The day you agree to pay someone a wage, you stop being just a business owner and become an employer, a legal status that arrives with its own stack of federal paperwork. None of it is difficult on its own. The trouble is that first-time employers usually learn the list one missed deadline at a time.
Here is the federal to-do list in the order it actually comes up, from before the job offer to the first payroll deposit. Budget an afternoon for the setup. Every item on it is free, and most can be done online.
1. Get an EIN, free and direct from the IRS
An Employer Identification Number is the Social Security number of your business; you will put it on every payroll form you ever file. Apply online through the IRS’s employer ID number page and you can have one in minutes at no charge. Ignore the third-party websites that charge $50 or more to submit the same free application; they add nothing but a fee. Sole proprietors who already have an EIN for other reasons can generally keep using it once they hire.
2. Collect a W-4 on or before day one
Every new employee fills out Form W-4 so you know how much federal income tax to withhold from each paycheck. You do not send the form to the IRS; you keep it in your records and follow it. The IRS’s hiring employees checklist also reminds employers to have each worker’s name and Social Security number exactly as they appear on the Social Security card, because mismatches surface later as rejected wage reports.
3. Verify work eligibility with Form I-9
Federal law requires you to confirm every employee’s identity and authorization to work in the United States using Form I-9 from U.S. Citizenship and Immigration Services. The employee completes their section no later than the first day of work; you complete yours within three business days of the start date, after examining documents such as a passport or a driver’s license paired with a Social Security card. Like the W-4, the I-9 stays in your files, ready for inspection. Do not skip this one because the hire is a relative or a friend. The requirement applies to every employee, and the fines for missing forms are assessed per form.
4. Report the new hire to your state
Federal law requires employers to report every new hire to their state’s new-hire directory, generally within 20 days of the start date, and some states require it faster. The reports feed the national system used to enforce child support orders. Each state runs its own portal; find yours through the federal Office of Child Support Services’ directory of state new-hire reporting sites. The report itself takes minutes: typically the employee’s name, address, Social Security number, and start date, plus your business information.
5. Set up withholding and payroll tax deposits
From the first paycheck, you are a tax collector. You withhold federal income tax per the W-4, plus the employee’s share of Social Security and Medicare taxes, and you owe a matching employer share. Social Security tax runs 6.2 percent each for employer and employee on wages up to an annual cap, and Medicare tax is 1.45 percent each with no cap. Those withheld amounts are not your money; they must be deposited electronically on the IRS’s schedule, which for most new small employers starts as monthly. The IRS lays out the timing and the required forms, including quarterly Form 941 and the annual federal unemployment return Form 940, on its depositing and reporting employment taxes page.
Federal unemployment tax, called FUTA, is an employer-only tax of 6 percent on the first $7,000 of each employee’s annual wages, reduced to as little as 0.6 percent by credits for paying your state unemployment tax on time. In January you will also issue Form W-2 to each employee and file copies with the Social Security Administration. A payroll service or payroll software handles all of this arithmetic for a modest monthly fee, and for a first-time employer it is usually money well spent, because deposit penalties are steep and automatic.
6. Hang the required posters
Employers must display federal workplace notices covering the minimum wage, workplace safety, and related rights. The posters are free from the Labor Department’s Wage and Hour Division poster page; the companies that mail glossy “compliance poster kits” with an invoice are selling you what the government gives away. Your state labor department will have its own required postings as well.
The state-level items to check the same week
Two obligations sit outside the federal list but belong on the same to-do sheet. Most states require workers’ compensation insurance from the first employee, purchased through a private carrier or a state fund. And you will need to register with your state for unemployment insurance tax and, in states with an income tax, for state withholding. Neither is optional, and workers’ comp in particular is a bad corner to cut, since an uninsured workplace injury can be a business-ending event.
One last classification note: this list applies to employees. Paying someone as an independent contractor does not make them one; the IRS looks at who controls the work, not what the paperwork says. If you set the hours, provide the tools, and direct the tasks, treat the person as an employee from day one. Reclassification after the fact, with back taxes and penalties, costs far more than the afternoon this list takes.
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