# 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. - URL: https://explained.page/hiring-your-first-employee - Language: en - Last checked: 2026-10-29 - Watch the 1-minute animated guide: https://explained.page/watch?start=hiring-your-first-employee ## Step by step 1. **Ready to hire your first employee?** It’s a big step. There’s some paperwork, but it’s a clear checklist. Here it is in order. 2. **Employee or contractor?** If you control how, when and where the work is done, they’re usually an employee. Getting this wrong can mean back taxes and penalties. 3. **Set up before the first paycheck.** Get an Employer Identification Number from the IRS, register with your state for unemployment and withholding taxes, get workers’ comp insurance, and set up payroll. 4. **Paperwork on day one.** Complete Form I-9 to verify work eligibility, have them fill out a W-4 and any state form, and report the new hire to your state. 5. **Withhold and pay payroll taxes.** Withhold income tax and the employee’s share of Social Security and Medicare, pay your matching share, plus federal and state unemployment taxes. A payroll service can handle this. 6. **Follow wage and hour rules.** Pay at least the highest minimum wage that applies, overtime over 40 hours a week for most workers, post required notices, and keep payroll records. 7. **Get free help.** Your local Small Business Development Center or SCORE mentor can walk you through it for free. ## 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 ## 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. ## Common questions ### Do I need a payroll service? Not required, but many small businesses use one to handle withholding, filings and deadlines correctly. Source page: https://explained.page/hiring-your-first-employee/questions/do-i-need-a-payroll-service ### 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. Source page: https://explained.page/hiring-your-first-employee/questions/can-i-pay-my-first-employee-in-cash ### 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. Source page: https://explained.page/hiring-your-first-employee/questions/what-do-i-need-to-do-before-hiring-my-first-employee ### 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. Source page: https://explained.page/hiring-your-first-employee/questions/what-forms-does-a-new-employee-fill-out ### 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. Source page: https://explained.page/hiring-your-first-employee/questions/how-do-i-know-if-someone-is-an-employee-or-a-contractor ### 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. Source page: https://explained.page/hiring-your-first-employee/questions/what-payroll-taxes-do-employers-pay ### Do I need workers’ comp for one employee? Most states require it once you have employees, though thresholds and rules vary by state. Source page: https://explained.page/hiring-your-first-employee/questions/do-i-need-workers-comp-for-one-employee ### What is new hire reporting? Reporting each new employee to your state’s new hire registry, usually within a few weeks of hiring. Source page: https://explained.page/hiring-your-first-employee/questions/what-is-new-hire-reporting ## Official sources - [SBA: hire and manage employees](https://www.sba.gov/) - [IRS: apply for an EIN](https://www.irs.gov/) - [USCIS: Form I-9](https://www.uscis.gov/i-9) - [U.S. Department of Labor: wages and hours](https://www.dol.gov/) To find your local office, search for: - "[your state] new hire reporting" - "[your state] employer registration unemployment tax" --- General information, not legal or professional advice. Rules differ by state. From explained.page (www.explained.page). Life’s stuff, explained simply.