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How to Hire Your First Employee: The Complete 12-Step Checklist
Going from zero employees to one is the most paperwork-intensive transition in your business. You need federal and state registrations, payroll, insurance, tax withholding, and half a dozen government forms — all before their first day. Miss any of them and you're facing fines. Here's every step in order.
The Complete Checklist
Step 1
Get an EIN (If You Don't Have One)
You need an Employer Identification Number to report payroll taxes. If you already have one from forming your LLC, you're set. If not, apply free at IRS.gov — see our EIN guide. You'll receive it immediately.
Step 2
Register With Your State's Labor Department
Every state requires employer registration for unemployment insurance (SUTA). You'll receive a state employer ID number and your unemployment tax rate (new employers typically get a default rate of 2–4%). This is separate from your state tax ID. Find your state's registration portal by searching "[your state] new employer registration."
Step 3
Register for State Withholding Tax
If your state has an income tax (41 states do), register with your state's department of revenue to withhold state income tax from employee paychecks. Some states combine this with the unemployment registration; others require a separate application.
Step 4
Get Workers' Compensation Insurance
Required in almost every state (Texas and a few others make it optional but recommended). Workers' comp covers employee injuries on the job. Cost: typically $0.50–$3.00 per $100 of payroll depending on industry and risk classification. Options: your state's workers' comp fund, a private insurer, or a pay-as-you-go plan through your payroll provider (Gusto offers this). See our Business Insurance guide.
Step 5
Choose a Payroll Provider
Unless you want to manually calculate withholding, file quarterly payroll taxes, and generate W-2s yourself — get a payroll service. Gusto ($40/mo + $6/person) is the best option for first-time employers. It handles all tax calculations, filings, direct deposits, and year-end W-2s automatically. See our payroll comparison.
Step 6
Set Up Your Payroll Schedule
Choose how often you'll pay employees. State laws often dictate minimum frequency:
| Schedule | Frequency | Best For |
|---|---|---|
| Biweekly | Every 2 weeks (26 pay periods) | Most common — works for everyone |
| Semi-monthly | 1st and 15th (24 pay periods) | Salaried employees, easier budgeting |
| Weekly | Every week (52 pay periods) | Hourly workers, construction, hospitality |
| Monthly | Once per month (12 pay periods) | Allowed in some states, not recommended |
Step 7
Collect Employee Paperwork (Before Day 1)
Every new hire must complete these forms:
| Form | What It Does | When |
|---|---|---|
| W-4 | Federal tax withholding — employee tells you how much to withhold | On or before first day |
| State W-4 | State tax withholding (if applicable) | On or before first day |
| I-9 | Employment eligibility verification — proves right to work in US | Section 1 on first day, Section 2 within 3 business days |
| Direct deposit form | Bank account info for payroll deposits | Before first payroll |
| Offer letter | Position, salary, start date, at-will status | Before start date |
Step 8
Report the New Hire to Your State
Federal law requires you to report every new hire to your state's new hire reporting agency within 20 days (some states require less). This is used to enforce child support orders and detect unemployment fraud. Your payroll service typically handles this automatically.
Step 9
Display Required Workplace Posters
Federal and state law require you to display specific labor law posters where employees can see them. Federal posters include: minimum wage, OSHA safety, FMLA (if 50+ employees), EEO, and EPPA. Your state has additional requirements. You can order a complete federal + state poster set for $25–$40 from the Department of Labor website or compliance companies.
Step 10
Set Up Employee Recordkeeping
You're required to maintain records for every employee, including: personal info and SSN, pay rate and hours worked, tax forms (W-4, I-9), and payroll records. Retention requirements: payroll records for 3 years, I-9s for 3 years after hire or 1 year after termination (whichever is later), tax records for 4 years. Your payroll service stores most of this digitally.
Step 11
Understand Your Ongoing Tax Obligations
| Tax | Rate | Who Pays | When |
|---|---|---|---|
| Social Security | 6.2% | Employee + employer (12.4% total) | Each payroll |
| Medicare | 1.45% | Employee + employer (2.9% total) | Each payroll |
| Federal unemployment (FUTA) | 6% on first $7K (effective 0.6% with credit) | Employer only | Quarterly (Form 940) |
| State unemployment (SUTA) | Varies (1–7%) | Employer only (most states) | Quarterly |
| Federal income tax withholding | Based on W-4 | Employee (you withhold) | Each payroll |
| State income tax withholding | Based on state W-4 | Employee (you withhold) | Each payroll |
Your total employer-side payroll tax cost is approximately 7.65% of wages (Social Security + Medicare) plus 1–4% for unemployment taxes. On a $50K salary, that's roughly $4,500–$6,000/yr in employer-side taxes on top of the salary itself.
Step 12
Consider Additional Benefits (Optional)
Not required for small employers, but helps with recruitment and retention: health insurance (required if 50+ full-time employees under ACA, optional below that), retirement plan (SIMPLE IRA or 401(k) through Gusto), PTO policy, and any state-specific requirements (some states mandate paid sick leave or family leave).
Quick Reference: The First-Hire Checklist
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Disclaimer: This guide is for informational purposes only and is not legal or tax advice. Employment requirements vary by state and municipality. Consult a qualified attorney or HR professional for your specific situation.