How to Hire Your First Employee in 2026: The Complete Checklist for Small Businesses

Hiring your first employee is the point where a business stops being just you. It is also the point where you take on a stack of legal duties: registering as an employer, verifying the person can work in the US, withholding and depositing taxes, reporting the hire to your state and, in most states, buying workers' compensation insurance. This guide walks through each step in the order you'll actually do them, with 2026 figures, state differences that trip people up, a worked cost example and a checklist you can tick off before day one.

Quick answer

To hire your first employee, get an EIN, register with your state for withholding and unemployment insurance, arrange workers' comp if your state requires it, and set up payroll. For each new hire, collect Form W-4, complete Form I-9 within 3 business days of the start date, report the hire to your state within 20 days, and display the required posters. Budget roughly 8% to 10% of wages for payroll taxes on top of pay.

• Make sure the role really is an employee, not a contractor

• Pay at least the higher of the federal $7.25 an hour and your state or local minimum wage

• E-Verify is voluntary federally but required by several states

• As a new employer you deposit payroll taxes monthly, by the 15th

Step 1: Decide whether you need an employee or a contractor

Before any paperwork, check that the person you want is legally an employee. If you'll set their hours, train them in your methods, supply their tools and keep them on indefinitely doing the core work of your business, they're an employee, whatever you both would prefer. A freelancer who quotes per project, works for several clients and decides how to do the job can be an independent contractor, paid on an invoice with a Form W-9 and possibly a 1099-NEC.

Employee or contractor? Quick signals

Signal	Points to employee (W-2)	Points to contractor (1099)
Who sets hours and methods	You	The worker
Tools and equipment	You supply them	Worker supplies their own
How they're paid	Hourly or salary	Per project, on invoices
Other clients	Works only for you	Serves many clients
Length of relationship	Ongoing, core to your business	Defined project

Who sets hours and methods

Points to employee (W-2)

You

Points to contractor (1099)

The worker

Tools and equipment

Points to employee (W-2)

You supply them

Points to contractor (1099)

Worker supplies their own

How they're paid

Points to employee (W-2)

Hourly or salary

Points to contractor (1099)

Per project, on invoices

Other clients

Points to employee (W-2)

Works only for you

Points to contractor (1099)

Serves many clients

Length of relationship

Points to employee (W-2)

Ongoing, core to your business

Points to contractor (1099)

Defined project

Getting this wrong is expensive. If the IRS or your state later decides a "contractor" was an employee, you owe the payroll taxes you didn't withhold, plus penalties, and states add back overtime and unemployment contributions. Our 1099 vs W-2 guide goes through the IRS common-law test, the Department of Labor test and California's stricter ABC test with examples.

Also decide whether the job is exempt or non-exempt under the Fair Labor Standards Act. Most first hires, such as cashiers, assistants, technicians and kitchen staff, are non-exempt: they must get at least minimum wage and overtime at 1.5 times their regular rate for hours over 40 in a workweek. Only employees who pass the duties tests and earn a salary of at least $684 a week a week can be treated as exempt. Our overtime guide shows the math.

Step 2: Get an EIN and register with your state

Employer Identification Number. You need an EIN to report employment taxes, even if you're a sole proprietor who has used your Social Security number until now. It's free and issued instantly online at IRS.gov; never pay a website to get one. See our EIN application guide for the step-by-step.

EFTPS. Enrol in the Electronic Federal Tax Payment System as soon as you have the EIN. All federal payroll tax deposits are made electronically, and enrolment by mail takes several days to complete.

State withholding account. If your state has a wage income tax, register with the state revenue department for a withholding account before the first payday. States without a wage income tax, including Texas, Florida, Nevada, Washington and Wyoming, skip this step. Some cities and counties, common in Ohio, Pennsylvania and parts of New York and Michigan, need their own registration.

State unemployment insurance account. Register with your state workforce or revenue agency. Most states make you liable as soon as you pay wages; Florida, for example, makes you liable once a quarter's payroll reaches $1,500 and expects registration by the end of the month after that quarter. You'll get a new-employer tax rate and a taxable wage base to load into payroll; our payroll taxes guide has state examples.

State disability or paid leave programs. California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico run temporary disability programs, and a growing list of states fund paid family leave through payroll. These add an account and a withholding line.

Step 3: Set up workers' compensation and other insurance

Workers' compensation pays medical bills and lost wages when an employee is hurt on the job, and in return generally protects you from being sued over the injury. Most states require it from your first employee. Some set a headcount threshold: Georgia and North Carolina require it once you regularly employ 3 or more employees, Florida at 4 or more employees outside construction (one or more in construction), and Tennessee at 5 or more employees outside construction. Texas is the outlier: private employers may opt out, but must then file an annual non-subscriber notice with the state and tell employees in writing.

In four states, North Dakota, Ohio, Washington and Wyoming, you must buy coverage from the state fund rather than a private insurer. Everywhere else you buy from a private carrier, a state fund that competes with private insurers, or the assigned-risk pool if no one will write you.

Even where it isn't required, buying it is usually wise: one serious injury can cost more than decades of premiums, and without coverage the employee can sue you directly. Premiums are priced per $100 of payroll by job class; see our workers' compensation insurance guide for rates and penalties. Your general liability policy doesn't cover employee injuries, and your landlord or clients may also require proof of other coverage; the small business insurance guide explains what's legally required versus contractually required.

Step 4: Write the job, make the offer and avoid hiring pitfalls

Write a short job description that lists the duties, schedule, pay rate, whether the role is exempt or non-exempt, and where the work happens. It anchors your classification decision and helps if a dispute arises later.

Pay must clear the highest applicable minimum wage: the federal $7.25 an hour, your state's rate and any city or county rate. Florida's is $15.00, Washington's $17.13, while Texas and Pennsylvania follow the federal figure. Check yours on our minimum wage by state page.

Federal anti-discrimination law applies in stages, but some of it applies from your first hire. The Equal Pay Act covers you once you have one employee. Title VII and the Americans with Disabilities Act apply at 15 employees, and age discrimination law at 20 employees. Many state laws apply at one employee, so don't ask about age, pregnancy, religion, national origin, disability or family plans in interviews regardless of size. A growing number of states and cities also restrict asking about salary history or criminal records before an offer.

Put the offer in writing: job title, start date, pay rate and schedule, at-will status if applicable, and any conditions such as a background check. If you run a background check through a screening company, the federal Fair Credit Reporting Act requires a standalone written disclosure and the candidate's written permission first.

Step 5: Complete Form W-4 and Form I-9 on day one

Form W-4 tells you how much federal income tax to withhold. Ask the new employee to complete and sign it when they start, and make it effective with the first paycheck. If they don't return one, the IRS says to withhold as if they checked "Single or Married filing separately" and made no other entries. Most states have their own withholding certificate too; a few accept the federal W-4. The 2026 Form W-4 also reflects the new tips and overtime deductions, so employees who earn either may want to adjust their withholding.

Form I-9 proves the employee's identity and authorization to work in the US. The employee completes Section 1 no later than their first day of work for pay. You examine the original documents they choose from the lists of acceptable documents and complete Section 2 within 3 business days of their start date. You can't tell them which documents to bring, and you can't ask for more than the form requires; both are discrimination risks.

You don't send the I-9 anywhere. Keep it for 3 years after the date of hire or one year after employment ends, whichever is later, stored separately from personnel files so you can hand it to inspectors without exposing other records. Paperwork errors on I-9s draw fines per form, so use the current edition from USCIS and double-check every date.

Day-one forms at a glance

	Form W-4	Form I-9
Purpose	Federal income tax withholding	Identity and work authorization
Who fills it in	Employee	Employee (Section 1) and you (Section 2)
Deadline	Before the first paycheck	Section 1 by day one; Section 2 within 3 business days
If missing	Withhold as Single, no adjustments	Fines per form on inspection
Where it goes	Your payroll file	Separate I-9 file, kept 3 years after hire or 1 year after exit

Purpose

Form W-4

Federal income tax withholding

Form I-9

Identity and work authorization

Who fills it in

Form W-4

Employee

Form I-9

Employee (Section 1) and you (Section 2)

Deadline

Form W-4

Before the first paycheck

Form I-9

Section 1 by day one; Section 2 within 3 business days

If missing

Form W-4

Withhold as Single, no adjustments

Form I-9

Fines per form on inspection

Where it goes

Form W-4

Your payroll file

Form I-9

Separate I-9 file, kept 3 years after hire or 1 year after exit

E-Verify: federal versus state rules

E-Verify is an online system that checks the I-9 information against government records. Federally it's voluntary for most private employers, but required for federal contractors whose contracts include the E-Verify clause, and states increasingly mandate it. Arizona, Mississippi and South Carolina require it for all employers. Alabama, Georgia and North Carolina apply it above headcount thresholds that vary by state (North Carolina's is 25 employees in the state). Florida requires private employers with 25 or more employees to use it and certify compliance on their reemployment tax return; a 2026 bill to extend that to every private employer died in the state Senate in March 2026. State mandates change often, so confirm your state's current rule before you rely on any list. If you do use E-Verify, run it only after the I-9 is complete and for every new hire, never selectively.

Step 6: Report the new hire and set up payroll

Every state runs a new-hire registry, used mainly to enforce child support orders. You must report each new or rehired employee within 20 days of the hire date; some states set a shorter deadline. Someone counts as rehired if they were gone at least 60 consecutive days. You report the employee's name, address and Social Security number with your business name, address and EIN, and many states accept a copy of the W-4 or an online form.

Then set up payroll. You can run it yourself with software, use a payroll service, or hire an accountant. The essentials are the same either way:

• Pay schedule. Weekly, biweekly, semimonthly or monthly. Many states set a minimum pay frequency for hourly workers, so check before choosing monthly.
• Time records. For non-exempt employees, keep accurate records of hours worked each day and week. The FLSA requires it, and it's your best defense in a wage claim.
• Withholding. Federal income tax from the W-4 and Publication 15-T, 7.65% for Social Security and Medicare, state and local tax, and any state disability or leave contributions.
• Deposits. As a new employer you're a monthly depositor: withheld taxes and your matching FICA for a month are due by the 15th of the following month.
• Returns. Form 941 each quarter, Form 940 once a year, Forms W-2 to employees and the Social Security Administration by January 31, plus state quarterly wage reports.

Your first payday, step by step

1. 1

   Collect hours or confirm salary

   Total regular and overtime hours for non-exempt staff; check every hour over 40 in a workweek is paid at 1.5 times.

2. 2

   Calculate gross-to-net

   Subtract federal income tax, 7.65% FICA, state and local tax and any deductions the employee authorized in writing.

   Tip: A pay stub generator or payroll software prevents arithmetic errors on the first run.

3. 3

   Pay the employee

   Direct deposit or check on the scheduled payday, with a pay statement if your state requires one (most do).

4. 4

   Record your employer taxes

   Matching FICA, FUTA and state unemployment tax accrue with each payroll even though you deposit them later.

5. 5

   Deposit by the 15th of next month

   Pay withheld tax plus your FICA match through EFTPS; pay state withholding on the state's schedule.

   Open EFTPS

Step 7: Display posters and set basic policies

Federal law requires certain notices to be posted where employees can see them, and states add their own. For a typical small private employer, the federal set starts with the Fair Labor Standards Act minimum wage poster, the Employee Polygraph Protection Act notice and the OSHA "Job Safety and Health: It's the Law" poster. The EEOC "Know Your Rights" poster applies once you're covered by federal anti-discrimination law at 15 employees, and the FMLA poster at 50 employees. The Department of Labor's poster advisor tells you which apply, and all federal posters are free to download; you don't need to buy a laminated "compliance kit". If employees work remotely, post electronically as well.

States require their own minimum wage, unemployment insurance, workers' compensation and anti-discrimination notices, and often notices on paid sick leave. Texas employers who opt out of workers' comp must post a notice saying so.

A short written handbook isn't legally required, but even two pages help: pay schedule, timekeeping rules, overtime approval, paid time off, how to report harassment or injuries, and at-will status where applicable. If your state or city requires paid sick leave, as many now do from the first employee, put the accrual rules in writing.

What your first employee really costs

Here's a realistic example: a Florida retail shop hires a part-time sales associate at $16 an hour for 30 hours a week, 52 weeks a year, for wages of $24,960.

The add-ons come to about $2,400, or 9.6% of wages. In Florida a retail shop with fewer than 4 or more employees isn't required to carry workers' comp, but most owners buy it anyway, and the actual Florida rate for your class will differ from the Idaho benchmark used here. Payroll software typically adds a monthly base fee plus a per-employee charge. If you offer health insurance, retirement contributions or paid time off beyond what your state requires, add those too. Run your own numbers with the hourly rate calculator.

Thresholds to watch as you grow

Some obligations only start once your headcount grows, so it pays to know where the lines are. Count part-time workers: most of these laws count every employee on the payroll, not just full-timers.

The ACA rule is counted differently: it uses full-time employees averaging 30 hours a week plus full-time equivalents from part-time hours, averaged over the prior year. A business with 40 full-timers and 25 half-time staff can cross it without realizing. State laws often kick in much earlier; many state anti-discrimination and paid sick leave laws apply from the first employee.

Common mistakes when hiring your first employee

• Paying "under the table" for a trial period. There's no legal trial period without payroll. The first hour worked is taxable wages, and an injury on that day is a workers' comp claim.
• Missing the I-9 deadline. The 3 business days window starts on the first day of work, not when you get around to paperwork. Complete it on day one.
• Forgetting state registration until the first return. Without an unemployment account, you can't file the state wage report, and late SUTA payments can cost part of your FUTA credit.
• Classifying a first hire as salaried exempt to avoid overtime. A salary alone doesn't make someone exempt; they need to meet the duties test and the $684 a week weekly minimum.
• Ignoring local laws. Cities like Seattle, Denver and San Francisco set higher minimum wages and their own leave rules.
• Losing records. Keep payroll and employment tax records for at least 4 years, and time records for at least two years under the FLSA.

First employee checklist

0/10

• Confirmed the role is an employee, not a contractor, and exempt or non-exempt
• EIN obtained and EFTPS enrolment complete
• State withholding and unemployment accounts registered (plus local tax if any)
• Workers' comp policy bound, or state opt-out filed where allowed
• Written offer with pay rate at or above the applicable minimum wage
• Form W-4 and state withholding certificate collected
• Form I-9 Section 2 completed within 3 business days; E-Verify run if your state requires it
• New hire reported to the state within 20 days
• Federal and state posters displayed (and shared electronically for remote staff)
• Payroll schedule, timekeeping and deposit reminders for the 15th set up

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Official links

• IRS — Apply for an EIN onlineFree, issued immediately
• IRS — Form W-4Employee's Withholding Certificate
• USCIS — I-9 CentralCurrent Form I-9 and acceptable documents
• E-VerifyEnrol and run cases
• HHS — New hire reportingState registry contacts
• DOL — Workplace postersFree federal posters and the poster advisor
• SBA — Hire and manage employeesFederal overview
• EFTPSFederal payroll tax deposits

What to do next

Work through the checklist in order: classify the role, register, insure, then handle each hire's forms on day one. Before the first payday, read our payroll taxes guide so you know exactly what to withhold and when to deposit it, and make a sample pay stub with the salary slip generator to check your gross-to-net math. If the role might be better as a contract engagement, revisit 1099 vs W-2 before you make the offer.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What do I need before I hire my first employee?

You need a federal EIN, a state withholding account if your state taxes wages, a state unemployment insurance account, workers' compensation coverage if your state requires it at one employee, and a way to run payroll and deposit taxes through EFTPS. Then, for each hire, collect Form W-4 and complete Form I-9, report the hire to your state new-hire registry and put up the required posters.

How long do I have to complete Form I-9?

The employee completes Section 1 no later than their first day of work for pay. You must examine their documents and complete Section 2 within 3 business days after they start. Keep the form for 3 years after the hire date or one year after employment ends, whichever is later, and have it ready to show government inspectors. You don't send it to anyone.

Do I have to use E-Verify?

Not under federal law for most private employers; E-Verify is voluntary unless you hold a federal contract with the E-Verify clause. Several states require it, though. Arizona, Mississippi and South Carolina require it for all employers, and others such as Alabama, Georgia, North Carolina and Florida use headcount thresholds; Florida's applies to private employers with 25 or more employees. Check your state's rules before your first hire.

How much does it cost to hire your first employee?

Expect payroll taxes of roughly 8% to 10% of wages on top of pay: 7.65% employer FICA, about $42 of FUTA and a few hundred dollars of state unemployment tax per employee per year. Add workers' compensation insurance, which ranges from cents to many dollars per $100 of payroll by job type, plus payroll software, benefits you choose to offer and your time on paperwork.

When do I have to report a new hire?

Federal law requires every employer to report new and rehired employees to the state's directory of new hires within 20 days of the hire date, and some states set a shorter deadline. You report the employee's name, address and Social Security number plus your business details. Many states accept a copy of the employee's Form W-4. Someone counts as rehired if they were away for at least 60 consecutive days.

Do I need workers' comp for one employee?

In most states, yes. A few states only require it once you reach a set number of employees, such as Georgia and North Carolina at 3 or more employees, Florida at 4 or more employees outside construction and Tennessee at 5 or more employees outside construction. Texas lets most private employers opt out. Construction businesses usually need it from the first worker.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Hire and manage employees — U.S. Small Business Administration · accessed 9 October 2026
2. 2.Publication 15 (2026), (Circular E), Employer's Tax Guide — Internal Revenue Service · accessed 9 October 2026
3. 3.Handbook for Employers M-274 — 10.0 Retaining Form I-9 — U.S. Citizenship and Immigration Services · accessed 9 October 2026
4. 4.Small Business Requirements — U.S. Equal Employment Opportunity Commission · accessed 9 October 2026
5. 5.Family and Medical Leave Act — U.S. Department of Labor, Wage and Hour Division · accessed 9 October 2026
6. 6.Workplace posters — U.S. Department of Labor, Wage and Hour Division · accessed 9 October 2026
7. 7.Determining if an employer is an applicable large employer — Internal Revenue Service · accessed 9 October 2026
8. 8.CS/HB 197 (2026) — Employment Eligibility, bill history — The Florida Senate · accessed 9 October 2026
9. 9.Reemployment Tax — Florida Department of Revenue · accessed 9 October 2026
10. 10.E-Verify state-by-state requirements — Experian Employer Services · accessed 9 October 2026
11. 11.Using Consumer Reports: What Employers Need to Know — Federal Trade Commission · accessed 9 October 2026
12. 12.COBRA Continuation Coverage — U.S. Department of Labor · accessed 9 October 2026