Hiring Your First Employee: The Compliance Checklist Nobody Gives You
Hiring your first employee is one of the best days in a small business owner's life. You are growing, you need help, and you thankfully found the right person. And then somewhere between extending the offer and their start date, it dawns on you that you have no idea what you are actually supposed to do next.
Most first-time employers focus almost entirely on finding the right person and almost nothing on what hiring that person legally requires. That is understandable and natural. The recruiting process is visible and urgent, and the compliance obligations are invisible right up until they are not. Nobody sends you a welcome packet when you become an employer. The obligations just exist, and you are expected to know about them and figure it out.
This post is the welcome packet you never got. This is not everything you will eventually need to know about HR, but it does include the compliance requirements that apply the moment you hire your first employee, what the deadlines are, and what the consequences look like if you miss them.
First: You Are Now an Employer (and That Changed Things)
The moment you hire your first employee, your legal status changes in ways that are not intuitive. You are no longer just a business owner managing yourself. You are an employer with obligations to a government agency you have probably never dealt with, a state registry you did not know existed, and a federal law that has applied to you since day one.
Most of these obligations have nothing to do with how good a manager you are or how fairly you treat people. They are administrative and legal requirements that exist regardless of your intentions. Missing them does not require bad faith, it just requires not knowing about them, which is where most first-time employers start.
Work through this list before your employee's first day. Some of these have deadlines measured in days.
Before Anyone Starts: Get Set Up
Get an Employer Identification Number (EIN): If you do not already have one, go to irs.gov and apply for an EIN today. It is free and takes about ten minutes. You need this number for payroll tax purposes, and you cannot set up payroll without it. This is step one of everything else.
Register with your state: Most states require employers to register before their first hire. What this involves varies, but typically includes registering for state income tax withholding, state unemployment insurance (also called SUTA or SUI), and any state-specific employer accounts. Your state's Department of Labor or Department of Revenue website is where you start. Search "[your state] employer registration" and you will find the right agency.
Do not skip this step. Running payroll without being properly registered with your state creates penalties that accumulate quietly until someone notices.
Get workers' compensation insurance: Workers' compensation is required in almost every state for employers with employees, and in many states, that requirement kicks in with your very first hire. A handful of states have a threshold of three or four employees before the requirement applies, but most do not. Check your state's requirement before the employee's start date. Operating without required workers' comp coverage is one of the faster ways to get into serious regulatory trouble as a small business.
Set up payroll: Do not try to do payroll manually. The calculation of federal and state withholding, the deposit schedule for payroll taxes, the quarterly filings, the year-end W-2 preparation, etc., it is genuinely complex and the penalties for errors are meaningful. Payroll software like Gusto, QuickBooks Payroll, or Rippling handles this for a cost that is trivial compared to the cost of getting it wrong. Get this in place before your first paycheck, not after.
One thing most first-time employers do not know: the schedule on which you are required to deposit payroll taxes to the IRS is not monthly by default. It depends on your total payroll tax liability. For most very small employers it starts as monthly, but it can change. Your payroll software will track this, which is another reason to use it.
On or Before Day One: The Legal Requirements With Hard Deadlines
Form I-9: Employment Eligibility Verification: The I-9 is the federal form that verifies an employee's identity and authorization to work in the United States. It is required for every employee, every time, with no exceptions. The deadline is unforgiving: the I-9 must be completed no later than the first day of work for pay. The employee completes Section 1 on or before day one. You complete Section 2, which requires you to physically examine the employee's original identity and work authorization documents within three business days of the hire date. Just a heads up- you cannot complete the I-9 remotely by looking at photocopies or photos of documents. You must examine the originals in person. If you are hiring a remote employee, you can designate an authorized representative to complete the physical examination on your behalf, but you are still responsible for the accuracy of the form. Perhaps a better method is to have every employee start with you on day one.
Keep completed I-9 forms in a separate file from the rest of the employee's personnel records. That is a federal requirement, not a suggestion. You must retain this documentation for three years from the hire date or one year after separation, whichever is later.
Civil penalties for I-9 violations start at several hundred dollars per form and go up significantly for pattern violations or for knowingly employing unauthorized workers. The Department of Homeland Security audits employers. Don’t think that just because you are small, you won’t get audited. Small businesses get audited too.
Form W-4: Federal Tax Withholding: The employee completes the W-4 to tell you how much federal income tax to withhold from their paycheck. This is the employee’s form to fill out, so do not complete it for them and do not tell them what to put. Keep the completed W-4 in their file. Your payroll system will use it to calculate withholding automatically.
State withholding form: Most states have their own equivalent of the W-4 for state income tax withholding. Find your state's version and have it ready on day one alongside the federal W-4. Your payroll provider can usually tell you which form applies.
Within 20 Days of Hire: New Hire Reporting
This is the compliance requirement that first-time employers miss most often, because almost nothing in the hiring process mentions it and there is no obvious trigger that reminds you to do it.
Federal law requires every employer to report every new hire to their state's new hire registry within 20 days of the hire date. Every state has an online portal for this: search "[your state] new hire reporting" to find it. The information you report is basic: employee name, address, Social Security number, start date, and your business information. Some payroll providers include this, so check ahead of time so that you aren’t duplicating effort.
The purpose of new hire reporting is to help states enforce child support orders by cross-referencing new hire data with their support collections database. The mechanism does not matter much for your purposes, but the obligation does. Most states impose fines for late or missing new hire reports. Some are small, some are not. But none of them are worth the oversight. Put a calendar reminder on your phone right now: within 20 days of every new hire, report to the state registry. It takes five minutes.
The Written Offer Letter: More Important Than You Think
A written offer letter is not legally required in most states. It is also one of the most important documents in your new hire's file, and skipping it is a mistake.
At minimum, your offer letter should include the job title, start date, compensation (hourly rate or salary and pay frequency), whether the position is full-time or part-time, and explicit at-will employment language. That last element is critical. At-will employment is the ability for either party to end the relationship at any time for any legal reason, and is the default in 49 states (Montana excluded). However, it can be accidentally waived through informal promises or inconsistent language. A clear at-will statement in every offer letter is your protection.
What the offer letter should not include: any language implying job security, promises about future raises or reviews, or anything that could be read as a guarantee of continued employment. "We look forward to a long relationship" sounds warm. It also looks like implied contract language to a plaintiff's attorney. Leave it out.
Policies: You Need at Least the Basics Before Day One
You do not need a 50-page employee handbook for your first employee. You do need written answers to the questions they are guaranteed to ask and written standards for the situations most likely to come up.
Before your first employee starts, have something written down that covers at minimum: work hours and schedule expectations, how time off works and how to request it, conduct expectations and what happens when they are not met, and confidentiality obligations. These do not need to be elaborate, but they need to be clear, written, and signed by the employee.
Why written? Because without written policies, every question is a judgment call and every judgment call sets a precedent. When you eventually hire employee two or three, you will be held to the same answers you gave employee one, whether you remember giving them or not. Write it down from the start and be consistent.
An anti-harassment policy deserves specific mention here. Several states require employers to have a written harassment policy and some require distribution of that policy to all employees. Even where it is not legally required, the absence of a harassment policy is a significant liability the moment an incident occurs. Get this done before day one.
The Ongoing Obligations That Start Immediately
Once your employee is working and getting paid, a set of ongoing compliance obligations kicks in that you need to run correctly from the first paycheck.
Payroll tax deposits: Federal income tax, Social Security, and Medicare withheld from employee paychecks (plus your employer match on Social Security and Medicare) must be deposited to the IRS on a schedule determined by your total tax liability. Your payroll software handles the calculation and usually the deposit too. Make sure it is actually set up to do so.
Wage and hour compliance: Federal law requires that non-exempt employees receive overtime pay at 1.5 times their regular rate for hours worked over 40 in a workweek. Many states have additional overtime requirements (California, for example, requires daily overtime for hours over eight in a workday). Know which category your employee falls into (exempt or non-exempt) and make sure your payroll reflects it correctly.
Recordkeeping: Federal law requires you to retain payroll records for at least three years. That includes hours worked, wages paid, and payroll tax records. Your payroll system will handle this automatically, which is one more reason to use one.
The Thing Most First-Time Employers Get Wrong
They treat compliance as something to deal with later. The hiring process feels urgent and the compliance checklist feels bureaucratic, so the hiring gets done and the compliance gets deferred. And then six months in, someone mentions that you never filed new hire reports, or the state comes asking about workers' comp coverage, or an I-9 audit surfaces a collection of improperly completed forms.
None of these problems are hard to avoid. They are all the result of not knowing what is required and when. Now you know. Work through the list before your employee's start date, get your payroll and registration infrastructure in place, and handle the I-9 and new hire reporting as non-negotiables on day one.
The compliance foundation you build with your first employee is the one every subsequent employee gets hired into. Build it right the first time.
If you need something more concrete, we have put together a new hire onboarding checklist & template. Our template covers every step of the hiring and onboarding process, from pre-arrival compliance tasks, day-one paperwork, new hire reporting reminders, policy acknowledgments, and the 30/60/90 day milestone framework. Everything in one place so nothing falls through the cracks.
Editable Word document + PDF. Instant download. Created by a SHRM-SCP certified HR professional.
Questions about this or other HR topics? Visit pragmatichrgroup.com for more resources.
