Hiring Your First Employee: The Complete Agency Checklist

Quick Reference: The Swimlane Checklist

Work left to right. Every chip links to the full task block with agency, form, deadline, cost, proof-of-done, and the gotcha.

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Phase	Lane	Checklist item	Deadline	Proof you are done
0 Decide	Federal	Classify employee vs contractor	Before offer terms harden	Written classification rationale
0 Decide	Internal	Calculate loaded annual cost	Before offer amount	Cost worksheet with assumptions dated
1 Register	Federal	Get EIN or confirm existing EIN	Before payroll accounts	IRS EIN confirmation letter
1 Register	State	Open state withholding account	Before withholding state income tax	State account ID / confirmation
1 Register	State	Check local payroll taxes	Before payroll in local-tax jurisdictions	Local account ID or documented none
1 Register	State	Open state unemployment account	Before first payroll in most states	SUTA account number and rate notice
1 Register	Insurance	Bind workers' compensation	Before work starts if required	Policy declarations / state-fund certificate
2 Before Day 1	Internal	Send offer letter	After classification, before acceptance	Signed offer, separate from handbook
2 Before Day 1	State	Prepare wage notice if required	At hire where required	Signed wage notice
2 Before Day 1	Federal	Decide exempt vs non-exempt	Before pay structure	Salary-basis and duties-test note
2 Before Day 1	State	Set pay frequency and payday	Before offer or first payroll	Written payday policy
2 Before Day 1	Federal	Download required posters	By first worksite day	Posted PDFs / remote notice folder
2 Before Day 1	Federal	Set payroll and deposit schedule	Before first pay run	EFTPS/payroll account active
3 Day 1	Federal	Complete Form I-9	Section 1 day 1; Section 2 within 3 business days	Retained I-9; not sent to USCIS
3 Day 1	Federal	Run E-Verify if required	After I-9, within program timing	Case result or non-applicability note
3 Day 1	Federal	Collect W-4	Before payroll withholding	Employee-signed W-4 on file
3 Day 1	State	Report new hire	Federal default no later than 20 days; some states faster	State directory confirmation
4 First Pay	Internal	Run first payroll	On state-compliant payday	Paystub, payroll register, journal entry
4 First Pay	State	Remit state withholding	State-assigned deposit frequency	Deposit confirmation
5 Calendar	Federal	Maintain recurring calendar	Per payroll, quarterly, annual	Calendar invites with owners and filings

Phase 0 - Decide: Is This Actually An Employee?

This phase prevents the expensive shortcut: calling an employee a contractor to avoid the checklist.

Before offer

Employee vs contractor classification gate

Definition: a worker is generally a contractor only when you control the result, not the details of what will be done and how it will be done.

Concrete test: if the business sets a support rep's 9:00-5:00 schedule, provides the laptop and scripts, requires daily standups, and the rep serves only your customers, treat the role as employee-first unless counsel documents a state-law reason otherwise.

Gotcha: a "30-day contractor trial" does not fix control. It can create back-tax, wage-hour, unemployment, workers' comp, and state-law exposure.

Primary source: IRS says labels do not control; what matters is the legal right to control service details.

DIY payroll vs payroll service vs PEO

DIY

Use when you have one simple W-2 employee in one state, a calendar discipline, and no benefits complexity.

Not for: multi-state remote workers, prevailing wage, tips, complex commissions, or missed-deposit history.

Payroll service

Use when you want tax tables, paystubs, direct deposit, filings, reminders, and fewer manual calculations.

Gotcha: you still own registrations, worker classification, workers' comp, and trust-fund responsibility.

PEO

Use when benefits, HR administration, multi-state employment, or workers' comp access is the real problem.

Gotcha: read the co-employment contract; it is not a magic shield for all wage-hour or tax decisions.

Loaded-Cost Math - $25/hr Full-Time EmployeeAs of 2026 federal payroll rates

Line	Formula	Annual employer cost
Base wage	$25.00 x 2,080 hours	$52,000.00
Employer Social Security	6.2% on wages up to the 2026 wage base of $184,500	$3,224.00
Employer Medicare	1.45% on all covered wages	$754.00
Net FUTA estimate	0.6% on first $7,000 if maximum state credit applies	$42.00
Illustrative SUTA	Example 2.7% on first $10,000 state wage base; use your state rate notice	$270.00
Illustrative workers' comp	Example 1.0% of payroll; class codes can be far lower or far higher	$520.00
Benefits/admin reserve	Example 10% for PTO, tools, payroll service, training, and overhead	$5,200.00
Total planning cost	$52,000 wage plus $10,010 employer-side load	$62,010.00

Rule of thumb: a first employee often costs about 1.20x-1.40x cash wages after employer payroll tax, unemployment, workers' comp, benefits, payroll service, equipment, and paid time off. The federal FICA and FUTA lines above are verified; SUTA and workers' comp must come from your state/account/classification.

The Full Form-Packet Checklist

Each block follows the same anatomy: step, agency and form, deadline, cost, proof-of-done, and gotcha.

27 items

Get an EIN directly from the IRSEIN

The step Apply at IRS.gov or confirm your existing entity EIN before employer registrations.

Agency & form IRS EIN online application; no paper form for the online path.

Deadline Before state payroll accounts, payroll service setup, and first federal deposits.

Cost $0. IRS says EINs are issued directly in minutes for free.

Proof done Download/print the EIN confirmation letter; store it with tax records.

Do not pay a private "EIN service" unless you deliberately hired them for broader entity work. IRS explicitly warns you never have to pay a fee for an EIN.

Open the state withholding accountSTATE TAX

The step Register with the state tax/revenue agency so you can withhold and remit state income tax where required.

Agency & form State department of revenue/taxation; names vary by state.

Deadline Before first payroll that withholds state income tax.

Cost Usually $0 for registration; penalties are for late filing/payment.

Proof done State withholding account ID, filing frequency, login, and confirmation email.

This is not the same account as unemployment insurance. Many first employers register one and assume both are done.

Check city, county, and local payroll taxesLOCAL

The step Verify whether the employee's work location triggers city, county, school-district, occupational, transit, or local earned-income withholding.

Agency & form Local tax collector, state revenue agency, or payroll-tax district.

Deadline Before first payroll in jurisdictions that require local withholding or employer registration.

Cost Registration is often $0; tax rates and employer fees vary by locality.

Proof done Local account ID, payroll setting, or dated note that no local payroll tax applies.

Remote work can move the tax location from your office to the employee's home jurisdiction.

Open the state unemployment accountSUTA

The step Register as an employer with the state unemployment agency and receive your wage base/rate notice.

Agency & form State workforce/unemployment agency; quarterly wage reports usually follow.

Deadline Often before or shortly after first payroll; verify state rule before pay date.

Cost Rate varies by state and experience; first-year rates are state-assigned, not guessed.

Proof done SUTA account number, contribution rate, taxable wage base, and quarterly report schedule.

FUTA and SUTA interact. Federal FUTA can drop to 0.6% after the maximum state credit only if state unemployment taxes are paid in full and on time.

Bind workers' compensation before work startsWC

Existential risk

A missed tax registration usually creates notices, penalties, and cleanup. A missed workers' comp policy plus a workplace injury can create medical costs, wage-loss exposure, stop-work orders, penalties, and personal/business litigation risk.

The step Check your state's threshold and bind a policy or state-fund coverage before the employee performs work.

Agency & form Private carrier in most states; state fund in monopolistic states: North Dakota, Ohio, Washington, Wyoming.

Deadline Before first workday when required. Do not wait for the first payroll.

Cost Class-code and payroll based; quote from carrier/state fund. Office work can be low; physical trades can be many multiples higher.

Proof done Declarations page, certificate of insurance, state account, class code, and effective date.

"One employee" varies. California requires coverage with one employee; Alabama's general threshold is five. Texas private employers are unusual because subscription is generally optional, but non-subscribers lose important protections. Verify your state before relying on an exception.

Check temporary disability / paid family leave statesTDI

The step Determine whether the work state requires disability insurance or paid family/medical leave payroll programs.

Agency & form State labor/tax/insurance agency; common TDI states include CA, HI, NJ, NY, RI, plus Puerto Rico.

Deadline Before payroll setup, because deductions and employer contributions may start on paycheck #1.

Cost State-set rate or private-policy premium; changes annually in some states.

Proof done State program registration, private policy, payroll deduction setting, or documented non-applicability.

Remote employees trigger the state where they work, not just the state where your company is organized.

Send a clean offer letter, not an accidental contractOFFER

The step Put role, manager, start date, pay rate, payday, classification, expected hours, contingencies, and at-will language if applicable.

Agency & form Internal document; state wage-notice forms may also apply.

Deadline Before employee relies on the job terms.

Cost $0 if drafted carefully; counsel review is useful for unusual equity, commission, relocation, or restrictive covenants.

Proof done Signed offer plus separate policy acknowledgements after Day 1 packet.

Avoid contract-grade clauses unless you mean them: fixed term, severance promises, noncompete/non-solicit, IP assignment, arbitration, repayment, confidentiality, and commission formulas deserve deliberate review.

Prepare wage notice or hiring notice where requiredNOTICE

The step Check whether the work state requires written notice of pay rate, payday, employer legal name, address, allowances, and overtime basis.

Agency & form State labor department or wage-theft prevention notice form.

Deadline At hire, before or on the first workday where required.

Cost $0; penalties are for failing to give required notice or update changed terms.

Proof done Signed notice or employee acknowledgement stored in personnel file.

Do not assume the offer letter satisfies this. Some state forms require specific fields and update notices when pay terms change.

Decide exempt vs non-exemptFLSA

The step Decide whether overtime rules apply. Most employees are non-exempt unless they meet both salary and duties tests.

Agency & form U.S. DOL Wage and Hour Division; FLSA Part 541 exemptions.

Deadline Before salary/hourly offer and timekeeping setup.

Cost $0, but misclassification can create back overtime, liquidated damages, penalties, and attorney fees.

Proof done A short note: salary basis, weekly salary, exemption category, and duties evidence.

"Salaried" is not "exempt." As of the DOL fact sheet checked 2026-07-05, common white-collar exemptions generally require salary basis at not less than $684/week and the relevant duties test. State rules can be stricter.

Set legal pay frequency and payday rulesPAYDAY

The step Choose weekly, biweekly, semimonthly, or monthly only if the work state allows it for that employee type.

Agency & form State labor department; some states require wage notices.

Deadline Before offer letter and payroll calendar.

Cost $0 to set; late/final-pay penalties vary by state.

Proof done Written payday policy, final-pay rule note, and calendar reminders.

Semimonthly payroll is not the same as biweekly. It changes overtime workweek communication, deductions, and hourly gross-pay math.

Download required posters from government sourcesPOSTERS

The step Use the DOL Poster Advisor and your state labor agency; post at the worksite or maintain remote-access notice where allowed.

Agency & form U.S. DOL plus state labor/workforce agencies.

Deadline By first worksite day and whenever poster requirements update.

Cost $0 for official federal posters; state posters are usually free too.

Proof done Posted PDFs, photo of physical posting, or dated remote notice folder.

Poster mailers are a classic new-employer scare tactic. DOL says electronic copies can be downloaded free of charge.

Set up payroll and federal deposit scheduleEFTPS

The step Configure pay rate, pay period, tax accounts, direct deposit, paystubs, accruals, and tax deposit responsibility.

Agency & form IRS EFTPS if DIY; payroll provider if outsourced; Form 941 tax liability still belongs to employer.

Deadline Before first payroll is approved.

Cost EFTPS is free; payroll services charge subscription/employee fees.

Proof done Test payroll preview, active tax IDs, bank verification, and deposit schedule setting.

A new Form 941 employer is generally a monthly schedule depositor in the first calendar year because the lookback-period tax liability is treated as zero, but the $100,000 next-day rule can override this.

Lock the trust-fund tax ruleTFRP

Existential risk

Withheld income tax and employee FICA are not operating cash. IRS trust-fund taxes are held for the Treasury; responsible persons can be personally liable for the unpaid trust-fund amount.

The step Separate payroll tax cash mentally and operationally. Pay the IRS/state before vendors, owner draws, rent, or inventory.

Agency & form IRS employment tax deposits; state withholding deposits.

Deadline Every payroll deposit cycle.

Cost Equal to withheld taxes plus employer liabilities; missed deposits add penalties and interest.

Proof done Deposit confirmations reconciled to payroll register each pay period.

The Trust Fund Recovery Penalty is the mistake that can follow owners/officers personally. Do not "catch up next month" with withheld payroll taxes.

Complete Form I-9I-9

The step Employee completes Section 1 no later than first day of employment; employer reviews acceptable documents and completes Section 2.

Agency & form USCIS Form I-9, Employment Eligibility Verification.

Deadline Employer Section 2 within 3 business days of the employee's first day of employment.

Cost $0. E-Verify may be required by state law, federal contract, or employer choice.

Proof done Completed I-9 retained securely; do not file it with USCIS.

As checked 2026-07-05, USCIS lists the revised Form I-9 edition dated 01/20/25 with expiration 05/31/2027. Retain I-9 for 3 years after hire or 1 year after termination, whichever is later.

Run E-Verify only when required or deliberately enrolledE-VERIFY

The step Determine whether federal contract rules, state law, or company policy requires E-Verify after the I-9.

Agency & form E-Verify, operated by DHS with SSA matching.

Deadline After Form I-9 is completed, following E-Verify program timing; do not pre-screen applicants.

Cost $0 to use the federal system; admin time and training still matter.

Proof done Case number, employment-authorized result, or documented reason E-Verify does not apply.

E-Verify does not replace Form I-9. Every employee still needs an I-9, even if E-Verify is mandatory for you.

Collect federal W-4 and state equivalentW-4

The step Have the employee complete Form W-4 and any state/local withholding certificate before payroll is finalized.

Agency & form IRS Form W-4; state revenue form where applicable.

Deadline Before first payroll withholding calculation.

Cost $0.

Proof done Signed form stored with payroll records; withholding settings match form.

Do not advise the employee how many dependents, extra withholding, or deductions to claim. Point them to the IRS Tax Withholding Estimator if they ask.

Report the new hire to the state directoryNHR

The step Submit basic employer and employee information to the state new-hire directory.

Agency & form State Directory of New Hires, usually administered through child support, revenue, or workforce systems.

Deadline Federal law uses no later than 20 days after hire; states may require faster reporting.

Cost $0; late penalties are generally small but state-specific.

Proof done Submission confirmation number or accepted file receipt.

This is easy to miss because it is not a tax form. It exists primarily for child-support enforcement and program-integrity matching.

Give a short day-one policy packetPOLICY

The step Provide practical policies: paydays, timekeeping, overtime approval, leave/sick time, safety, harassment/reporting, equipment, confidentiality, and expense reimbursement.

Agency & form Internal; state notices may apply.

Deadline First workday.

Cost $0 internally; counsel useful for commission, remote work, IP, or regulated work.

Proof done Signed acknowledgement and dated version of policies given.

At one employee, you need clear rules more than a 40-page handbook. A bloated handbook creates promises you may not follow consistently.

Build the personnel and payroll record foldersFILES

The step Separate personnel, payroll/tax, I-9, medical/leave, and workers' comp records.

Agency & form Internal records; retention laws vary by document and state.

Deadline Day one, before documents scatter across email and chat.

Cost $0 using secure folders; HRIS optional.

Proof done Folder structure with access controls and retention notes.

Do not keep I-9s mixed into ordinary personnel files. If audited, separate I-9 storage limits unnecessary disclosure.

Run first payroll and audit gross-to-netPAY #1

The step Confirm gross wages, hours, overtime, pre-tax deductions, employee taxes, employer taxes, net pay, and deposit liabilities.

Agency & form Payroll register, paystub, IRS/state deposit records.

Deadline State-compliant payday.

Cost Pay amount plus employer taxes/insurance; payroll provider fees if used.

Proof done Paystub delivered, direct deposit/check cleared, payroll journal posted.

The first payroll is when registration becomes money movement. Reconcile every withheld dollar to a deposit liability.

Example Paystub - One 80-Hour Biweekly Pay Period At $25/hrIllustrative withholding only

Line	What it means	Amount
Gross wages	80 hours x $25.00	$2,000.00
Employee Social Security	6.2% withheld from employee pay	-$124.00
Employee Medicare	1.45% withheld from employee pay	-$29.00
Federal/state income tax	Depends on W-4, state form, pay frequency, and wage table	varies
Employer matching FICA	Not deducted from employee; employer pays 7.65% on top	$153.00
Trust-fund amount	Employee income tax plus employee FICA held for government	do not borrow

Calendar quarterly Form 941941

The step Report federal income tax withheld and both employer/employee Social Security and Medicare taxes.

Agency & form IRS Form 941 for most employers; Form 944 only if IRS assigned annual filing.

Deadline Quarterly; due dates generally fall at month-end after each quarter.

Cost Tax liability already accrued; filing itself is not the expensive part.

Proof done Accepted e-file/paper receipt and reconciliation to payroll register/deposits.

Depositing taxes and filing Form 941 are separate duties. You can be current on one and late on the other.

Remit state withholding and file state payroll reportsSTATE PAY

The step Deposit state income-tax withholding and file state wage/payroll returns on the frequency assigned to the account.

Agency & form State revenue/tax agency and sometimes local tax collector.

Deadline Monthly, quarterly, accelerated, or annual depending on state and liability.

Cost Withheld amount plus any employer-specific local taxes; late deposits add penalty and interest.

Proof done Deposit confirmation, filed return, and reconciliation to payroll register.

A payroll service can file only after the state account exists and the tax ID/rate are entered correctly.

Calendar annual Form 940 and FUTA deposits940

The step Track FUTA liability quarterly and file annual Form 940.

Agency & form IRS Form 940.

Deadline FUTA deposits are quarterly only after liability exceeds $500; Form 940 is annual.

Cost 2026 FUTA is 6.0% on first $7,000; commonly 0.6% net after maximum state credit.

Proof done FUTA worksheet, deposits, and accepted Form 940.

Paying SUTA late can reduce the FUTA credit and make the federal bill bigger.

Calendar W-2/W-3 filingW-2

The step Give employee Form W-2 and file W-2/W-3 with SSA.

Agency & form Social Security Administration Business Services Online; IRS wage statement rules.

Deadline January 31 to distribute W-2s and file W-2s; next business day if weekend/holiday.

Cost $0 to e-file yourself; payroll provider may include it.

Proof done SSA accepted filing and copy delivered to employee.

Name/SSN mismatch notices are easier to prevent than fix. Ask for SSN exactly as shown on the Social Security card, while following anti-discrimination rules.

Prepare for workers' comp premium auditWC AUDIT

The step Keep payroll by class code, owner/officer inclusions/exclusions, subcontractor certificates, and job-duty notes.

Agency & form Carrier or state fund audit.

Deadline Policy year-end and whenever requested.

Cost Premium adjustment up/down based on actual payroll and classifications.

Proof done Completed audit worksheet and final premium statement.

Uninsured contractors can be reclassified into your premium audit. Collect certificates before work begins.

Refresh annual thresholds and state rulesREFRESH

The step Re-check FICA wage base, FUTA credit reductions, state minimum wage, exempt salary thresholds, mileage, poster updates, and state leave/payroll rates.

Agency & form IRS, DOL, state labor/revenue/workforce agencies.

Deadline Each December/January and before compensation changes.

Cost Mostly $0; costs appear as changed payroll rates and updated policy obligations.

Proof done Dated annual payroll-compliance note and updated payroll settings.

This page's 2026 federal numbers are date-stamped. Do not copy them into 2027 payroll without a refresh.

Build the recurring employer calendarCAL

The step Put every deposit, filing, report, poster check, rate update, and insurance audit into a calendar with an owner.

Agency & form IRS, SSA, state revenue, state unemployment, workers' comp carrier/state fund.

Deadline Before first payroll, not after the first notice arrives.

Cost $0 to calendar; penalties vary when missed.

Proof done Calendar invites with recurrence, login links, and backup owner.

Registration without deposits is where penalty letters actually come from. The calendar is part of the compliance system, not admin decoration.

First Payroll & Ongoing Calendar

Most recurring items are not existential. They are calendar discipline: small forms, known deadlines, and boring proof.

Ledger strip

Every payrollApprove hours, overtime, gross pay, employee withholding, employer FICA, net pay, and paystub.Miss consequence: wage claim, corrections, employee trust damage.

Federal depositsDeposit withheld income tax and FICA plus employer FICA according to IRS deposit schedule.Miss consequence: deposit penalties, interest, TFRP exposure.

Monthly/semiweeklyFor new Form 941 employers, monthly is typical in year one unless $100,000 next-day rule applies.Miss consequence: payroll tax notice.

QuarterlyFile Form 941; file state unemployment wage reports; pay SUTA contributions; reconcile payroll registers.Miss consequence: penalties and rate issues.

AnnualFile Form 940, distribute/file W-2/W-3 by January 31, handle workers' comp audit, update posters and thresholds.Miss consequence: notices, penalties, audit cleanup.

When facts changeRemote work state, duties, pay level, exempt status, injury, leave, termination, or new benefit program.Miss consequence: state nexus surprises and wage-hour errors.

Common Mistakes

The paperwork is manageable. The expensive mistakes are almost all attempts to skip sequencing.

Avoid

Under-the-table trial period

Paying cash "just for two weeks" creates wage, tax, insurance, and recordkeeping problems exactly when you have the least documentation.

Contractor to avoid the checklist

If you control how the work is done, the checklist took an afternoon; the penalty cleanup can take years.

Skipping workers' comp at one employee

Many states require it at one employee. Verify before work starts, not after a sprain, fall, burn, crash, or repetitive-stress claim.

Borrowing withheld taxes

Employee withholding is the government's money in your custody. Paying a vendor first is how trust-fund liability begins.

Missing new-hire reporting

This is the invisible form because it is not tax setup. Put it in the Day 1 checklist and keep the confirmation.

Treating salary as exempt

Salary is one part of some exemptions. Duties and state rules still matter; many salaried employees are overtime-eligible.

Offer letter with contract clauses

Do not casually promise a fixed term, severance, noncompete, commission formula, or guaranteed bonus in an offer letter.

Registering but not calendaring

Opening accounts is phase one. The penalties usually come from missed deposits, quarterly reports, and annual filings.

Ignoring remote-work state

The employee's work state can drive withholding, unemployment, workers' comp, paid leave, minimum wage, and payday rules.

Source Register

Primary sources checked during build. Re-verify before using this for a real hire, especially state-specific rules.

Last verified 2026-07-05

IRS EIN

Free EIN application, one responsible-party daily limit, immediate online confirmation, EIN required to hire employees.

irs.gov EIN

IRS Publication 15 (2026)

FICA rates, Social Security wage base, FUTA rate and wage base, lookback/deposit schedule, $100,000 next-day rule.

irs.gov Publication 15

IRS Trust Fund Taxes / TFRP

Withheld income tax and employee FICA are trust-fund taxes; responsible persons can be personally liable for unpaid trust-fund tax.

irs.gov trust fund taxes

IRS Worker Classification

Independent-contractor status depends on right to control details of service, not the label used in a contract.

irs.gov contractor definition

USCIS Form I-9

Current Form I-9, Section 2 within 3 business days, retention period, and E-Verify/I-9 distinction.

uscis.gov/i-9

U.S. DOL FLSA and Posters

White-collar exemption salary/duties tests and free official workplace posters/poster advisor.

dol.gov FLSA 17A

ACF New Hire Reporting

Federal default reporting within 20 days and state-directory purpose for child-support enforcement.

acf.gov new hire reporting

SSA W-2 Filing

January 31 deadline to distribute W-2s and file W-2s through Business Services Online or paper.

ssa.gov W-2 deadlines

Workers' Comp State Checks

California one-employee rule, Alabama five-employee threshold, Washington state-fund account path, and Texas non-subscriber caution checked as representative variance.

California DWC employer info

State Rule Caveat

State withholding, SUTA, payday, paid leave, local tax, and workers' comp rules change by work state. Use this page as sequence, not a 50-state table.

DOL state labor offices

Related Cheatsheets

Planned adjacent specs include hiring-a-contractor, contract-red-flags, small-business-scams, audit-odds, and insurance-worth-it; links should become reciprocal when those pages ship.