Hiring your first employee: the paperwork in order
Your first employee is a milestone - and a paperwork event. Most of it happens once, before day one.
Before you make the offer
**Employee or contractor?** If you control how, when and where the work is done, the person is usually an employee, whatever you call them. Misclassifying employees as contractors is one of the most expensive mistakes a small business can make.
**Register with your state.** Employers register for state unemployment insurance and, where there is a state income tax, for withholding. Your state labour or revenue department handles this.
**Workers' compensation.** Most states require it once you have employees. Get it in place before the start date.
On the first day
- **Form I-9** confirms the person is authorised to work in the US. You check their documents within three business days of the start and keep the form on file.
- **Form W-4** tells you how much federal income tax to withhold. Many states have their own version.
- **New hire reporting.** States require you to report new employees within a short window, usually around 20 days.
Running payroll
Every pay period you withhold income tax and the employee's share of Social Security and Medicare, add your employer share, and deposit the taxes on schedule. Quarterly and annual filings follow, and each employee gets a W-2 in January.
This is exactly what payroll software is for. Doing it by hand is possible; doing it by hand for years without a mistake is rare.
The posters and the policies
Employers must display certain federal and state employment notices. Keep a simple written policy on pay dates, time off and how hours are recorded - it prevents most disagreements before they start.
Paying yourself
If your business is an S corporation, you are an employee too and need a reasonable salary through the same payroll. If it is an LLC taxed as a sole proprietorship, you take draws instead and are not on payroll.
Get the first hire right and every later hire is the same checklist.