Guide · 2026 rules

How to hire your first employee: the steps, in order

The first hire turns a business into an employer. That brings a few forms on day one, a report to the state, payroll taxes on every paycheck and some records to keep. This page lists each step in the order it comes up, with the agency’s own page for each.

Updated October 24, 202622 official sources

In short

Decide first whether the worker is an employee or an independent contractor. The IRS looks at the whole relationship.
On day one the employee fills out Form I-9 and Form W-4. You finish the I-9 within 3 business days.
Report the hire to the state within 20 days, or sooner if your state sets a shorter deadline.
From the first paycheck you withhold income tax and the employee’s Social Security and Medicare, and you pay a matching share.

Before you hire

1. Employee or contractor

Settle this before you pay anyone. The IRS weighs the degree of control and independence in three groups: behavioral, financial and the type of relationship. No single factor decides it. What counts is the whole relationship, and the key is the right to direct and control the work.

The answer changes what you owe. For an employee you withhold income tax, withhold and match Social Security and Medicare, and pay unemployment tax. For a contractor you generally do none of these. Treating an employee as a contractor without a reasonable basis can make the business liable for the employment taxes. If it’s still unclear, you may file Form SS-8 and the IRS will decide the worker’s status, which can take at least six months.

2. Register as an employer

You need an EIN, which the IRS issues free online. You also register in the state where the work is done, usually for income tax withholding and unemployment insurance, and in some states for more. Employer setup by state lists the accounts each state expects, with each agency’s registration page. Workers’ comp rules differ by state; workers’ comp by state gives each state’s rule.

On the first day

3. Form I-9

Every new employee fills out Form I-9. The employee completes Section 1 no later than the first day of work for pay. You review the employee’s documents and complete Section 2 within 3 business days of that first day. If the job lasts less than 3 days, Section 2 is due on the first day. You keep the form; you never mail it to USCIS or ICE.

4. E-Verify, if it applies

E-Verify checks the information on a completed Form I-9 against government records. For most employers it is voluntary. Employers with federal contracts that carry the E-Verify clause must use it, and over 20 states require it for certain employers, for example as a condition of a business license. E-Verify gives no guidance on state laws, so check your state. E-Verify in plain English covers how a case works.

5. Form W-4

The employee fills out Form W-4 so you can withhold the right federal income tax. You should have one on file for each employee. If a new employee doesn’t hand in a completed 2026 W-4, you withhold as if the employee checked Single or Married filing separately and made no other entries.

Your state may add its own forms. The new-hire paperwork checklist lists them state by state.

Within the first weeks

6. Report the new hire

Federal law requires you to report each new or rehired employee to the state where the employee works within 20 days of hire. A state may set a shorter deadline. The report carries seven items: the employee’s name, address and Social Security number, the date of hire, and your business’s name, address and EIN. Some states ask for more. A copy of the W-4 holds the required items, but the state prefers that you file on its new-hire website. A state fine for not reporting may not exceed $25 per new hire.

Every payday

7. Withhold and pay payroll taxes

Tax	Employee pays	You pay	On
Social Security	6.2%	6.2%	Wages up to $184,500 for 2026
Medicare	1.45%	1.45%	All wages
Additional Medicare	0.9%	None	Wages over $200,000 in a calendar year
Federal unemployment (FUTA)	None	6.0%, or 0.6% after the full 5.4% credit	The first $7,000 of each employee’s wages
Federal income tax	From the W-4	None	Each paycheck

State payroll taxes come on top; employer setup by state lists them. As a new employer you generally deposit federal payroll taxes monthly, and always electronically. A payroll service can make the deposits and file the payroll forms for you; S-corp payroll costs compares published prices.

8. Pay at least the minimum wage, and overtime

The federal minimum wage is $7.25 an hour. Many states set their own, and where state law gives more protection, you must comply with both. State rates can be well above the federal one: the Department of Labor’s state table lists $16.90 an hour for California.

Unless the employee is exempt, hours over 40 in a workweek earn overtime at no less than time and one-half the regular rate. A fixed salary for a week longer than 40 hours does not by itself meet the overtime rule.

Ongoing

9. Put up the required posters

Federal posting rules vary by law, and not every employer is covered by each one. The Department of Labor’s free Poster Advisor tells you which of its posters apply. For a typical first hire at a private business:

The federal minimum wage poster applies to every employer with an employee covered by the wage law. The current version is April 2023.
The OSHA “Job Safety and Health: It’s the Law” poster applies to private employers. States with their own OSHA plan use the state’s poster.
The family and medical leave (FMLA) poster starts at 50 employees.
The EEOC “Know Your Rights” poster applies to employers covered by the federal anti-discrimination laws.

The Department of Labor’s posters are free, and the EEOC poster is a download from eeoc.gov.

10. Know which anti-discrimination laws apply

The equal pay law covers you from the first employee. The federal laws against discrimination based on race, color, religion, sex, national origin, disability and genetic information start at 15 employees, and the age law starts at 20. State and local laws may apply sooner.

11. Keep the records

Record	Keep it
Payroll records (wage and hour law)	At least 3 years
Time cards, wage rate tables, work schedules	2 years
Employment tax records (IRS)	At least 4 years
Form I-9	3 years after hire or 1 year after employment ends, whichever is later

If an inspector asks for the I-9s, you have 3 business days to produce them.

If the first employee is you

After an S election your own salary runs through payroll, so the business becomes an employer even with no one else on staff. The same payroll taxes apply, and the state accounts are the same. How to pay yourself covers the salary itself.

See what an S election would add or save for your business.Profit, state and salary. Two minutes, nothing sent anywhere.

Open the check

Sources

Sources: 22 official pages

Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.

An explanation of public rules, not tax advice.

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