Hiring your first employee is a significant milestone, and in addition to finding the right person for the job, you will need to comply with a number of state and federal requirements. Every person you hire will have to complete some paperwork, including tax forms and employment eligibility documentation. You will also need to consider what safety and workplace regulations you need to have in place before your first employee actually begins to work.
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Before You Hire Your First Employee
Hiring your first employee requires careful planning and organization. You will have to take some initial steps to get formally set up as an employer. From applying for an EIN number so that your employees can be paid, to complying with your state and local regulations, and even posting some important (and required) documentation in your workplace, you will need to have some things completed before you can hire your first employee. Small business owners have unique responsibilities and should be aware of specific legal and regulatory requirements when hiring their first employee.
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Apply for an Employer Identification Number (EIN) – You will need to use this number on the documentation and tax forms you submit to the Internal Revenue Service (IRS). You can obtain the form needed to request an EIN number for your business via the IRS; you will need to complete a copy of Form SS-4 to apply. This is a fast and easy process and one of the simplest things you do as you prepare to begin hiring. Most people can complete the form within 10 minutes.
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Comply with posting requirements – Employers are required to post required notices that provide information on worker’s rights in a visible location in the workplace, as mandated by federal and state law. The Department of Labor can let you know which posters need to be in your workplace to be in compliance with federal laws. These official posters need to be hung in visible locations that your employees have access to; for example, in a breakroom or other central area.
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Sign up with your state's labor department – In addition to following federal law, you will need to register with your state's labor department as well. You will need to pay unemployment compensation taxes, which are taxes that are collected to provide unemployment benefits to employees who are laid off or who lose their job through no fault of their own. These taxes contribute to the state's unemployment compensation fund, which provides benefits to unemployed workers. You can find information on your state taxation and unemployment tax laws online. By registering with your state labor department you not only comply with all existing laws, but you ensure that you have a way to be notified of changes or new requirements. Rules change all the time, and missing a single new regulation could expose you to penalties and fines.
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Sign up for workers' comp insurance to protect your new employees – If someone becomes injured on the job, workers' comp insurance can protect you both. Most states require all employers to offer workers’ compensation coverage; a few allow small businesses with only a few employees to go without this coverage. You will need to not only follow the laws of your state, but use your best judgment to determine if you should get workers’ compensation coverage if your area does not require it. Just one injury on the job could derail your business and lead to a costly lawsuit. Workers’ compensation coverage can be purchased through your insurance agent and you will need to offer it to the types of employees (full time or part time) as outlined in your state’s laws.
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Set up payroll and withholding – As an employer, you will be responsible for withholding a portion of the income earned by each employee. You will need to deposit this withheld income with the IRS. You will also need to make Medicare and Social Security tax payments for each employee. When selecting a pay schedule, consider your business's cash flow to ensure you can meet payroll obligations and avoid cash shortages.
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Work out how much needs to be withheld – You will need to have each employee complete a W-4 form; this IRS document makes it easy to figure out what should be withheld for each employee. Your new workers will complete this form based on their own personal needs and situations. Once you have this information, you can be sure you are withholding the correct amount for each team member.
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Decide on compensation and benefits – How much will you pay each new worker and what benefits will you offer? Depending on how many employees you have, you may have to offer health insurance benefits to be in compliance with the Affordable Care Act (ACA). You can also offer benefits beyond health insurance. Offering a comprehensive line-up of benefits as part of your compensation package can make your business more appealing to prospective employees and attract better quality candidates. Benefits administration software can help small businesses manage employee benefits efficiently, including health reimbursement arrangements (HRAs) and other perks. Considering all of your options at the start allows you to have a plan in place before you even begin looking for your first employee and allows you to properly plan for and budget for your new team.
Job Posting and Recruitment
Finding the right candidates starts with a clear and compelling job description. Before you begin the hiring process, take time to outline the job title, core responsibilities, required skills, and qualifications for your open position. A well-written job description not only helps you attract qualified candidates but also sets clear expectations for the role.
Once your job description is ready, post your opening on popular job boards like Indeed, ZipRecruiter, and LinkedIn, as well as your company website and social media channels. Don’t overlook industry-specific job boards and local networking events, which can help you reach candidates with specialized skills or experience. When reviewing applicants, consider their background, education, and how well they might fit with your company culture. A thoughtful recruitment strategy will help you identify the right candidates and streamline your hiring process, ensuring you bring the best talent into your business.
Complete Paperwork for Each New Hire
Once your business is ready to accept employees, you will need to set up an onboarding process that includes some required paperwork and forms. Each employee must fill out required forms, including the W-4 (employee's withholding certificate) for tax withholding and the I-9 to verify employment eligibility. For each new hire, you need to complete the following things:
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Complete employment eligibility verifications – Each employee you hire needs to fill out an I-9 form. This document is required by the U.S. Citizenship and Immigration Services (USCIS) to verify the employee's eligibility and employment authorization to work in the U.S. Employees must present valid ID and employment authorization documents as part of this process. You do not have to formally file this form with the USCIS; you simply need to have completed it and added it to your files. You may also use E-Verify to confirm employment authorization.
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Conduct pre-employment screening – It is important to conduct pre-employment screening, such as background checks, to verify candidate identity and ensure workplace safety. Consult a legal professional to ensure your screening process complies with all relevant laws and regulations.
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Comply with state reporting laws for new hires – You must use your state's hire reporting system to report both new hires and rehired employees. This reporting helps state agencies locate parents who owe child support. Each state has a slightly different system, but the new hire reporting is designed to identify and locate parents that have not paid child support or who owe back child support. The Administration for Children and Families federal website makes it easy to find out where to send new hire information for your state. Some states also require a state withholding form to be completed for proper state income tax withholding.
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Make personnel files – Each employee you hire should have a file which contains all of their documentation and complete forms. Over time you will add to this file, inserting copies of performance reviews, benefits forms, and more. I-9 forms, which you need to complete at the time of hire, need to be held together in a separate area for easy review and quick access. Most of the paperwork in your personnel files will be completed at the time of hire, but every time you have a change or have something you want to document, you should add to this file. If you have a problem and need to write up a report, a copy should go into the personnel file. Changes to W-4 forms, new benefits information, and even changes of address should be included as well. These files will continue to evolve and change over time and allow you to see an employee’s entire history at a glance. Independent contractors may have different documentation requirements than employees.
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Complete non-disclosure or non-compete agreements – If you have proprietary or sensitive information you do not wish to have shared, an employee non-disclosure agreement (NDA) can be completed at the time of hire to protect your information. If you are concerned about the possibility of an employee courting your customers for their own purposes or opening a business to compete with yours (once they have learned your methods and secrets), a non-compete agreement can help. Completing this agreement at the start of employment can protect you from losses and prevent an employee from duplicating your business or stealing your clients.
Other Things to Consider
From complying with the safety rules outlined by OSHA to creating a handbook that employees can refer to, thinking about the following topics and details before you hire your first employee ensures you are truly ready and that your business is secure. As a business owner, it is essential to understand the legal definition of an employee versus a contractor before making your first hire, as this affects your responsibilities, tax obligations, and compliance requirements. Taking these steps helps ensure a smooth process for your first hire and sets a strong foundation for your growing team.
Employee Onboarding
A smooth onboarding process helps your new employee feel welcome and sets them up for success. Begin by having your new hire complete all necessary paperwork, including Form I-9 for employment eligibility verification and Form W-4 for federal income tax withholding. Provide clear information about employee benefits, such as health insurance, retirement plans, and any other perks your business offers.
Introduce your new employee to your company’s policies, procedures, and job expectations. Offer training and orientation sessions to help them understand their role and how they contribute to your business goals. Make sure your onboarding process complies with federal labor laws, including the Fair Labor Standards Act, and that you provide a safe and supportive work environment. A well-structured onboarding experience can improve employee satisfaction, reduce turnover, and help your new hire become a productive member of your team.
State Labor Department Requirements
Every state has its own set of labor department requirements that you must follow when you hire employees. Start by registering your business with your state’s labor department and obtaining any necessary licenses or permits. Make sure you understand and comply with state-specific employment laws, such as minimum wage, overtime, and break requirements.
You will also need to report each new hire to your state’s labor department, which helps with child support enforcement and other employment eligibility verification processes. In addition, you are responsible for paying state unemployment taxes and securing workers' compensation insurance as required by your state. Staying informed about your state’s unique regulations regarding workers compensation, employment eligibility, and unemployment taxes will help you avoid legal issues and ensure a smooth hiring process for your first employee.
Complying with OSHA
Not only does creating a safe workplace protect you and your new employees from harm, but it keeps you in compliance with Occupational Safety and Health Act (OSHA) regulations, too. OSHA regulations are designed to help protect employees from workplace exposure to hazardous conditions or substances. Every employer needs to comply with requirements outlined by OSHA. From creating a safe workplace, to properly training your employees to perform their jobs safely, and providing the appropriate gear, complying with OSHA regulations can help prevent accidents and costly fines.
Make a Handbook for Employees
While it is not required by state or federal law, an employee handbook can help you in a variety of ways. It is easy to outline your policies and what you will and will not allow in a clear and comprehensive handbook. By clearly defining your expectations and requirements, you can be sure that your team understands what you need from them and what actions you can take if they fail to comply. If you have locations in more than one state, you will need a separate handbook for each state, since employment laws will vary. Some topics to cover in an employee handbook include the following:
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Payroll and payment information – When do you pay employees and how is compensation calculated? Paying employees involves withholding taxes such as income tax, Social Security, and Medicare from the employee's paycheck, and it is important to ensure timely payments according to your payroll schedule. Include this information for easy reference.
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Smoking policies – You will need to comply with state law when you create a smoking area or plan for employees. Your state may have restrictions on where employees can smoke, or may not allow smoking on the premises at all. Research your state laws and determine what your official smoking policy will be. You can relay this information to all employees in your handbook.
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Clear and easy benefits details – What benefits do you offer to your employees? Depending on the size of your business, you may be required to offer health insurance. You may also wish to offer additional benefits to help retain your employees and make your business a great one to work for. Some health benefit plans can help employees cover qualifying medical expenses. Detail your offerings here and include specific information on who to contact in your organization if help is needed with benefits so your employees will know where to go for assistance.
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Breaks and meals – What is your policy for employee rest breaks and meal times? Some states have a minimum time requirement for each of these, while others do not have specific regulations. Detailing your break and meal time policy in your handbook ensures everyone is on the same page and that your team knows what to expect.
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Sick time and vacation days – Details about your paid time off (PTO) offerings, including vacation, sick, and personal days, should be included in your handbook. You will need to comply with all state requirements when you set up this policy.
Forms to File Each Year
Each year that you have employees, you will need to file tax returns with the IRS and your state's tax agency. You are required to prepare and submit a tax statement, such as Forms W-2 and 940, to report employment taxes and withheld taxes. Accurately calculating tax withholdings is essential for compliance.
The IRS Form 940 reports your federal unemployment tax, and you will need to file this form any year that an employee worked for you for at least 20 weeks of the year. You will also need to file this form if you pay $1,500 or more in wages in any quarter of the year. Additionally, W-2 forms must be filed with the Social Security Administration to report employee wages and tax withholdings.
Conclusion
From complying with federal reporting and tax laws to setting up a detailed handbook, the process of hiring your first employee may take longer than you think. The good news is that once you have gone through the process for the first time, you will have everything you need already in place when you are ready to hire additional employees. By tackling all of the details in the beginning, you can ensure you are truly ready to hire and that your business complies with all federal, state, and local regulations.
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