. These are both different than having a sole proprietorship and hiring another person as an employee.
As an employer, your company is subject to withholding and paying appropriate payroll taxes. State governments often have additional taxes or fees to consider, so don’t forget to check. The government is quite helpful in providing any materials you may need in case you decide to process payroll yourself rather than using a payroll service.
Just in case you’re thinking this seems like too much effort, remember that the government always has a variety of penalties and fines at its disposal to ensure compliance.
