Hiring your first employee: the checklist
If you control how, when and where the work is done, the worker is usually an employee. Before the first paycheck, get an EIN, register with your state for unemployment and withholding taxes, get workers’ comp insurance and set up payroll. On day one, complete Form I-9, have them fill out a W-4 and any state form, and report the new hire to your state. Withhold and pay payroll taxes, follow minimum wage and overtime rules, and post required notices.
Your checklist
- Decide employee vs contractor
- Get an EIN and register with your state
- Get workers’ comp insurance
- Complete I-9 and W-4; report the hire
- Withhold and pay payroll taxes
- Follow wage, overtime and poster rules
Rather read it? Here’s the whole thing.
Employee or contractor?
Workers are generally employees if you control how, when and where the work is done. Contractors run their own business and control their own work. Misclassifying employees as contractors can lead to back taxes and penalties. The IRS and Department of Labor have guidance.
Before the first paycheck
- Get an Employer Identification Number (EIN) from the IRS (free).
- Register with your state for unemployment insurance and income tax withholding, if your state has it.
- Get workers’ compensation insurance, required in most states once you have employees.
- Set up payroll, yourself or through a payroll service.
Day one
- Form I-9: verify identity and work eligibility (keep it on file; some employers also use E-Verify, which some states require).
- Form W-4 and any state withholding form.
- Report the new hire to your state’s new hire registry, usually within a few weeks.
Payroll taxes
Withhold federal (and state) income tax and the employee’s share of Social Security and Medicare, pay your matching share, and pay federal and state unemployment taxes. File payroll returns on schedule.
Wage and hour rules
Pay at least the highest applicable minimum wage (federal, state or local), overtime for most workers over 40 hours a week, and display required workplace posters. Keep payroll and time records.
Free help
Small Business Development Centers and SCORE mentors offer free guidance.
Official sources, and where to look
- SBA: hire and manage employeessba.gov
- IRS: apply for an EINirs.gov
- USCIS: Form I-9uscis.gov
- U.S. Department of Labor: wages and hoursdol.gov
[your state] new hire reporting[your state] employer registration unemployment tax
Common questions
Do I need a payroll service?
Not required, but many small businesses use one to handle withholding, filings and deadlines correctly. More ›
Can I pay my first employee in cash?
You can pay in cash only if you still withhold and report taxes properly. Paying “off the books” is illegal and risky. More ›
What do I need to do before hiring my first employee?
Get an EIN, register with your state for payroll taxes, get workers’ comp insurance, and set up payroll. More ›
What forms does a new employee fill out?
Form I-9 for work eligibility, Form W-4 for federal withholding, and any state withholding form. More ›
How do I know if someone is an employee or a contractor?
If you control how, when and where they work, they’re usually an employee. Contractors run their own business. Check IRS and Department of Labor guidance. More ›
What payroll taxes do employers pay?
Your share of Social Security and Medicare, plus federal and state unemployment taxes, in addition to withholding the employee’s taxes. More ›
Know someone who needs this?
Not yet reviewed by an expert. Last checked 2026-10-29. This is general help, not legal, medical or professional advice. Rules are different in every state.