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. The trade skills to train them are the easy part. The paperwork, insurance, and payroll setup are where people get tripped up, not because it’s complicated exactly, just unfamiliar the first time through.
Short version: Before your new hire’s first day, you need an EIN, state withholding and unemployment registration, workers’ comp insurance (required starting at one employee in most states), a completed Form I-9, and a new hire report filed with your state within 20 days. Payroll software runs roughly $40-100 a month plus a per-employee fee. None of it is hard, it just has to happen in the right order and before day one, not after.
First, make sure this is actually an employee
Before any of the paperwork below applies, confirm you’re actually hiring an employee and not bringing on a subcontractor, since the two trigger completely different obligations. If you’re not sure which one fits your situation, 1099 vs. W-2 classification walks through the actual test rather than just the label you’d prefer to use. Getting this wrong is one of the more expensive mistakes a growing business can make, since misclassification audits can reach back years.
The paperwork checklist, in the order it actually needs to happen
EIN. If you don’t already have one from setting up your business, get one before anything else, it’s free and immediate through the IRS.
State registration. Register with your state’s revenue and labor departments for a withholding account and an unemployment insurance account. Most states assign a separate Employer Account Number for this, distinct from your EIN.
Workers’ compensation insurance. This is the one people most often underestimate. In most states, workers’ comp is required the moment you have a single employee, full-time, part-time, or even a family member on payroll, not at some higher employee-count threshold. New York, Illinois, and Colorado all require it starting at one employee, with real penalties for skipping it: Illinois can fine noncompliant employers up to $500 per day, New York can issue stop-work orders and civil penalties, and both allow for criminal charges in serious cases. Texas is a notable exception, workers’ comp isn’t mandatory there, but employers who opt out (“non-subscribers”) lose significant legal defenses if an employee is hurt on the job and sues, so skipping it isn’t the free pass it sounds like. Check your specific state’s threshold before you extend an offer, and don’t confuse this with general liability insurance, they cover completely different things. If you haven’t sorted out your liability insurance and bonding yet, that’s worth doing alongside this, not instead of it.
Form I-9. Required for every employee in every state, regardless of business size. Section 1 (the employee’s part) needs to be completed by their first day of work. Section 2 (your part, verifying their documents) is due within three business days of their start date. Keep it on file, don’t file it with any agency, just retain it.
Form W-4. Standard federal withholding form, plus your state’s equivalent if your state collects income tax.
New hire reporting. Federal law requires every employer to report new hires to their state’s new hire registry, typically within 20 calendar days of the hire date (some states set a shorter window, so check yours). This exists mainly to support child support enforcement, but it’s a legal requirement regardless of whether it applies to your specific new hire.
ACA Notice of Coverage Options. A short, standardized notice about health insurance marketplace availability, required for every new hire regardless of whether you offer health coverage yourself.
Setting up payroll
Once the above is in place, you need a way to actually run payroll, calculate withholding, file taxes, and pay your employee on schedule. Basic online payroll software starts around $40/month in 2026, with fuller-featured platforms running $80-150+ before per-employee fees. A few reference points: Gusto’s entry-level plan runs $49/month plus $6 per employee (that base price moved up from $40 earlier this year). QuickBooks Payroll’s entry tier runs about $50/month plus $6.50 per employee, and worth knowing if you use it, starting July 1, 2026, QuickBooks is making automated tax payments mandatory, removing the option to manually control when those payments go out. OnPay runs a comparable $40/month plus $6 per employee and is a solid option if you’re not already locked into a specific accounting ecosystem. If you’re already tracking your business banking and bookkeeping somewhere, checking whether that platform has a payroll add-on can save you from running two disconnected systems.
The actual hiring process
Once the compliance side is mapped out, the practical hiring steps are straightforward: define the role clearly (what they’ll actually do day to day, not just a job title), find candidates through your existing network, trade school placement offices, or referrals from other tradespeople you trust, run a background check appropriate to the role, and put the offer in writing before their first day, including pay rate, schedule, and what’s expected. A clear, honest job description does more to filter out a bad fit than any interview question, be specific about the physical demands, the hours, and what a typical day actually looks like.
The mistakes that cost the most
Skipping workers’ comp because “it’s just one guy helping out” is the single most common and most expensive mistake, one injury without coverage can be financially ruinous, not just a fine. Treating someone as a 1099 contractor when they’re functionally an employee (set hours, your tools, your direct supervision) to avoid the paperwork above is the second, and it tends to surface at the worst possible time, during an audit or after an injury. And not having a clear written pay structure before day one, overtime handling, how tools and travel time get paid, what happens on a rain day, causes more early friction than almost anything else. Sort out the boring parts before the exciting part of finally having help.
Frequently Asked Questions
In most states, yes, coverage is required starting the moment you have a single employee, regardless of whether they’re full-time, part-time, or a family member. A handful of states, Texas among them, don’t mandate it, but opting out there still carries real legal risk if an employee is injured. Check your specific state’s requirement before extending an offer.
They cover completely different things. Workers’ comp covers your employees if they’re injured on the job, medical care and lost wages. General liability covers damage or injury your business causes to someone else’s property or a third party. Having one does not satisfy the requirement for the other.
Form I-9 verifies an employee’s legal eligibility to work in the U.S. and stays on file with you, it isn’t submitted anywhere. New hire reporting is a separate requirement where you report basic hire information to your state’s new hire registry, typically within 20 days, mainly used to support child support enforcement. Both are required, and they’re unrelated to each other.
It can get expensive fast. If an audit or an injury claim reveals someone was functionally an employee, set hours, your tools, direct supervision, you can owe back payroll taxes, unpaid workers’ comp premiums, penalties, and interest, sometimes reaching back several years.
Roughly $45-60 a month total for most entry-level platforms in 2026, a base fee (commonly $40-50) plus a small per-employee fee (commonly $6-6.50). Fuller-featured plans with multi-state support or dedicated HR tools run higher, often $80-150+ before per-employee fees.
Starting July 1, 2026, QuickBooks is making automated tax payments mandatory for its payroll customers, removing the option to manually control when those payments are sent. If you currently time your payroll tax payments around cash flow, that flexibility goes away.
Sources:
https://www.uscis.gov/i-9
https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers
https://www.acf.hhs.gov/css/employers/new-hire-reporting