Hiring your first employee: complete 2026 guide

The legal must-dos

• EIN from IRS (free, online, 10 minutes)
• Register with state department of revenue + state unemployment insurance
• I-9 verification within 3 business days of start
• W-4 + state withholding form on day 1
• Workers comp insurance (required in most states, even for 1 employee)
• Unemployment insurance — federal (FUTA) + state (SUTA)
• Display required state + federal labor posters (free download from DOL + state DOL)

Payroll setup

Use Gusto, Justworks, Rippling, or QuickBooks Payroll. All charge $40-80/month + $6-12/employee. Don't do payroll manually — too easy to mis-file 941s or 1099s and trigger penalties.

Comp planning

Base salary + maybe a small variable bonus (5-15% of base) is the cleanest first-hire structure. Equity in a small private business is messy — defer until you have multiple employees + an actual valuation framework.

Benefits that matter for small teams

• Health insurance — required if you have 50+ FTEs; below that, optional but increasingly expected
• Retirement (SEP IRA or SIMPLE IRA) — cheap to set up, signals commitment
• 2-3 weeks PTO — table stakes
• Remote/hybrid flex — biggest differentiator vs corporate jobs

What most owners miss

• Workers comp — not optional, even for 1 employee in most states
• Misclassifying as 1099 — if you control how/when/where, they're W-2
• 1099 reporting threshold (now $5,000 in 2026 — way down from $20,000)
• Form 941 quarterly filings — easy to forget