Most guides on how to hire employees are really about recruiting: where to advertise, how to interview. This one is about the other half: the registrations, forms, insurance and deadlines that turn “I found someone” into a legal employment relationship.
It matters because this half has statutory deadlines and the recruiting half doesn’t. Nobody fines you for a mediocre interview. There are absolutely consequences for having no workers’ compensation coverage on the day someone gets hurt, or for an I-9 you never completed, or for not reporting the hire to your state within the window.
The good news is that it’s a finite list and it’s mostly front-loaded. Set up the employer infrastructure once, and every hire after that is a short checklist. This guide walks the sequence in the order you actually need it. The judgment side (how to tell a good candidate from a plausible one) is in how to hire good employees for your small business, and whether this role should be an employee at all is settled in hire contractors or employees for your small business?. Start with that second one if there’s any doubt, because everything below assumes the answer was “employee.”
The Bottom Line
- Do the employer setup before you make an offer: EIN, state tax registration, workers’ compensation. The insurance in particular needs to be live on day one, not sorted out later.
- The employee completes Section 1 of Form I-9 on or before their first day; you complete Section 2 within three business days of their start (IRS).
- Get a signed Form W-4 from every new employee when they start work, so you know how much income tax to withhold (IRS).
- Federal law requires employers to report every new or rehired employee to a state directory within 20 days of the hire date (Square).
- Keep each I-9 for three years after the hire date or one year after employment ends, whichever is later (Block Advisors).
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Step 1: Register as an employer before you make an offer
Three things need to exist before a person can legally start. Do them in this order, and do them before the offer rather than after, because the timeline on the third one can surprise you.
Get an EIN. Every business that employs someone needs an Employer Identification Number from the IRS: a nine-digit number used for business tax purposes (Paychex). You apply online and receive it immediately, at no cost. If you already have one for banking or tax purposes, you’re set.
Register for state payroll taxes. This is separate from your EIN and varies by state: typically a withholding account with your state revenue department and an unemployment insurance account with your state labour department. Some cities add their own. Processing can take days to weeks, which is the main reason to start before you’ve promised anyone a start date.
Get workers’ compensation coverage. Required in nearly every state, usually from the first employee, and the rules vary meaningfully. It’s the item to get quotes on early if your work is physical or involves driving, because premiums in those classifications aren’t trivial and coverage needs to be effective on the person’s first day. Going without it is the most expensive mistake on this page. An uninsured injury claim becomes a direct liability plus a penalty.
While you’re here, sort out the two things that live alongside these: display the required federal and state labour law posters somewhere your staff will see them, and set up a recordkeeping system before you have records to keep. Employers also need to display workplace posters, purchase workers’ compensation coverage, create employee handbooks and establish recordkeeping (Paychex).
Step 2: Define the role and benchmark the pay
Before posting, define what the role requires now and how it will change as the business grows, then benchmark compensation against industry salary surveys, labour market data and local pay trends (Paychex).
For a small operation the practical version is narrower than that sounds. Write down the week (what the person does on a Tuesday and on a Saturday, because those are often different jobs) and then check three local postings for similar work to get your range. Publish that range in the ad. It filters out mismatches before they cost either of you an interview.
Decide two things now rather than later, because they both affect your paperwork:
- Exempt or non-exempt, which determines whether overtime applies. Most hourly operational roles at a small business are non-exempt. Getting this wrong creates back-overtime exposure.
- Full-time or part-time, which affects benefits eligibility and, in some states, coverage thresholds.
If you’re not sure the role is a full job yet, that’s worth resolving before you hire rather than padding the week out with leftovers. 10 tasks to delegate to grow your small business is a better way to construct the job description, because it starts from which work should leave your hands.
Step 3: Recruit, screen and interview
This is the part most guides expand and it’s the part with no statutory deadlines, so here it is briefly.
Post where someone can vouch for the applicant. Your existing team first, then adjacent local businesses, trade schools and community college job boards, then general job boards last. Popular job sites include LinkedIn and Indeed, and it’s worth also posting to smaller communities and sharing through personal networks (Paychex).
Screen résumés down to a handful. If the volume is overwhelming, applicant-tracking tools with AI screening built into Greenhouse can do the first sort against criteria you define, though at small-business volumes a careful read is usually faster than configuring one. Interview your shortlist, then check references and run background checks where the role warrants it, verifying what the candidate told you and confirming there’s nothing undisclosed that matters for the job (Paychex). For any role involving driving, a current licence and a recent driving record check are non-negotiable, and they’re factual rather than judgment calls.
Two legal boundaries to hold in the interview itself. Don’t ask about age, family status, pregnancy, religion, national origin, disability or citizenship. Ask instead whether the person is authorised to work in the United States and can perform the specific physical requirements of the job. And check your state’s rules on salary-history questions and on when in the process a background check may be run, because both are restricted in a growing number of states.
How to actually tell the good candidate from the plausible one (what to screen for, which questions predict reliability, and why a short paid trial beats a second interview) is the whole subject of how to hire good employees for your small business.
Step 4: Make the offer in writing
Extend a written offer to your chosen candidate covering pay and benefits (Paychex). Keep the document short but make it specific, because this is what prevents the disputes that arise in month two.
Include: job title, start date, pay rate and pay frequency, exempt or non-exempt status, the expected schedule, who they report to, benefits and when eligibility begins, any conditions such as a satisfactory driving record check, and (in at-will states) a plain at-will statement.
Be careful what you write about job security or termination, and avoid implying a fixed term or guaranteed employment period unless that’s what you intend. Have the candidate sign and return it, and keep the signed copy.
Also be specific about the schedule in writing, particularly the unglamorous parts. “Four early starts, two of them at 5am” in the offer letter prevents the week-three conversation where it turns out that wasn’t what they understood.
Step 5: The new-hire paperwork, and its deadlines
This is the part with actual clocks running. Collect all of it on or before day one.
Form W-4. To know how much income tax to withhold, you need a Form W-4 on file for each employee, and you should ask every new employee for a signed one when they start work (IRS). Most states have their own withholding certificate as well.
Form I-9, with the tightest deadline on this page. The employee completes Section 1 on or before their first day of work. You complete Section 2 within three business days by reviewing acceptable identity and work authorisation documents (IRS). By their third day the employee must show valid documentation: either one document from List A, such as a US passport or Permanent Resident Card, or one from List B such as a driver’s licence combined with one from List C such as a Social Security card (Block Advisors).
You may not specify which documents the employee presents. That’s a discrimination issue. Let them choose from the lists.
State new-hire reporting, within 20 days. Federal law requires all employers to report newly hired and rehired employees to a state directory within 20 days of the hire or rehire date (Square). This one is easy to miss entirely because nothing prompts you.
Direct deposit authorisation, emergency contact, and signed acknowledgements for your handbook, safety rules and any vehicle policy.
Record retention. Keep each I-9 for three years after the date of hire or one year after employment ends, whichever is later (Block Advisors). Store I-9s separately from the main personnel file, and keep medical or disability information separate again.
Step 6: Set up payroll before the first pay date
Make sure payroll is set up and all the paperwork is in order before day one (Paychex). Working out your withholding two days before the first pay run is how errors get made, and payroll errors are both visible to the employee and awkward to correct.
What needs to be in place:
- Federal and state withholding configured from the signed W-4 and its state equivalent.
- Employer-side taxes set up: the employer share of FICA, FUTA, and state unemployment.
- A defined pay frequency that complies with your state’s pay-frequency rules, which do vary.
- Time tracking for non-exempt staff, because you need hours to calculate overtime correctly.
- A deposit schedule for payroll taxes, which is the deadline most first-time employers trip over.
Nearly every business at this size should use a payroll service rather than doing this by hand. The cost is small, the penalties for late deposits are not, and payroll is a textbook candidate for delegation: rule-based, deadline-driven and unforgiving of error.
Step 7: Plan day one and the first ninety days
Before day one, send the new hire materials that prepare them for their first day (Paychex). Where to park, what to wear, what time, who to ask for, what the first day will involve.
Then plan the week, because this is the point at which the legal process hands over to the thing that determines whether the hire works. Structured onboarding makes a new employee 58% more likely to still be with you after three years (StrongDM). The trap is that 58% of companies focus their onboarding mainly on forms and paperwork rather than on teaching the job (StrongDM), so having done everything above correctly, don’t mistake it for onboarding.
Three things to have ready: a written plan for the first week, one named person whose job is to answer their questions, and a day-30 check-in in the calendar. What to teach in what order is covered in training your team, and what keeps someone past the first year is in employee retention strategies for small business owners.
One practical note on the offer itself: if you’re competing against employers who pay more per hour, the non-wage part of the package is your lever, and it should be specific in the offer letter rather than vague. The best employee perks for small businesses with delivery drivers covers what to include and in what order you can afford it.
The hiring checklist in order
| When | What |
|---|---|
| Before the offer | EIN, state withholding and unemployment accounts, workers’ compensation quote and policy |
| Before posting | Role defined, pay range benchmarked, exempt status decided |
| During hiring | Screen, interview, references, licence and driving record where relevant |
| At the offer | Written offer letter, signed and returned |
| On or before day one | Signed W-4 and state equivalent, I-9 Section 1, direct deposit, handbook acknowledgement |
| Within 3 business days of start | I-9 Section 2 completed by you |
| Within 20 days of hire | State new-hire report filed |
| Before the first pay date | Payroll configured, deposit schedule set, time tracking live |
| Day 30 | Check-in conversation held |
Frequently asked questions
What paperwork do I need to hire my first employee?
An EIN, state withholding and unemployment registrations, and workers’ compensation coverage on the employer side. From the employee: a signed Form W-4 plus any state withholding certificate, and Form I-9 with Section 1 completed on or before their first day and Section 2 completed by you within three business days (IRS). Then file your state new-hire report within 20 days (Square).
How long does it take to become an employer?
An EIN is immediate online. State payroll registrations typically take days to a couple of weeks, and workers’ compensation depends on your industry classification and insurer. Allow two to four weeks between deciding to hire and someone’s first day, and start the registrations before you make an offer.
Do I need workers’ compensation for one employee?
In nearly every state, yes, and usually from the first employee. Thresholds and exemptions vary, so check your state’s specific rule, but this is the requirement with the worst downside if you skip it, because an injury with no coverage becomes a direct liability plus penalties.
How long do I keep employee records?
Keep each I-9 for three years after the hire date or one year after employment ends, whichever is later (Block Advisors). Payroll and tax records generally need to be retained for at least four years, and medical information must be stored separately from the personnel file.
Can I pay someone as a 1099 contractor to avoid all of this?
Only if the relationship meets the test, which is about how the work is performed rather than what you agreed. The IRS and DOL assess behavioural control, financial control and the nature of the arrangement regardless of which form was filed (Jupid), and misclassification penalties stack across federal tax, federal wage law and state regimes at once. Hire contractors or employees for your small business? sets out the test and the exposure.
What to do first
If you’re at the start of this, the sequencing advice is simple: do Step 1 today, before you talk to a single candidate. The EIN takes minutes, the state registrations take weeks, and the workers’ compensation policy has to be live on the person’s first day.
Everything after that is a checklist you’ll reuse for every future hire, and it gets faster each time. The part that stays hard is choosing the right person and keeping them, which is where your attention should go once the paperwork is a solved problem rather than a scramble.
