Hiring Your First Employee: The Obligations Nobody Explains

When we made our first hire, we focused on the hiring. The job description, the interviews, the offer letter. We got to the day before the start date and realized we had not thought about what the start date required from us as an employer.

We knew about payroll. We did not know about the I-9. We did not know about the new hire report. We did not know that workers' compensation coverage had to be in place before the first day, not after. We had not registered for state withholding in the employee's state, which was different from ours, and we learned that this registration had a processing timeline.

The hire went fine, eventually. The first paycheck was late. The workers' comp policy was issued two days after the start date. We filed the new hire report a week late and paid a modest penalty. None of it was catastrophic. None of it was necessary.

What has to exist before day one

Workers' compensation insurance. Required in almost every state as of the first employee's first day. Not the first week. The first day. A business without required workers' compensation coverage is exposed to state penalties and, if an employee is injured, to personal liability for their medical costs and lost wages. The policy has to be in force before the hire starts, not purchased afterward.

State withholding registration. You must be registered with the tax authority in the state where the employee works before you can legally withhold and remit state income taxes. In most states this is a separate registration from your business entity registration. Processing times vary: some states process in days, others in weeks. If you are hiring an employee who works in a different state than where your business is registered, you may also need to register as a foreign entity in that state before you can establish the employment relationship.

State unemployment insurance registration. Separate from income tax withholding in most states. You register as an employer with the state's unemployment insurance agency and begin remitting contributions based on wages. New employers are assigned a standard rate that changes as you build a claims history.

Federal EIN registered for withholding. If you formed the company correctly, you have an EIN. Confirm it is set up for withholding taxes, not just for identification purposes. The payroll processor will ask for it.

What has to happen on day one

Form I-9, Employment Eligibility Verification. The employee completes Section 1 on or before the first day. You complete Section 2 within three business days by examining original identity documents in person. The I-9 is not filed with any government agency. You retain it for three years from the hire date or one year after termination, whichever is later, and produce it if audited by ICE. The list of acceptable documents is specified on the I-9 form. You cannot specify which documents the employee must provide; they choose from the acceptable list.

Collect the W-4. The employee's federal withholding certificate. Required before the first paycheck. The W-4 stays with you. The information on it goes into the payroll processor for withholding calculation.

What has to happen within the first week

New hire report. Federal law requires employers to report each new hire to the state's new hire directory within 20 days of the hire date. Most states have shorter windows. The report includes the employee's name, address, Social Security number, and start date, plus the employer's information. The purpose is child support enforcement, and the penalty for missing the deadline varies by state but is real in states that enforce it.

What the payroll processor handles after this

Once the setup is complete, the payroll processor handles: calculation of federal and state withholding, employer payroll tax contributions (Social Security and Medicare at 7.65% of wages), direct deposit, quarterly payroll tax filings, and year-end W-2 production. This is the part most people understand going in.

What the processor does not handle: the workers' comp policy, state registration, I-9 compliance, or new hire reporting. The processor's onboarding flow does not verify that you have done these things. It assumes you have. Nobody explains this during the hiring process. We are telling you because we found out on day one of our first hire, with the employee already starting.

We now have a checklist that runs before every hire. It starts six weeks before the anticipated start date with a check on state registration processing times, and ends on day one with the I-9 documentation. The list did not exist the first time. It exists now because the first time taught us what was on it.