What to Do Before You Hire Your First Employee: A September 2026 Checklist

Introduction

Hiring your first employee is a milestone that transforms a solo operation into a growing team. While the excitement is real, the administrative workload can feel overwhelming. This checklist walks you through every essential step—legal, financial, and operational—so you can hire confidently and stay compliant as of September 2026.

1. Confirm Your Business Structure and Registration

Before extending an offer, verify that your business entity (LLC, corporation, sole proprietorship) is properly registered in your state. If you operate as a sole proprietor, you may need to file a “Doing Business As” (DBA) name. Register for an Employer Identification Number (EIN) through the IRS; this number is required for payroll, tax filings, and opening a business bank account.

2. Understand Worker Classification

Misclassifying a worker can trigger costly penalties. The U.S. Department of Labor provides clear guidance on distinguishing employees from independent contractors. Review the criteria—behavioral control, financial control, and relationship type—to ensure you classify correctly before you hire. (U.S. Department of Labor – Misclassification of Workers)

3. Register with State Labor and Revenue Agencies

Each state has its own registration requirements for unemployment insurance, workers’ compensation, and new‑hire reporting. For example, California businesses must register with the Employment Development Department and the Department of Industrial Relations. Check your state’s labor department website for the exact forms and deadlines.

4. Set Up Payroll and Tax Withholding

Payroll is the backbone of employee compliance. The IRS Publication 15 (Circular E) outlines how to calculate federal income tax withholding, Social Security, and Medicare taxes. Use a reputable payroll service or software that can handle:

• Federal and state tax deposits
• Quarterly payroll tax returns (Form 941)
• Year‑end reporting (W‑2s, 1099s)

Reference the official IRS guide for detailed calculations. (IRS Publication 15 (Circular E))

5. Obtain Workers’ Compensation Insurance

Most states require employers to carry workers’ compensation coverage as soon as they have a payroll. This insurance covers medical expenses and lost wages if an employee is injured on the job. Contact your state’s workers’ compensation board or a licensed insurer to secure a policy that matches your industry risk level.

6. Enroll in Unemployment Insurance (UI)

Unemployment insurance protects employees who lose their jobs through no fault of their own. After registering with your state labor agency, you’ll receive a UI account number. You’ll need to report wages and pay UI taxes regularly—typically quarterly.

7. Complete New‑Hire Reporting

Federal law requires employers to report newly hired employees to the state within a set timeframe (usually 20 days). This helps enforce child support orders and detect fraud. The U.S. Department of Labor provides a centralized portal for electronic reporting. (U.S. Department of Labor – New‑Hire Reporting)

8. Draft an Employee Handbook

An employee handbook sets expectations and protects you legally. Include sections on:

• Company policies (attendance, dress code, internet use)
• Anti‑harassment and discrimination
• Benefits and leave policies
• Disciplinary procedures Having a handbook signed by the employee creates a written record of acknowledgment.

9. Set Up Benefits (If Applicable)

Even small businesses can offer benefits such as health insurance, retirement plans, or paid time off. Research options through the Small Business Health Options Program (SHOP) or a local broker. Benefits can improve retention and attract higher‑quality candidates.

10. Prepare the Onboarding Process

A smooth first day sets the tone for long‑term success. Your onboarding checklist should include:

• Completion of Form I‑9 (employment eligibility verification)
• Signing of the employee handbook
• Enrollment in payroll and benefits systems
• Assignment of equipment and workspace
• Introduction to team members and key processes For a detailed onboarding flow, see our related guide on Employee Onboarding Checklist.

11. Conduct the Background and Reference Checks

Before finalizing the hire, run background checks consistent with the Fair Credit Reporting Act (FCRA). Verify past employment, education, and any required licenses. Document all findings and obtain written consent from the candidate.

12. Finalize the Offer Letter and Employment Agreement

Your offer letter should clearly state:

• Position title and duties
• Salary or hourly rate
• Pay schedule and overtime eligibility
• Start date and reporting structure
• At‑will employment statement (if applicable) Attach a formal employment agreement if you have specific terms such as non‑compete clauses.

13. Review Compliance with the SBA’s Hiring Guide

The U.S. Small Business Administration offers a comprehensive “Hire and Retain Employees” guide that walks you through each step, from registration to payroll setup. Aligning your process with SBA recommendations ensures you meet federal and state obligations. (U.S. Small Business Administration – Hire and Retain Employees)

14. Checklist Summary

✅ Step	Description
1	Verify business entity and obtain EIN
2	Determine correct worker classification
3	Register with state labor/revenue agencies
4	Set up payroll and tax withholding
5	Secure workers’ compensation insurance
6	Enroll in unemployment insurance
7	Complete new‑hire reporting
8	Draft and distribute employee handbook
9	Evaluate benefits options
10	Prepare onboarding materials
11	Conduct background/reference checks
12	Issue offer letter and employment agreement
13	Cross‑check with SBA hiring guide

Frequently Asked Questions

Q: Do I need a separate state tax ID? A: Most states require a state employer identification number for payroll tax reporting. Check your state’s revenue department for the application process.

Q: How soon must I report a new hire? A: Federal law mandates reporting within 20 days of the employee’s start date, but some states have shorter windows. Verify your state’s deadline.

Q: Can I use a contractor for payroll processing? A: Yes, many small businesses outsource payroll to third‑party providers. Ensure the provider is compliant with IRS Form 941 filing requirements.

Q: What records must I keep? A: Retain payroll records, tax filings, I‑9 forms, and employee handbook acknowledgments for at least three years, as required by the Department of Labor.

By following this checklist, you’ll lay a solid foundation for your first hire, avoid common pitfalls, and set your business on a path to sustainable growth.

Sources and further reading

Use these primary references when checking the guidance above:

• U.S. Small Business Administration
• Internal Revenue Service
• Hiring Your First Employee Checklist (2026)
• How to Hire Your First Employee: A Step-by-Step Guide