How to Hire Your First Employee

Step 1: Get a Federal EIN if You Don't Have One

Before you can legally pay an employee, you need a federal Employer Identification Number from the IRS, which is always free and typically issued immediately through the online application. You'll use this number on every federal and state payroll filing going forward.

Step 2: Verify Work Eligibility With Form I-9

Per U.S. Citizenship and Immigration Services, all U.S. employers must properly complete Form I-9, Employment Eligibility Verification, for every individual they hire, including both citizens and noncitizens. You examine the employee's identity and work authorization documents, record the information on the form, and retain it for three years after the date of hire or one year after employment ends, whichever is later. The completed form is kept on file, not filed with the government, but must be available for inspection by authorized federal officials.

Step 3: Collect Form W-4 for Tax Withholding

Each new employee completes Form W-4, the Employee's Withholding Certificate, which you use to determine how much federal income tax to withhold from their pay. The IRS recommends an employee complete a new W-4 whenever their personal or financial situation changes, not just at hire.

Step 4: Report the New Hire to Your State

Federal law requires every state to operate a new-hire reporting program, which helps state child support agencies locate parents who owe support. California, for example, requires employers to report a new or rehired employee within 20 calendar days of their start-of-work date, providing the employer's EIN and the employee's name, Social Security number, and start date. Confirm your own state's specific deadline and reporting method, since some states allow a shorter window.

Step 5: Register for State Unemployment Insurance

Separately from new-hire reporting, you generally need to register with your state's workforce or labor agency for unemployment insurance once you have an employee. See how to register for state employer taxes for how this registration works and the agencies involved in different states.

Step 6: Post Required Workplace Notices

The Department of Labor requires covered employers to display the official Fair Labor Standards Act poster, often called the "Employee Rights" or "It's the Law" poster, outlining minimum wage and overtime requirements. Additional federal and state posting requirements commonly apply once you have employees, covering topics like workplace safety and anti-discrimination protections.

Step 7: Understand Minimum Wage and Overtime Rules

The federal minimum wage has been $7.25 an hour since July 24, 2009, and an employee is entitled to whichever is higher between the federal rate and their state's minimum wage. The Fair Labor Standards Act also requires overtime pay of at least one and one-half times the regular rate for hours worked over 40 in a workweek, for employees who are covered and classified as nonexempt.

Step 8: Keep Required Records

Beyond Form I-9, the Fair Labor Standards Act requires employers to keep accurate records of employee time worked and wages paid. Set up a payroll system or work with a payroll provider that keeps these records organized from the first paycheck, not after an issue arises.

Step 9: Consider Workers' Compensation and Other Insurance

Most states require workers' compensation insurance once you have employees, handled through a separate state fund or private insurer rather than your tax or labor agency registrations. Confirm your specific state's requirement, since a few states treat this differently depending on industry or employee count.

Classify Employees and Contractors Correctly From the Start

Whether a worker is an employee or an independent contractor affects nearly every requirement described here, including tax withholding, minimum wage, and overtime. Misclassifying an employee as a contractor to skip these steps is a common and costly mistake, since back taxes and penalties can apply once the correct classification is identified.

Deadlines Are Tied to the Hire, Not Your Convenience

New-hire reporting and Form I-9 completion both run on a clock that starts at hire, not whenever you get around to the paperwork. Build these into your hiring process itself rather than treating them as an afterthought.

Multi-State Hiring Means Multiple Registrations

If your first employee works in a different state than your business is based, you generally need to register for unemployment insurance, and comply with new-hire reporting, in the state where the employee actually works, not necessarily your own state.

Payroll Software Can Reduce the Administrative Load

Many new employers use a payroll provider specifically because it automates withholding calculations, filing deadlines, and recordkeeping across federal and state requirements, reducing the chance of a missed deadline on a first hire.

This Is Not Legal or Tax Advice

Employment and tax requirements vary by state and change over time. Talk to a payroll provider, tax professional, or employment attorney to confirm your specific obligations before your first hire's start date.