Hiring your first employee as a Financial Planner or Fiduciary Financial Advisor is a significant milestone for your firm.
However, it comes with various compliance obligations that you need to understand and fulfill to avoid legal pitfalls.
This guide will walk you through the key compliance requirements to ensure a smooth and lawful hiring process.
Understand Employment Laws
Federal and State Laws
Familiarize yourself with federal and state employment laws.
These regulations cover minimum wage, overtime pay, worker classification, anti-discrimination policies, and more.
The Fair Labor Standards Act (FLSA) and the Equal Employment Opportunity Commission (EEOC) are essential starting points.
Financial Sector-Specific Regulations
Understand industry-specific regulations that apply to financial planners, including those from the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC).
Ensure your firm adheres to compliance standards set by these regulatory bodies.
Worker Classification
Correctly classify your worker as either an employee or an independent contractor.
Misclassification can lead to penalties and back taxes.
The IRS provides guidelines to help determine the appropriate classification.
Obtain an Employer Identification Number (EIN)
Register for an EIN
Before hiring an employee, you need to obtain an Employer Identification Number (EIN) from the IRS.
This unique number is used for tax reporting purposes.
You can apply for an EIN online through the IRS website.
Set Up Payroll System
Payroll Taxes
Set up a payroll system to manage employee wages, taxes, and deductions.
You are responsible for withholding federal and state income taxes, Social Security, and Medicare taxes from your employee's paycheck.
Payroll Schedule
Establish a payroll schedule that complies with state regulations.
Ensure timely and accurate payment of wages to your employee.
Professional Payroll Services
Consider using professional payroll services tailored for financial firms to ensure accuracy and compliance.
Employee Forms and Documentation
Form W-4
Have your employee complete a Form W-4 to determine the amount of federal income tax to withhold from their paycheck.
Form I-9
Complete Form I-9 to verify the employee's eligibility to work in the United States.
Keep this form on file for each employee and be prepared for potential audits.
Employment Agreement
Draft a comprehensive employment agreement that includes specific clauses related to confidentiality, non-compete, and compliance with FINRA and SEC regulations.
Register for State Unemployment Insurance (SUI)
SUI Registration
Register for State Unemployment Insurance (SUI) with your state's labor department.
You will need to pay unemployment taxes based on your employee's wages.
State-Specific Requirements
Check for any state-specific requirements regarding unemployment insurance and ensure compliance with all applicable regulations.
Workers' Compensation Insurance
Obtain Coverage
Obtain workers' compensation insurance to cover medical expenses and lost wages if your employee gets injured on the job.
This insurance is mandatory in most states.
Compliance
Ensure your coverage meets state requirements and maintain proof of insurance to avoid penalties.
Post Required Notices
Labor Law Posters
Display required labor law posters in a visible location within your workplace.
These posters inform employees of their rights and protections under federal and state laws.
Regular Updates
Keep these posters up-to-date with the latest regulations to remain compliant.
Develop Employee Handbook
Company Policies
Create an employee handbook outlining company policies, procedures, and expectations.
Include sections on workplace conduct, anti-discrimination, and harassment policies.
Compliance Policies
Incorporate compliance-related policies such as leave entitlements, health and safety guidelines, and reporting procedures for workplace issues.
Financial Planning-Specific Policies
Develop policies specific to the financial planning sector, such as ethics guidelines, continuing education requirements, and client confidentiality rules.
Report New Hires
State Reporting
Report your new hire to the state’s new hire reporting agency.
This information is used for child support enforcement and other legal purposes.
Federal Requirements
Ensure compliance with any additional federal reporting requirements for new hires.
Provide Mandatory Benefits
Health Insurance
Depending on the size of your firm, you may be required to offer health insurance to your employees under the Affordable Care Act (ACA).
Retirement Plans
Consider offering retirement plans, such as a 401(k), to attract and retain top talent.
Ensure that your plans comply with the Employee Retirement Income Security Act (ERISA).
Stay Updated on Compliance Changes
Continuous Education
Stay informed about changes in employment laws and compliance requirements.
Regularly review legal resources and consult with HR professionals or legal advisors.
Training
Provide ongoing training for yourself and your management team on compliance-related topics to ensure your firm remains up-to-date with current regulations.
Financial Planning-Specific Training
Ensure your staff receive training specific to financial planning, including updates on FINRA and SEC regulations, investment advice standards, and ethical practices.
Get Started Today
Ready to hire your first employee and ensure compliance with all regulations?
Contact us today to learn how we can help you navigate the complexities of hiring and compliance.
Whether you need assistance with payroll setup, employee documentation, or compliance training, we’re here to help you succeed.
See our membership pricing plan.
Let’s build a compliant and successful team that drives your firm’s growth!