Hiring Your First Employee: Checklist and Real Costs

Quick answer: Hiring your first employee in the US means getting an EIN, registering for state withholding and unemployment tax, buying workers' compensation insurance, completing Form I-9 and Form W-4, reporting the new hire to your state, setting up payroll and posting required notices. Budget for roughly 10% to 30% or more on top of wages for taxes, insurance and benefits.

Hiring your first employee is a turning point: you buy back time, but you take on legal duties, payroll deadlines and a fixed cost that does not shrink in a slow month. This guide gives you a step-by-step checklist, the registrations and forms involved, a worked example of the true annual cost, and the mistakes first-time employers most often make.

This is general information for US businesses, not legal or tax advice. Employment laws vary by state and city; check with your state agencies or an employment lawyer.

Are you ready to hire your first employee?

Before posting a job ad, answer three questions honestly:

• Is there enough recurring work? If the work is a short project, a contractor may fit better.
• Can cash flow support it? Payroll must be paid every payday, even if customers pay late. Build a cash flow forecast that includes the full employment cost for at least six months.
• Will it increase revenue or free your time? The best first hires either bring in more work or take over tasks so you can do more billable work.

Employee or contractor?

The IRS and the Department of Labor look at behavioral control, financial control and the relationship between the parties, not the job title. If you set hours, provide tools, train the worker and expect ongoing work, they are likely an employee. Misclassification can lead to back taxes, penalties and wage claims. Our W-2 vs 1099 guide walks through the tests.

Hiring your first employee: step-by-step checklist

1. Get an EIN. Apply free on IRS.gov if you do not already have one. See EIN vs SSN.
2. Register with your state. Open a state income tax withholding account (in states with income tax) and a state unemployment insurance account.
3. Buy workers' compensation insurance. Nearly every state requires it for employers, through a private insurer or a state fund.
4. Write the job description and offer. Include pay, schedule, exempt or non-exempt status, start date and at-will statement where applicable. Check any state rules on pay transparency in job postings.
5. Complete Form I-9 by the employee's third business day of work, examining their identity and work authorization documents. Use E-Verify if your state requires it.
6. Collect Form W-4 and any state withholding certificate.
7. Report the new hire to your state's new hire registry within 20 days of hire, or sooner if your state requires.
8. Set up payroll. Pick a pay schedule, enroll in EFTPS and decide whether to run payroll yourself or use software. Our guide on how to do payroll yourself covers each step.
9. Display required posters for federal and state employment laws.
10. Set up records: personnel file (offer letter, W-4, policies) and a separate, secure I-9 file.
11. Plan onboarding: equipment, accounts, training and clear first-month goals.

The SBA's hire and manage employees guide summarizes the federal steps, and your state's small business portal lists state-specific requirements.

Which forms and registrations do you need?

Item	Agency	When
EIN (Form SS-4 or online)	IRS	Before first payroll
State withholding account	State revenue department	Before first payroll
State unemployment account	State workforce agency	Before or soon after first payroll, per state rules
Workers' compensation policy	Insurer or state fund	Before work starts
Form I-9	Kept by employer (USCIS form)	Section 2 by third business day
Form W-4	Kept by employer (IRS form)	At hire
New hire report	State new hire registry	Within 20 days (some states sooner)
Form 941, 940, W-2	IRS and SSA	Quarterly and annually

How much does it cost to hire your first employee?

Salary is only part of the cost. According to the Bureau of Labor Statistics Employer Costs for Employee Compensation release, wages and salaries made up 70.0% of private industry employer compensation costs in June 2026, with benefits accounting for the remaining 30.0%. Small businesses that offer few benefits will usually spend less than that on top of wages, but taxes and insurance are unavoidable.

Worked example: true annual cost of a $45,000 employee

The figures below use 2026 federal rates. SUTA, workers' compensation and benefit figures are illustrative and vary by state, industry and provider.

Cost	Calculation	Annual amount
Salary	Agreed pay	$45,000.00
Social Security (employer)	$45,000 x 6.2%	$2,790.00
Medicare (employer)	$45,000 x 1.45%	$652.50
FUTA	$7,000 x 0.6%	$42.00
SUTA	Illustrative 2.7% on a $7,000 wage base (many states use a higher base)	$189.00
Workers' compensation	Illustrative 1% of payroll (office work is usually lower, construction higher)	$450.00
Health insurance contribution	Illustrative $300 per month	$3,600.00
Retirement match	Illustrative 3% of salary	$1,350.00
Equipment, software and onboarding	Illustrative first-year estimate	$2,000.00
Total first-year cost		$56,073.50

In this example the employee costs about 25% more than salary in the first year. Without health insurance and retirement match, the extra cost falls to around 13%. Paid time off also matters: if the employee gets 10 days of paid vacation and the holidays you choose to give, you pay for those days without receiving work. Our article on employer payroll taxes breaks down the tax lines in more detail.

How much revenue does the hire need to support?

If your gross margin on the work the employee does is 50%, a $56,000 annual cost needs about $112,000 of additional revenue to break even. Run your own numbers using your profit margin, and consider how the hire changes your burn rate and runway if revenue arrives slowly.

What employment laws apply to your first employee?

• Minimum wage: the federal minimum is $7.25 an hour, but many states and cities set higher rates; pay the highest that applies.
• Overtime: non-exempt employees earn 1.5 times their regular rate for hours over 40 in a workweek under the FLSA, and some states have daily overtime.
• Anti-discrimination: federal laws generally apply once you reach certain employee counts (15 for Title VII and the ADA), but many state laws apply from the first employee.
• Paid sick leave: a growing number of states and cities require it regardless of business size.
• Workplace safety: OSHA's general duty to provide a safe workplace applies to most employers.
• Final paychecks: state laws set deadlines when someone leaves.

What should a job offer letter include?

A written offer protects both sides. Keep it short and specific:

• Job title, manager and start date.
• Pay rate and pay schedule, and whether the role is exempt or non-exempt from overtime.
• Expected hours and work location, including remote or hybrid arrangements.
• Benefits and paid time off, with any waiting periods.
• Conditions such as a background check or proof of work authorization (Form I-9 is completed after the offer is accepted).
• An at-will employment statement where applicable, and any confidentiality or IP terms.
• A date by which the candidate must accept.

Some states require written notice of pay rate, payday and employer details at hire. Check your state labor department's notice requirements and give the notice along with the offer.

A simple first 90 days plan

Your first employee will not have colleagues to learn from, so a structured start matters more than in a large company. In week one, set up equipment and accounts, walk through how the business makes money, and give the employee one small task they can finish. In the first month, document the tasks you are handing over, ideally as short checklists, and meet weekly to answer questions. By day 90, the employee should own a defined set of responsibilities and you should know whether the hire is working.

Hand over admin work deliberately. Invoicing is a common first task to delegate, and a consistent process helps: a standard template, a numbering system and clear rules on when invoices go out. The invoice templates and the invoice number generator make it easy for a new employee to follow the same format you use.

Common mistakes when hiring your first employee

• Calling an employee a contractor to avoid payroll taxes.
• Missing the I-9 deadline or keeping I-9s in personnel files instead of a separate file.
• Skipping workers' compensation, which can bring fines and personal liability for injuries.
• Budgeting only for salary, then struggling with taxes and insurance.
• No written offer, leading to disputes about pay, hours or duties.
• Forgetting state registrations for a remote employee in another state.
• Late payroll tax deposits in the first months, before the routine is set.

Alternatives to a full-time hire

If the numbers are tight, there are intermediate steps. A part-time employee gives you help with lower fixed cost, though the registrations and payroll filings are the same. An independent contractor or agency can handle defined projects such as bookkeeping, design or marketing without payroll, provided the relationship is genuinely independent. A virtual assistant service can take on scheduling and admin. Seasonal or temporary staff through a staffing agency shift the employer duties to the agency for a fee.

Whatever you choose, document the work you want done and measure the result. If a contractor is consistently working set hours under your direction, revisit the classification. When the workload and revenue are steady, converting the role to a proper employee position is usually cleaner and safer.

Prepare your finances before the first payday

Payroll is a fixed cost that arrives every one or two weeks, while customer payments can arrive late. Tighten your billing before your first hire (the free invoice generator is a quick start): invoice immediately when work is done, shorten payment terms where you can, take deposits on larger jobs, and follow up on overdue invoices early. Our accounts receivable guide and the guide to starting a small business cover the systems that keep cash coming in.

Hiring your first employee is easier to afford when every job is billed on time. Use our free invoice generator to send professional invoices in minutes: it needs no sign-up and downloads a PDF built in your browser.