Hiring Your First Employee: The Actual Process

Updated October 19, 2026

More Work Than Two Hands Can Handle

There’s a specific moment every solo operator hits: more work than you can physically do, and a choice between turning jobs away or bringing someone on. Training them on the trade is the easy part. The paperwork, insurance, and payroll setup are where people get tripped up. It isn’t complicated exactly. It’s just unfamiliar the first time through.

Short version: Before your new hire’s first day, you need an EIN (your business’s federal tax ID), state withholding and unemployment accounts, and workers’ comp insurance. Most states require workers’ comp from your first employee, and construction work almost always does. On or before day one you also need a Form I-9 and a W-4, and you have 20 days to report the hire to your state. Payroll software runs about $50 to $60 a month for one employee. Budget roughly 10% to 30% on top of wages for employer taxes and insurance, depending on your trade and state. None of it is hard. It just has to happen in the right order, before day one, not after.

First, Make Sure This Is Actually an Employee

Before any of the paperwork below applies, confirm you’re hiring an employee and not bringing on a subcontractor, since the two trigger completely different obligations. If you set their hours, supply the tools, and direct how the work gets done, that’s almost always an employee, whatever you call it. 1099 vs. W-2 classification walks through the actual test. Getting this wrong is one of the most expensive mistakes a growing business can make, because the IRS and your state can bill you for back taxes, penalties, and interest going back years.

The Paperwork Checklist, in the Order It Needs to Happen

1. EIN. If you don’t already have one from setting up your business, get one before anything else. It’s free and issued immediately on the IRS website. Sole proprietors who’ve been using their Social Security number need an EIN once they have employees.

2. State registration. Register with your state for a withholding account (if your state has income tax) and an unemployment insurance account. Your state assigns its own account numbers, separate from your EIN. Some states handle both through one agency, and others use two.

3. Workers’ compensation insurance. This is the one people most often underestimate. Workers’ comp pays an injured employee’s medical bills and lost wages, and in exchange the employee generally can’t sue you over the injury. Most states require it from your very first employee, part-time and family members included. A handful of states start at three to five employees (Georgia and Arkansas at three, Florida at four, Alabama and Tennessee at five), but Florida and Tennessee require it from employee number one in construction, and most threshold states treat construction more strictly.

The penalties for skipping it are real. Illinois can fine noncompliant employers up to $500 for every day without coverage. New York can issue stop-work orders and steep fines. Several states allow criminal charges in serious cases. Texas is the one big exception, where private employers can opt out as “non-subscribers.” But a Texas non-subscriber loses key legal defenses if a hurt employee sues, so skipping it isn’t the free pass it sounds like. Check your state’s rule before you make an offer, and don’t confuse workers’ comp with general liability insurance. If you haven’t sorted out your liability insurance and bonding yet, do that alongside this, not instead of it.

4. Form I-9. Required for every employee in every state, regardless of business size. It verifies the person is legally allowed to work in the U.S. Section 1 (the employee’s part) has to be done by their first day of work. Section 2 (your part, checking their ID documents) is due within three business days of their start date. You don’t file it with any agency. You keep it on file for at least three years after the hire date or one year after they leave, whichever is later.

5. Form W-4. The standard federal withholding form, plus your state’s version if your state has income tax.

6. New hire reporting. Federal law requires every employer to report new hires to the state’s new hire registry within 20 days of the hire date. Some states set a shorter window, so check yours. It exists mainly to help enforce child support orders, but it’s required for every hire either way. Most payroll software files it for you.

7. Required notices and posters. Most employers must give each new hire a short notice about health insurance options on the marketplace, even if you don’t offer coverage. You also need federal and state labor law posters where employees can see them, or shared electronically if your crew never comes to a shop. Many states add their own hiring notices.

State Rules Can Add More: New York as an Example

Federal rules are the floor. Your state can add a lot on top, and New York is a good example of how much:

• Disability and Paid Family Leave insurance. New York employers need short-term disability (DBL) and Paid Family Leave coverage in addition to workers’ comp, generally once they’ve had an employee for 30 days in a calendar year.
• A written pay notice at hire. The Wage Theft Prevention Act requires a written notice of the pay rate, payday, and overtime rate (Form LS 54 for hourly workers), signed by the employee.
• Weekly pay for manual workers. New York generally requires employers to pay manual workers, which covers most trade helpers, weekly rather than every two weeks.

Other states have their own versions: required paid sick leave, pay-frequency rules, or extra notices. Your state labor department’s website is the place to check, or let your payroll provider’s onboarding flag them.

What an Employee Really Costs You

The hourly wage isn’t the whole cost. On top of it, you pay:

• 7.65% employer Social Security and Medicare (FICA), matching what’s withheld from their check
• Federal unemployment tax (FUTA), usually $42 per employee per year once you pay your state unemployment tax on time. A few states that owe the federal unemployment fund money, like California, pay more.
• State unemployment tax, at a new-employer rate your state assigns, applied to a capped amount of each employee’s wages
• Workers’ comp premiums, priced per $100 of payroll by job type. Office work is cheap. Roofing and other high-risk trades can cost many times more.

Add it up and plan for roughly 10% to 30% on top of wages, with the high end in high-risk trades. A $25-an-hour helper can easily cost you $30 an hour or more. Build that into your rates. The pricing your labor guide shows how to work overhead into what you charge.

Setting Up Payroll

Once the above is in place, you need a way to run payroll: calculate withholding, pay your employee on schedule, and send and file the taxes. Good payroll software handles the quarterly Form 941, the annual Form 940, state filings, new hire reports, and year-end W-2s, which is most of the reason to pay for it. Some reference points for 2026:

• Gusto‘s Simple plan runs $49 a month plus $6 per person (it was $40 until 2025). Plus runs $80 plus $12 per person for multi-state payroll and time tracking.
• OnPay‘s Payroll Essentials plan lists at $49 a month plus $6 per employee, after a mid-2026 plan restructure.
• QuickBooks Payroll‘s entry plan, now called Workforce Payroll, starts around $50 a month, and its per-employee fees went up on July 1, 2026. Also as of July 1, automated tax payments are mandatory for all QuickBooks Online Payroll customers. Taxes come out of your bank account when you run payroll, not near the due date, so keep enough in the account on payday.

For one employee, expect about $50 to $60 a month on an entry plan. If you already keep your business banking and bookkeeping in one platform, check whether it has a payroll add-on so you’re not running two disconnected systems.

The Actual Hiring Process

Once the compliance side is mapped out, the practical steps are straightforward:

• Define the role clearly: what they’ll actually do day to day, not just a job title. Be specific about the physical demands, the hours, and what a typical day looks like. An honest description filters out bad fits better than any interview question.
• Find candidates through your own network, trade school placement offices, apprenticeship programs, or referrals from tradespeople you trust.
• Run a background or driving record check if it fits the role, especially if they’ll drive your truck. Federal rules require written consent first, and some states and cities limit when you can ask about criminal history.
• Put the offer in writing before day one: pay rate, schedule, overtime, and what’s expected.

Where First-Time Employers Get Burned

Skipping workers’ comp because “it’s just one guy helping out.” This is the most common and most expensive mistake. One injury without coverage can be financially ruinous, not just a fine.

Calling an employee a 1099 contractor to dodge the paperwork above. It tends to surface at the worst possible time, during an audit or after an injury.

Getting overtime and travel time wrong. Hourly helpers are owed time and a half for hours over 40 in a week under federal law, and some states go further. Driving between job sites during the workday counts as paid time, and so does time at the shop loading the truck. The ordinary commute from home to the first job usually doesn’t.

No written pay structure before day one. Settle how overtime, tools, travel time, and rain days work before the first paycheck. Unclear pay causes more early friction than almost anything else. Sort out the boring parts before the exciting part of finally having help.

Related Guides

• 1099 vs. W-2 classification, before you decide how to bring someone on
• Liability insurance and bonding, the coverage that sits next to workers’ comp
• Pricing your labor, so your rates cover what a helper really costs
• Business banking and bookkeeping, where payroll plugs in
• Crew housing, if your jobs take a crew out of town

This article is for general informational purposes only and isn’t financial, legal, insurance, or tax advice. For guidance specific to your situation, talk to a licensed professional.

Sources

• USCIS, Form I-9: https://www.uscis.gov/i-9
• IRS, Employer ID Numbers: https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
• Office of Child Support Services, New Hire Reporting: https://www.acf.hhs.gov/css/employers/new-hire-reporting
• Payroll.org (American Payroll Association), FUTA credit reduction for 2025: https://payroll.org/news-resources/news/news-detail/2025/11/11/california-virgin-islands-face-futa-credit-reduction-for-2025
• Workers’ comp requirements by state: https://www.quotesweep.com/blog/workers-comp-requirements-by-state
• Gusto pricing (CostBench, verified October 13, 2026): https://costbench.com/software/hr/gusto
• OnPay pricing (CostBench): https://costbench.com/software/payroll/onpay/
• Intuit, QuickBooks Payroll price changes: https://www.firmofthefuture.com/product-update/quickbooks-payroll-price-changes/
• QuickBooks Online Payroll automatic tax payments, 2026: https://beancount.io/blog/2026/07/29/quickbooks-online-payroll-automatic-tax-payments-2026-guide