Hiring your first employee is one of the most exciting and legally consequential moments in a business's life. The excitement is warranted—it means you have enough work to share. The legal consequence is equally real. Miss a step and you risk penalties, back taxes, or employment claims.
Before You Post the Job
Obtain an Employer Identification Number (EIN) from the IRS if you do not already have one. Register with your state's department of revenue for payroll tax withholding. Verify that your business entity type—sole proprietor, LLC, S-corp—is correctly set up for employing people, and consider switching if it is not.
Onboarding Paperwork
Every new hire requires a completed W-4 (federal withholding elections), an I-9 (employment eligibility verification completed within three days of start), and state-specific new hire reporting (most states require this within 20 days). Keep all onboarding documents in a secure personnel file, separate from payroll records.
Payroll and Benefits Setup
Choose a payroll provider—Gusto, Rippling, and QuickBooks Payroll are popular options. Payroll providers calculate and remit federal and state withholding, Social Security, and Medicare taxes automatically. Set up workers' compensation insurance before the first day of work; most states require it the moment you have any employees.
Key Takeaways
- EIN and state payroll registration must come before the first paycheck.
- I-9 verification must happen within three days of the start date.
- Workers' compensation is required from day one in most states.
