The biggest step change there is
Hiring your first employee
One day you have no employment law exposure. The next you have payroll tax deposit deadlines, an I-9 obligation, workers’ compensation and two new state accounts. Nobody sends you a letter explaining this, so here it is in order.
What changes at employee number one
No payroll tax exposure
Deposit deadlines with escalating penalties, and potential personal liability for unpaid trust fund taxes
No employment law exposure
FLSA minimum wage and overtime, the Equal Pay Act, USERRA and OSHA's general duty clause all apply from your first employee
No insurance requirement
Workers' compensation required in nearly every state
Nobody to keep records for
Hours and wage records required for non-exempt staff, and I-9s retained separately
No state accounts
Withholding account plus an unemployment insurance account, and new hire reporting
The twelve steps, in order
Several are free. Two are commonly sold to people who did not know that.
- 1
Decide honestly whether this is an employee or a contractor
When: Before you make an offerFreeDo this first, because everything below depends on it. Calling someone a contractor does not make them one — what matters is the economic reality: who controls how the work is done, who supplies the tools, whether the person can realise a profit or loss, and how permanent the arrangement is. Getting this wrong is the most expensive mistake in this whole list.
IRS - Independent contractor or employee ↗ - 2
Get your EIN if you do not already have one
When: Before your first payrollFreeYou cannot run payroll without it. Apply directly at IRS.gov; the online application issues your number immediately.
Free, but commonly sold: Formation and payroll services commonly charge $50-$300 for this. It takes about ten minutes and costs nothing.
IRS - Apply for an EIN online ↗ - 3
Register as an employer with your state
When: Before your first payrollUsually free to registerUsually two separate registrations: one with the revenue department for income tax withholding, and one with the labour or workforce agency for unemployment insurance. People routinely do the first and forget the second, then get a penalty notice about an account they did not know they needed.
- 4
Put workers' compensation insurance in place
When: Before the employee starts workVaries widely by industry and payrollRequired in nearly every state from your first employee, though the trigger varies — Texas makes it optional for most private employers, and a few states start at three or five employees. Your job classification codes drive the premium, and miscoded staff means an audit bill later.
- 5
Complete Form I-9
When: Within three business days of the start dateFreeVerifies the employee is authorised to work. The employee completes their section by their first day; you complete yours within three business days of them starting. Keep it on file separately from the personnel file — do not send it anywhere.
USCIS - Form I-9 ↗ - 6
Collect Form W-4, and your state's equivalent
When: Before the first payrollFreeDetermines federal withholding. Most states with an income tax also have their own withholding certificate, which is a separate form people frequently miss.
IRS - Form W-4 ↗ - 7
File a new hire report with your state
When: Typically within 20 days of hiringFreeA separate obligation from your employer registration, used for child support enforcement. Deadlines are short — commonly around 20 days from the hire date — and almost nobody knows it exists until they are late.
- 8
Set up payroll and learn your deposit schedule
When: Before the first payrollCommonly $40-$80/month plus $6-$15 per employeePayroll tax deposits have strict deadlines and the penalty escalates with lateness. Worse, unpaid trust fund taxes can be assessed against you personally rather than against the business. Entry-level payroll software costs a fraction of a single penalty.
IRS - Employment taxes ↗ - 9
Put up the required labour law posters
When: Before the employee startsFreeFederal posters covering minimum wage, safety, polygraph protection and others must be displayed where employees can see them. Your state has its own set too.
Free, but commonly sold: This is the clearest one on the list. Companies sell 'all-in-one compliance poster' packages for $50-$200 a year, often with a subscription. The Department of Labor provides every federal poster free as a download, and state agencies do the same.
DOL - Workplace posters (free) ↗ - 10
Check your state's pay frequency and final paycheck rules
When: Before your first payroll, and again before your first departureFree to find outStates dictate how often you must pay people, and — more sharply — how quickly you must issue a final paycheck after someone leaves. Some require it on the last day. Missing this carries penalties in several states.
- 11
Start keeping the records you are required to keep
When: From day oneFreeThe FLSA requires you to keep hours worked and wages paid for non-exempt employees. If you ever face a wage claim, the absence of records is generally held against the employer rather than the employee.
DOL - FLSA recordkeeping ↗ - 12
Write something down, even if it is short
When: Soon after your first hireFree to write yourselfA handbook is not legally required, but having written policies on pay, time off, conduct and complaints is what lets you treat people consistently — and consistency is the main defence when someone alleges they were treated differently. Two pages you actually follow beats fifty you do not.
Common questions
What do I need to do before hiring my first employee?
Confirm the person is genuinely an employee rather than a contractor, get an EIN from the IRS, register with your state for both income tax withholding and unemployment insurance, put workers' compensation insurance in place, and set up payroll. Then on or around the start date: Form I-9 within three business days, a W-4 plus any state withholding form, a new hire report to your state, and the required labour law posters displayed.
Do I need workers' compensation for one employee?
In nearly every state, yes, from your first employee. Texas makes it optional for most private employers, and a handful of states only trigger at three or five employees. Your job classification codes drive the premium, so miscoded staff leads to an audit bill later.
Are labor law posters free?
Yes. Every required federal poster is a free download from the Department of Labor, and state agencies provide theirs free too. Companies sell 'all-in-one compliance poster' packages for $50 to $200 a year, often as a subscription, for material you can print at no cost.
How long do I have to complete Form I-9?
The employee completes their section by their first day of work, and you complete the employer section within three business days of them starting. Keep I-9s filed separately from personnel records.
What is new hire reporting?
A separate filing to your state, used for child support enforcement, distinct from registering as an employer. Deadlines are short — commonly around 20 days from the hire date — and most first-time employers have never heard of it until they are late.
And then it keeps changing
More obligations arrive at 11, 15, 20 and 50 employees. Our report tells you which apply now and how many hires away the next one is.
General information, not legal or tax advice. State requirements vary considerably, and your industry may add licensing or safety obligations not listed here.