You made the offer. They said yes. Congratulations, that’s a genuinely big step for a small business.
Now for the part nobody warns you about: before that first paycheck can go out clean, a stack of registrations and forms has to be in place. Miss one and you usually don’t find out until a filing bounces or a notice shows up months later. So here’s the whole setup, in the order that actually makes sense to do it.
The short answer
To pay your first employee legally you need a federal EIN, state tax accounts, a signed I-9 and W-4, workers’ comp coverage where your state requires it, and a payroll method that handles deposits and filings. You also have to report the hire to your state. Get these in place before payday, not after.
The checklist, in order
1. Get your federal EIN
The Employer Identification Number is the ID the IRS ties all your payroll taxes to. It’s free, you get it straight from the IRS, and it takes a few minutes online.
What goes wrong: owners pay a third-party site that charges for something the IRS gives away, or they put off getting one and then can’t make a required deposit on time because the account isn’t set up.
2. Register for state tax accounts
Almost every state needs you registered for two things: state income tax withholding and state unemployment insurance (SUI). These are separate from your federal setup and separate from each other.
What goes wrong: people handle the federal side, assume that’s it, and skip the state accounts. Then the first state deposit has nowhere to go and penalties start before the business ever knew there was a step.
3. Confirm the employee can legally work: Form I-9
Every new hire completes a Form I-9 and shows documents proving identity and work eligibility. You keep it on file. You don’t mail it in, but you have to be able to produce it if asked. Some states and employers also use E-Verify on top of it.
What goes wrong: the I-9 gets skipped or filled out late. It feels like a formality until an audit, and then a missing or sloppy I-9 carries its own penalties.
4. Collect a W-4 and the state equivalent
The federal Form W-4 tells you how much income tax to withhold. Most states have their own version for state withholding. Get both signed before the first run.
What goes wrong: running payroll off a guess instead of a real W-4, then having to correct withholding later and explain the difference on a confused employee’s check.
5. Report the new hire to your state
State new-hire reporting is a required filing, usually due within 20 days of the start date. It’s quick. It’s also one of the most commonly forgotten steps because it feels minor.
What goes wrong: nobody remembers it exists, so it never happens, quietly, for every hire.
6. Set up workers’ compensation
Most states require workers’ comp coverage as soon as you have an employee, sometimes from the very first one. The rules and thresholds vary a lot by state.
What goes wrong: treating comp as optional. If someone gets hurt and you’re uninsured, you’re personally exposed to the cost and often a separate penalty on top.
7. Pick your payroll method and a legal pay schedule
Decide how you’ll actually run payroll, whether that’s software, a provider, or expert help, and set a pay frequency that follows your state’s rules. Some states dictate how often you must pay (for example, at least twice a month for certain workers).
What goes wrong: choosing a pay schedule that’s convenient for you but doesn’t meet the state minimum, which is its own violation.
8. Know your deposit and filing calendar
Once you’re paying people, you owe deposits and filings on a schedule: federal payroll tax deposits (monthly or semiweekly), Form 941 each quarter, Form 940 for federal unemployment once a year, and W-2s to employees at year end. States have their own parallel deadlines.
What goes wrong: setting up payroll perfectly and then missing the deposit deadlines that come right after. If that’s the part you’re unsure about, the lesson on late payroll taxes is worth reading before your first deposit is due.
9. Post the required notices
Federal and state labor law posters have to be displayed where employees can see them. A remote team has digital equivalents.
What goes wrong: nothing, until an inspection. Then a missing poster is an easy citation.
The honest version
None of these steps is hard on its own. The trouble is that there are nine of them, they live in different places, and a missed one stays invisible until it’s a penalty. First-time employers rarely get burned by one big mistake. They get burned by the small step nobody told them about.
If you’d rather not assemble this from a dozen government websites, that’s exactly what the setup is for. Start with the free lessons, or book a free intro call and we’ll build your checklist around your state and your business so the first paycheck goes out right.
This is general education, not legal or tax advice for your specific situation. Requirements vary by state and change over time, so confirm your state’s current rules before you hire.
Frequently asked
What do I need before I can run my first payroll?
At a minimum: a federal EIN, state withholding and unemployment accounts, a completed Form I-9 and W-4 for the employee, workers' comp coverage where required, and a way to actually run payroll and make tax deposits. New-hire reporting to your state is also required, usually within 20 days.
Do I really need an EIN to hire one person?
Yes. The EIN is the federal ID the IRS uses to track your payroll taxes, and you can't file or deposit without one. It's free and you can get it directly from the IRS in a few minutes online.
How soon do I have to report a new hire?
Most states require you to report a new employee to their new-hire directory within 20 days of the start date. It's a quick filing, but it's easy to forget, and it's a real requirement, not a formality.