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Hiring your first U.S.-based employee changes your operating reality. You’re no longer just “running payroll.” You’re stepping into a set of federal and state employer obligations that begin immediately and often vary based on where the employee actually works.
What’s important is the employee’s work location (the state where they perform services), not their citizenship or where your company is incorporated. The employee’s state governs many registrations, tax accounts, and insurance requirements.
What follows is a practical checklist of what’s required, what’s worth doing early, and where first-time employers most often get tripped up.
Understanding payroll from day one.
Read our Founder’s Guide to Getting Started.
What changes the moment you hire
Once you hire a W-2 employee in the U.S., you typically need to set up employer accounts and processes at three levels:
Federal (IRS and immigration verification requirements)
State (withholding, unemployment insurance, new-hire reporting, workers’ comp rules)
Local in some places (city/county taxes or notices)
In many cases, you’ll need the registrations in place before the first payroll run. The operational sequence matters.
Federal: the non-negotiables
Employer Identification Number (EIN)
If you’re running payroll and filing employment taxes, you’ll generally need an EIN, the IRS identifier used for reporting and remitting payroll taxes.
Form I-9: employment eligibility verification
All U.S. employers must complete Form I-9 for every employee hired for work in the United States.
Timing:
The employee completes Section 1 no later than the first day of work for pay.
The employer completes Section 2 within three business days of the employee’s first day.
Retention:
Retain the I-9 for three years after the date of hire, or one year after employment ends, whichever is later.
A common (and avoidable) mistake: You generally should not tell employees which specific documents to present from the acceptable lists. You can review the documents they choose to provide, and you are not expected to accept documents that don’t reasonably appear to be genuine or that don’t relate to the person presenting them.
Form W-4: employee withholding
Ask each new employee for a completed Form W-4 when they start, and apply it to the first wage payment.
If an employee doesn’t return a W-4, the IRS directs employers to withhold as if the employee is single.
Federal payroll taxes (withholding and employer taxes)
As an employer, you’re responsible for handling federal employment taxes, including:
Federal income tax withholding
Social Security and Medicare taxes (FICA)
Federal unemployment tax (FUTA)
State: where most first-time complexity lives
State requirements are triggered by where the employee works. If you hire across state lines, even a single remote employee, assume you’ll need to confirm and set up state-level accounts and rules for that state.
State tax and unemployment registration
States commonly require employers to register for:
State income tax withholding (where applicable)
State unemployment insurance accounts
Requirements vary by state.
Some states do not impose a state income tax; others do. This affects withholding, not the general need to follow that state’s employer rules.
Multi-state note: If you have employees working in other states, you may need to register and withhold in the employee’s work state, and set up unemployment accounts there as well.
New hire reporting
Employers must report new and rehired employees to the appropriate state directory. Timing is state-administered and varies, and some states require reporting sooner than 20 days, so treat this as a common outer bound, not a safe default everywhere.
What is typically reported includes the employee’s identifying information and the employer’s FEIN, along with the date of hire.
If you employ workers in more than one state, there are options for how you report, depending on your situation.
Workers’ compensation insurance
Workers’ compensation requirements are set at the state level and can apply as soon as you have your first employee.
Examples of “first employee” states include:
Some states require purchase through a state fund rather than private carriers (monopolistic states).
Important nuance: Penalties and enforcement consequences for missing coverage are state-specific. For example, Colorado describes daily fines and potential shutdown outcomes for noncompliance.
Ongoing: recordkeeping and workplace basics
Payroll and timekeeping records (FLSA)
The Fair Labor Standards Act (FLSA) requires employers to maintain accurate records for employees, including pay and hours where applicable. The Department of Labor maintains the baseline requirements.
Many summaries describe common retention periods (often cited as three years for payroll records and two years for supporting records), but because retention specifics and categories can be misunderstood, the DOL fact sheet should be treated as the controlling reference for how you set up your recordkeeping system.
Recommended: Set yourself up to stay compliant
Use a payroll system that can carry the compliance load
Manual payroll can work briefly, but it tends to break once you have:
Multiple states
State-specific withholding and unemployment rules
Recurring filing calendars
Year-end forms
If you’re building for scale, it helps to choose a system and operating rhythm that won’t need to be rebuilt after hire #2 or hire #5.
Document the employment relationship clearly
Before day one, have the basics in writing:
Offer letter (compensation, start date, and at-will status where applicable)
Job description
Policies the employee must acknowledge
The goal isn’t paperwork for its own sake. It’s to remove ambiguity early, especially around pay, expectations, and what happens when details change.
Build a simple compliance calendar
Track the following details:
I-9 completion deadlines (Section 2 within 3 business days)
New-hire reporting deadlines (state-specific)
Payroll tax deposit and filing due dates
Workers’ comp policy start dates and renewals
Common (and costly) misses founders make
Hiring out-of-state and skipping state setup
If you hire a remote employee in a new state, you’ll typically need to evaluate:
State income tax withholding registration (if applicable)
State unemployment insurance registration
Workers’ comp requirements in that state
New hire reporting rules for that state
Treating contractors like employees “in practice”
Using contractors can reduce administrative load, only if the relationship is legitimately independent contracting. If day-to-day reality looks like employment, misclassification can create back taxes, penalties, and broader exposure.
Assuming your accountant covers employer compliance end-to-end
Many accountants handle tax filings and year-end reporting, but employer compliance also includes items that sit outside traditional accounting services (I-9s, new hire reporting, certain notices/posters, and workers’ comp setup). Make sure the owners are explicit.
The compliance stack at a glance
Obligation | Level | Typical timing | What can go wrong |
EIN | Federal | Before first payroll | Payroll tax filings can’t be set up correctly |
Form I-9 | Federal | Day 1 + within 3 business days | Compliance exposure if incomplete/late |
Form W-4 | Federal | At start | Incorrect withholding |
State withholding registration | State | Before first payroll (often) | Penalties/interest; missed filings |
State unemployment registration | State | Before first payroll (often) | Penalties/interest; missed filings |
New hire reporting | State | State-specific (often within days/weeks) | State-specific penalties |
Workers’ compensation | State | Often at/before first employee | State-specific penalties and claim exposure |
Payroll/time records (FLSA) | Federal | Ongoing | Back-wage disputes; audit friction |
A practical “first hire” sequence
Confirm your EIN is active and available for payroll filings
Register in the state where the employee will work (withholding and unemployment)
Put workers’ comp in place per that state’s rules
Prepare onboarding documents: I-9 and W-4 (and any state equivalents)
Set up payroll and a calendar for deposit/reporting deadlines
Keep recordkeeping simple and consistent from the first pay period
If you want a tighter, founder-focused walkthrough of payroll setup and ongoing operations, especially for international teams and cross-border realities, download Plane’s founder guide.
Legal disclaimer: The information provided is for informational purposes only and should not be considered legal advice.
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