Everything a small business needs to do before and after hiring its first employee: EIN, state registrations, workers’ comp, payroll taxes, paperwork, posters and records.
Your first hire changes how you run the business. Before you post a job, be clear on the work, the hours and the budget. Will this be a part-time or full-time role? Hourly or salaried? An employee or an independent contractor? The last question matters most, because classification is decided by the facts of the relationship, not by what you call it. If you will control when, where and how the work is done, you are almost certainly hiring an employee. See independent contractor vs employee.
Then work out the true cost. An employee costs more than their wage: employer payroll taxes, workers’ compensation, any benefits, equipment and training. Our labor burden calculator and the guide to the cost of hiring an employee help you estimate it.
An Employer Identification Number is your business’s federal tax ID. You need one to run payroll, file employment tax returns and issue W-2s. You can apply online with the IRS for free and usually receive the number immediately. Be careful with websites that charge a fee for the same application. If your business already has an EIN, for example as an LLC or corporation, you use the same number for payroll.
Most states require two registrations before you pay wages:
Some cities and counties also have local payroll taxes. Your state’s small business portal usually lists every registration in one place.
Nearly every state requires employers to carry workers’ compensation insurance, often from the first employee. Texas is the best-known exception, where coverage is generally optional for private employers, and some states set thresholds or allow self-insurance for larger employers. Coverage is bought from a private insurer, a state fund or both, depending on the state. Premiums are based on payroll and the type of work, so accurate job descriptions and payroll records matter. Some states also require disability or paid family leave insurance.
Choose a pay frequency, such as weekly, biweekly or semi-monthly, within your state’s rules on minimum pay frequency. Compare the options in our pay period types guide. Then decide how you will run payroll: yourself, with payroll software or through an accountant or payroll provider.
| Tax | Who pays | Basic rate |
|---|---|---|
| Federal income tax withholding | Employee (withheld by you) | Based on the employee’s W-4 and IRS tables |
| Social Security | Employee and employer | 6.2% each, up to the annual wage base |
| Medicare | Employee and employer | 1.45% each, plus 0.9% additional Medicare tax withheld from employee wages above $200,000 |
| Federal unemployment (FUTA) | Employer only | 6.0% on the first $7,000 per employee per year, generally reduced to 0.6% with the full state credit |
You deposit withheld and employer taxes on a monthly or semi-weekly schedule set by the IRS, file Form 941 each quarter (or Form 944 if the IRS tells you to), file Form 940 for FUTA once a year and give each employee a W-2 by January 31. See Form 941, Form 940 and employer payroll taxes in our glossary.
When the employee accepts the offer, collect the federal and state forms. The essentials are Form W-4, your state withholding form if there is one, Form I-9 (Section 1 by the first day, Section 2 within three business days) and a new hire report to your state within 20 days or sooner if your state requires it. Many states also require a written notice of pay rate and payday. Our new hire paperwork checklist lists every form and deadline.
Federal law requires certain posters, such as the FLSA minimum wage poster and the OSHA job safety poster, and others once you reach certain sizes. Your state has its own required posters, often covering minimum wage, unemployment insurance, workers’ compensation and paid sick leave. Put them where employees can see them, and share them electronically with remote employees. The federal employment laws guide explains which laws apply at which size.
If your first employee is non-exempt, you must record their hours worked each day and each workweek and pay overtime after 40 hours in a workweek, plus any state overtime. Decide now how they will clock in and out, how breaks work and who approves timecards. A short written policy avoids misunderstandings later. See how to set up a time clock for a small business and writing a timekeeping policy.
A good first week sets the tone for the whole relationship. Prepare a simple plan: who will train the new hire, what they will learn each day, and how you will check in. For a small business, the owner is often the trainer, so block the time. See how to onboard hourly employees.
| Done | Task |
|---|---|
| ☐ | Confirm the role is an employee, not a contractor |
| ☐ | Get an EIN |
| ☐ | Register for state withholding and unemployment insurance |
| ☐ | Buy workers’ compensation insurance |
| ☐ | Choose pay frequency and set up payroll |
| ☐ | Collect W-4, state form and I-9 |
| ☐ | Report the new hire to the state |
| ☐ | Display federal and state posters |
| ☐ | Set up timekeeping and write basic policies |
| ☐ | Plan the first week of training |
EZTime gives a small business a simple time clock from day one: employees clock in on their phone, at a kiosk or with an NFC tag, and you get payroll-ready hours with overtime calculated. Digital HR forms and e-signatures handle company paperwork, and everything is filed in the employee file.
Yes. You need an EIN to report employment taxes and issue W-2s. It is free from the IRS.
In most states, yes, from the first employee. Some states have exceptions or thresholds, and Texas generally makes it optional for private employers.
The employer share of Social Security and Medicare, federal unemployment tax (FUTA), state unemployment tax and any state or local employer taxes.
Federal law requires reporting within 20 days of hire, but some states require it sooner.
Only if they really are an independent contractor. Misclassification can lead to back taxes, back wages and penalties.
If the employee is non-exempt, yes. Exempt status depends on salary level and duties, not just on paying a salary.
EZTime gives your first employee a simple time clock and you payroll-ready hours. Small teams pay the $20 monthly minimum; larger teams pay from $2 per employee.