How to hire your first employee without missing a federal step

Your first hire is the moment a one-truck operation becomes a company. It is also the moment the government starts caring about your paperwork. The federal list is shorter than most owners expect. The state list is longer, and it varies. This guide walks through both in the order you will hit them.

Everything here is general information drawn from IRS, USCIS, Department of Labor and HHS pages, checked in October 2026. Treat it as a starting point, not legal or tax advice. State rules differ a lot on payroll, insurance and pay practices, so check your state using our state-by-state start pages and confirm anything unusual with an accountant or employment lawyer.

Is this person an employee or a contractor?

Settle this before anything else, because it decides every step after it. The IRS looks at three kinds of evidence: behavioral control (do you direct how the work is done), financial control (who supplies tools, who sets the pay, who carries the risk) and the type of relationship (contracts, benefits, permanence, and how central the work is to what you sell). The IRS says no single factor decides it; you look at the whole relationship.

For a service company, the answer is usually obvious once you are honest about it. A helper who rides in your truck, works the jobs you book, follows your process and uses your equipment looks like an employee. A licensed sub with their own company, their own insurance, their own customers and a bid for a defined job looks like a contractor. Our guide to employee vs independent contractor covers the IRS and Department of Labor tests in detail, including why a signed contractor agreement does not settle the question.

What do you need before the first day?

Do these before the person shows up. Several take days or weeks to process.

1. Get an EIN if you do not have one. The IRS lists hiring employees as a reason you need one, and it is free from IRS.gov. See how to get an EIN.
2. Register with your state. Your state may need separate registrations for income tax withholding and for unemployment insurance. Its revenue and labor agencies list the steps; our state pages link to the official sites.
3. Arrange workers' compensation. Each state sets its own rules, including how many employees trigger the requirement. Our contractor insurance guide explains how it works.
4. Pick a payroll method. A payroll service, your accountant, or software you run yourself. Decide before the first pay date, not after. Our payroll guide compares the options.
5. Know your minimum wage. The federal minimum wage is $7.25 an hour, unchanged since July 24, 2009. The Department of Labor notes that many states set their own minimum, and employers must comply with both.
6. Put up the required posters. The Department of Labor requires employers covered by the FLSA minimum wage rules to display its FLSA poster where employees can readily read it, and OSHA requires its own poster. Both are free from the agencies. States add their own.

Which federal forms does a new employee fill out?

On the IRS hiring page, three items come up on day one:

Two I-9 rules trip up new employers. First, USCIS says the employee chooses which acceptable documents to show you; you cannot demand a specific one. If they show a List A document, such as a passport, do not ask for anything else. Second, you examine the original documents yourself and keep the form on file. When employment ends, keep the I-9 for three years after the hire date or one year after employment ends, whichever is later.

The new hire report goes to the state, which passes it to the National Directory of New Hires used by child support agencies. HHS's Office of Child Support Services lists what to send: the employee's name, address, Social Security number and first day of paid work, plus your business name, address and EIN, and anything your state adds.

What should you put in writing before the first shift?

Federal law does not require an offer letter, but a one-page summary prevents the arguments that sink first hires. Write down:

• Pay rate and pay schedule. Hourly or salary, which day is payday, and how often.
• Your workweek. The FLSA measures overtime by a fixed, recurring 168-hour workweek that you choose, such as Sunday 12:00 a.m. to Saturday 11:59 p.m. Pick one and keep it. Our overtime guide for field crews explains why it matters.
• When the clock starts. At the shop, at the first job, or when they pick up the truck. Travel between job sites during the day is work time under Department of Labor rules.
• Tools, uniforms and the truck. Who supplies what, and who pays for damage. Deductions for items that mainly benefit the employer cannot cut pay below minimum wage or eat into overtime.
• Any bonus or commission plan. If it is promised in advance, it usually counts toward overtime pay.

What changes for your taxes once you have an employee?

You become a tax collector. Every payday you withhold federal income tax based on the W-4, plus the employee's share of Social Security and Medicare, and you add your matching share. Those amounts get deposited electronically on a schedule, and reported on Form 941 each quarter and Form 940 once a year for federal unemployment tax. IRS Publication 15 says new employers start on the monthly deposit schedule for their first calendar year.

The money you withhold is not yours. If it is not deposited, the IRS can apply the trust fund recovery penalty, which can reach the people responsible for paying it personally. That alone is why many first-time employers use a payroll service. The payroll guide covers the rates, deposit rules and filing dates.

How should the first week go?

New hires decide fast whether a job is worth keeping. A helper who spends the first morning waiting at the shop while you look for a spare shirt has already started looking elsewhere. Plan the week before it starts:

• Day one paperwork done in the first hour, then straight to a job.
• Safety basics on the equipment they will touch, explained so they understand it. OSHA expects training that the worker can actually follow, in words they understand.
• Ride-alongs on your best-run jobs, not your messiest ones.
• A short list of what "done right" looks like for your top three services.
• A check-in at the end of the week: what was confusing, what they need.

We wrote a full plan in how to onboard new field employees.

What systems should be in place for a second person?

When you were alone, the schedule lived in your head and customer notes lived in your texts. A second person cannot read either. Before they start, get the basics out of your phone:

• A shared schedule the employee can see from their own phone.
• Job notes and photos attached to each customer, so the gate code and the dog's name are not a phone call.
• Clock-in and clock-out records you can trust, because the FLSA requires you to keep daily and weekly hours for nonexempt employees.
• A way to see which jobs make money once labor is a real cost.

Off-the-shelf field software covers most of this, and for many small crews it is a sensible start. When the workarounds pile up, a custom CRM can hold your schedule, job notes and time records in one place, built around how your crew works. Our own service companies run on one we built. If you are not sure where your setup is leaking time or leads, our free system quote looks at the whole picture.

Frequently asked questions