How to Hire Your First Employee: A Step-by-Step Checklist

You’ve been doing everything yourself, and it’s finally time to hire help. Then you look into it and find a pile of acronyms: EIN, W-4, I-9, E-Verify, FUTA, SUTA, workers’ comp. Missing one of them can mean penalties, back taxes or an uninsured injury.

The good news is that hiring your first employee follows a predictable order, and most of it is done once. After that, a payroll service handles the repeat work. This guide walks you through the registrations, forms and setup in the order you need them.

This is general information, not legal or tax advice. Rules vary by state, so check with your state agencies or an accountant.

First, make sure it’s an employee, not a contractor

Before anything else, confirm the person is legally an employee. If you control how, when and where the work is done, they are probably an employee, whatever you call them. Misclassifying an employee as a contractor can lead to back taxes and penalties. Our guide to 1099 contractors vs W-2 employees covers the tests in detail.

The first-hire checklist at a glance

Set up your business as an employer

Do steps 1 to 4 once, before your first hire starts.

Step 1: Get an EIN

An Employer Identification Number is your business’s federal tax ID. You need one to report employment taxes. You can apply online with the IRS for free, and you usually get the number right away. Avoid third-party sites that charge for this.

Step 2: Register with your state

Most states require employers to register for:

• State income tax withholding, if your state has an income tax
• State unemployment insurance (SUI or SUTA), which funds unemployment benefits. New employers usually get a starting tax rate set by the state.
• Local payroll taxes, in some cities and counties

Registration is usually done through your state’s revenue department and labor or workforce agency. Some states also require paid family leave or disability insurance contributions. Your payroll provider can tell you which accounts you need, but you typically must open them yourself.

Step 3: Get workers’ compensation insurance

Workers’ compensation covers medical costs and lost wages if an employee is hurt on the job. It is required for most employers in most states, though the rules on how many employees trigger the requirement vary. Texas is a notable exception: the Texas Department of Insurance says most private employers can choose whether to carry it, but employers that opt out must meet notice and reporting requirements.

You can buy coverage from a private insurer, through a state fund in some states, or through some payroll providers on a pay-as-you-go basis. Get coverage in place before the employee starts.

Key takeaway: Do the setup before the start date. EIN, state accounts, workers’ comp and payroll should all be ready before day 1, so the new hire’s first week is about paperwork that takes minutes, not registrations that take weeks.

Step 4: Choose how you’ll run payroll

You can calculate payroll by hand, but most small businesses use payroll software or a provider. Good payroll tools calculate withholding, pay employees by direct deposit, make tax deposits and file the required forms. Our guide on how to run payroll for a small business explains what’s involved and what software automates.

Also decide your pay schedule, such as weekly, biweekly or semimonthly. Some states set minimum pay frequency rules.

Complete the new hire paperwork

Repeat steps 5 to 8 for every new employee.

Step 5: Collect Form W-4

On the first day, have the employee fill out IRS Form W-4, which tells you how much federal income tax to withhold. The IRS says that if an employee doesn’t give you a completed W-4, you withhold as if they are single with no adjustments. Many states have their own withholding form too. You keep the W-4; you don’t send it to the IRS.

Step 6: Complete Form I-9

Every US employer must complete Form I-9 for every new hire to verify identity and work authorization, including citizens.

• Section 1: The employee completes this no later than their first day of work.
• Section 2: You examine the employee’s original, unexpired documents and complete this section within 3 business days of the start date. USCIS gives the example that if someone starts on Monday, you must finish Section 2 by Thursday.
• Documents: The employee chooses which acceptable documents to show from the lists on the form. You can’t tell them which ones to bring.
• Retention: Keep the I-9 on file, not with the government. Store it for 3 years after the hire date or 1 year after employment ends, whichever is later.

Use the current edition of the form from USCIS.gov.

Step 7: Decide on E-Verify

E-Verify is a free federal online system that checks I-9 information against government records. For most private employers it is voluntary at the federal level. It is required for many federal contractors whose contracts include the E-Verify clause, and E-Verify says more than 20 states require it for certain employers. Check your state’s rules.

If you use E-Verify, you create a case for each new hire within 3 business days of their start date, after completing the I-9. E-Verify employers in good standing can also use a DHS-authorized alternative procedure to examine I-9 documents remotely by live video, which helps if you hire remote workers.

Step 8: Report the new hire

Federal law requires employers to report new hires to their state’s new hire registry within 20 days of the hire date, and some states set a shorter deadline. You report basic details such as the employee’s name, address, Social Security number and start date, plus your business name, address and EIN. Most states let you report online, and many payroll providers do it for you.

Finish onboarding

Step 9: Post the required notices

Employers must display certain federal and state labor law posters, covering topics such as minimum wage, workplace safety and anti-discrimination rights. The US Department of Labor has a free poster advisor online, and your state labor agency lists state requirements. For remote employees, electronic posting may be acceptable in some cases.

Step 10: Set up records, policies and access

• Personnel and payroll records. Keep pay records, hours worked and tax forms. The IRS says to keep employment tax records for at least 4 years.
• Offer letter. Put the job title, pay, schedule, start date and whether the role is exempt or non-exempt from overtime in writing.
• Minimum wage and overtime. The federal minimum wage is $7.25 per hour, but many states and cities set higher rates. Non-exempt employees must be paid overtime for hours over 40 in a workweek under federal law.
• Basic policies. A short handbook covering hours, time off, conduct and pay helps avoid misunderstandings.
• Accounts and security. Give the new hire their own logins rather than shared passwords, and train them on basics such as phishing. See our guide to security awareness training, and plan ahead with our employee offboarding checklist.

Costs to budget for beyond wages

Your first employee costs more than their paycheck. Plan for:

• Employer payroll taxes: your share of Social Security and Medicare (7.65% of wages up to the Social Security wage base), federal unemployment tax and state unemployment tax
• Workers’ compensation premiums, based on payroll and job risk
• Payroll software or provider fees
• Benefits, if you offer them, such as health insurance or retirement plans
• Equipment and software for the role

The bottom line

Hiring your first employee is mostly a one-time setup: EIN, state registrations, workers’ comp and a payroll system. Then each new hire follows the same routine of W-4, I-9, E-Verify if applicable, new hire reporting and onboarding. Get the order right, keep good records and let payroll software handle the recurring filings. If you’re comparing local HR or payroll partners, our top lists by state can help.

Sources

• IRS: Hiring employees — EIN, Form W-4 and employer tax responsibilities
• USCIS: Form I-9 Handbook for Employers, completing Section 2 — I-9 deadlines and document review
• E-Verify: Fact vs fiction — when E-Verify is voluntary or required
• ACF Office of Child Support Services: New hire reporting — 20-day federal new hire reporting requirement
• Texas Department of Insurance: Employer resources — Texas workers’ compensation rules for private employers
• IRS Publication 15 (2026), Employer’s Tax Guide — Social Security and Medicare rates and wage base