Hiring Your First Employee: A Walkthrough of the Process and Responsibilities
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In this article
From posting a job to setting up payroll taxes, here's what new employers need to know before bringing someone on board.
Key Takeaways
- You must obtain an Employer Identification Number (EIN) from the IRS before hiring anyone.
- Federal and state payroll tax obligations begin the moment you put someone on payroll.
- New employees must complete Form I-9 and Form W-4 on or before their first day of work.
- Most states require employers to carry workers' compensation insurance from day one.
- Reporting new hires to your state agency is a federal requirement with strict deadlines.
What You're Actually Taking On
Hiring your first employee is a meaningful milestone — and a genuine shift in your legal obligations. The moment you bring someone on payroll, you become responsible for tax withholding, insurance coverage, labor law compliance, and recordkeeping that didn't exist when you were operating solo. None of it is impossibly complicated, but there's more infrastructure to put in place than most first-time employers expect.
This walkthrough covers the core steps in roughly the order you'll need to complete them. It reflects general federal requirements; state-level rules add another layer. If you're still in the broader pre-launch phase, see our pre-opening checklist for first-time business owners for the wider context.
What you will need
IRS EIN Online Application
Used to obtain your Employer Identification Number, required for all payroll tax filings.
USCIS Form I-9
Federal form used to verify every new employee's identity and work authorization.
IRS Form W-4
Collected from each employee to determine the correct federal income tax withholding amount.
Payroll software or payroll service
Automates tax withholding calculations, pay stub generation, and quarterly tax deposits.
State new-hire reporting portal
Used to fulfill the federal requirement of reporting newly hired employees to your state.
Workers' compensation insurance policy
Covers medical costs and lost wages if an employee is injured on the job — required in most states.
The Hiring Steps, In Order
Work through these steps sequentially. Several have hard legal deadlines — particularly around I-9 completion, new-hire reporting, and tax deposits — so timing matters.
Get your Employer Identification Number (EIN)
An EIN is your business's tax ID with the IRS. You need it to file payroll taxes, open a business bank account in your company's name, and complete most new-hire paperwork. Apply for free at IRS.gov — the online application takes about 15 minutes and issues your EIN immediately.
Verify you're set up at the state level
Most states require employers to register separately with the state tax authority and, in some cases, with a state labor department. This registration activates your state unemployment insurance (UI) tax account. Requirements vary significantly — check your state's official business portal or the SBA's state-by-state resources. If you haven't yet handled your broader business registration, our guide to federal, state, and local business registration covers the full picture.
Write a clear job description and post the role
Before posting, document the role's core duties, required qualifications, hours, pay range, and whether it's exempt or non-exempt under the FLSA. Misclassifying a non-exempt employee as exempt — and therefore not paying overtime — is one of the most common and costly mistakes first-time employers make. Post the opening on job boards, your website, or through professional networks. Keep your language neutral and inclusive to stay compliant with equal employment opportunity rules.
Make an offer and collect required paperwork
Once you've selected a candidate, issue a written offer letter that specifies compensation, start date, classification, and any conditions of employment. On or before the first day, have the employee complete:
- Form I-9 — confirms identity and work eligibility; you must physically or remotely inspect acceptable documents
- Form W-4 — sets federal income tax withholding; many states also have their own withholding form
- Any state-specific forms required in your jurisdiction
Report the new hire to your state
Federal law requires employers to report every new hire to their state's new-hire reporting agency within 20 days of the start date (some states set a shorter window). This information is used to enforce child support orders and detect benefits fraud. Find your state's reporting portal through the Office of Child Support Services directory or your state's labor department website.
Set up payroll and withhold taxes correctly
From the very first paycheck, you are responsible for withholding federal income tax, Social Security, and Medicare (FICA) taxes from the employee's wages — and for matching the employer's share of FICA. You must also pay federal unemployment tax (FUTA) and state unemployment tax. Payroll software or a payroll service can handle the calculations and deposit deadlines, which are strict. Missing a tax deposit triggers penalties that accrue quickly.
Obtain workers' compensation insurance
Nearly every state requires employers to carry workers' compensation coverage before an employee begins work. Coverage pays for medical treatment and a portion of lost wages if a worker is injured on the job. Policies are available through private insurers or, in some states, a state-run fund. Operating without required coverage can result in substantial fines and personal liability for injury costs.
Consider a Payroll Service Early
Payroll tax rules — federal and state — are layered and unforgiving about deadlines. Many first-time employers find that a payroll service pays for itself quickly by preventing costly deposit errors and keeping filings on schedule. Evaluate options before your first pay period, not after.
Employee vs. Contractor: Get It Right
Misclassifying an employee as an independent contractor is one of the most scrutinized compliance issues the IRS and Department of Labor pursue against small businesses. The legal tests for classification are behavioral, financial, and relational in nature — the worker's title and your preference don't determine the category. When in doubt, consult an employment attorney or HR professional before making the call.
This Is General Information, Not Legal Advice
Employment law varies by state, industry, and business size. The steps outlined here reflect general federal requirements and common state-level patterns. Before making any hiring decisions, consult a licensed employment attorney or qualified HR professional familiar with your state's specific requirements.
After the First Hire: Ongoing Responsibilities
Bringing on an employee is not a one-time event. Ongoing obligations include issuing IRS Form W-2 to each employee by January 31 each year, filing quarterly payroll tax returns (Form 941), making timely payroll tax deposits, and maintaining personnel records. Many states also require annual filings with the state labor or tax department.
Keep a simple compliance calendar that lists federal and state filing deadlines for the year. Missing a quarterly deposit or annual filing is far more common than employers expect — and the penalties compound. For a broader view of what running a small business entails beyond the first hire, our comprehensive small business ownership guide is a useful reference.
This article provides general educational information about employer responsibilities and is not legal, tax, or HR advice. Requirements vary by state, industry, and business structure. Consult a licensed attorney, accountant, or HR professional for guidance specific to your situation.
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Work & Business Editorial Team
Work & Business Editorial Team is the collective byline for our editorial team and contributor network. Articles published under this byline or an editorial pen name are researched, written, and reviewed according to our editorial standards for clarity, consistency, and independence before publication.
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