What to file before your first employee starts

Do the registrations before you make the offer. That's the whole trick. Most of the trouble people get into hiring their first employee comes from doing it in the wrong order — offer accepted, start date set, and only then discovering that the state unemployment registration takes a couple of weeks and the workers' comp policy needs to be bound before anyone clocks in.

What follows is the US version. If you're hiring in the UK, Canada or anywhere else, the shape is similar but the forms and agencies aren't, so read this as a map of the terrain and get local specifics from an accountant who works in your country. And nothing here is legal advice for your situation. Once you have employees, a few hundred dollars with an employment attorney for a one-time review is some of the cheapest insurance you'll ever buy.

Decide whether this person is actually an employee

Before any paperwork, settle the classification question honestly. Contractor versus employee isn't a preference you get to pick. It turns on how much control you have over the work — when it happens, where, with whose tools, under whose direction, and whether the person is genuinely running their own business serving other clients.

If you're setting the hours, supervising the method, providing the equipment and expecting this person to be available to you and not to competitors, you have an employee. Calling them a 1099 contractor to skip payroll tax doesn't change that. It just moves the cost to later, with penalties and back taxes attached, and the IRS and your state labor department can both come to that conclusion independently.

The honest test: could this person substitute someone else to do the work tomorrow without asking you? If not, they're probably an employee.

The registrations, in order

Federal EIN. Free, online, takes minutes. You may already have one. If you've been a sole proprietor using your Social Security number, get the EIN now.

State income tax withholding account. Separate from your business registration. Some states are same-day, some take weeks.

State unemployment insurance account. Also separate. This is the one that most often surprises people with its lead time.

Local tax registration if your city or county levies its own payroll or occupational tax. Plenty do, and they're easy to miss because nobody tells you.

Workers' compensation insurance. Requirements vary by state — some require coverage from the first employee, others have small thresholds, and a few treat it differently for certain industries. Find out which applies to you before the start date, not after. An employee injured on day one with no coverage in place is a genuinely serious problem, and in some states it's a criminal one.

Start all of these at least three weeks before you want somebody working.

Write an offer letter, not a contract

Unless you have a specific reason to want a fixed-term contract, keep it simple. A one-page offer letter covering: position title, start date, pay rate stated as hourly or annual, whether the role is exempt or non-exempt, who they report to, benefits if any, and a clear statement that employment is at-will (in states where that applies).

Avoid language that sounds like a promise of continued employment. "Annual salary of $X" has tripped people up in disputes because it reads like a guarantee of a year. "$X per year, paid biweekly" is cleaner.

Don't promise a bonus you haven't defined. If you want to pay one, write the conditions down or don't mention it.

Get it signed and dated. Keep the copy.

The day-one folder

Four things, and they have deadlines.

Form I-9. The employee completes Section 1 no later than their first day of work. You complete Section 2 within three business days of their start date, after physically examining their identity and work authorization documents. You don't choose which documents they present — they pick from the list.

Form W-4 for federal withholding, plus your state's equivalent if it has one.

Direct deposit authorization with a voided check or bank letter.

Emergency contact and signed acknowledgment of whatever handbook or policies you've given them.

Store the I-9s in a separate file from everything else, not in the personnel folder. If you're ever audited, you hand over the I-9 binder and nothing more. Mixing them in with medical information or performance notes means an inspector is looking at things they have no business seeing.

New hire reporting

Every state runs a new hire directory, and you're required to report each new employee to it. The federal baseline is 20 days from the hire date; a number of states are shorter. Your payroll provider will usually handle this automatically, but confirm it rather than assuming.

It takes five minutes and people forget it constantly because it's the one step that doesn't feel like it does anything for you.

Pay for payroll software

Do not run payroll by hand. Not in a spreadsheet, not by writing a check and figuring out the taxes at quarter end.

The tax deposit schedules are unforgiving, the penalties for late federal payroll deposits scale by how late you are, and the filings — quarterly 941s, state returns, annual W-2s and W-3 — don't stop. A payroll service handles the calculations, the deposits, the filings and the year-end forms for a monthly fee that is trivially less than one penalty.

Set it up before the first pay period, not during it.

Exempt, non-exempt, and the timekeeping you'll wish you had

Non-exempt employees get overtime, and they get it whether or not you approved the hours. Exempt status requires meeting both a salary threshold and a duties test, and job title is irrelevant to the analysis. Paying someone a salary does not, by itself, make them exempt.

This is the single most common area where small employers get sued, and the claims come with back wages plus liquidated damages plus the other side's legal fees.

If the role is non-exempt, track time from day one. Use an app, use a clock, use anything that creates a record you didn't write from memory. In a wage dispute, if you don't have records, the employee's account of their hours tends to carry the day.

Posters, policies and the boring file

Federal and state labor law posters have to be displayed where employees can see them — physically in the workplace, and increasingly in a digital equivalent for remote staff. Your state labor department publishes them free. Don't buy the "compliance poster kit" some company mails you with an official-looking envelope.

You don't need a fifty-page handbook for one employee. You need written policies on paid time off, sick leave (which some states mandate), expense reimbursement, and how to report a problem, including one that involves you.

Keep payroll records, time records and tax filings for several years. Ask your accountant what the retention periods are in your state, because they differ, and a few of them are longer than you'd guess.

The part nobody tells you

The paperwork isn't the hard part of the first hire. The hard part is that somebody now plans their mortgage around you.

Get the first paycheck right, on the exact day you said, to the cent. Do that twelve times in a row and you'll have earned something a signing bonus can't buy.