Hiring your first employee: what has to be in place first

More than most people expect, and several things need to exist before the first day rather than after.

Registrations

• State employer registration, generally with your state's labor or revenue department, for withholding.

• Unemployment insurance account, usually separate from the withholding registration.

• Workers' compensation coverage. Required in nearly every state once you have employees. Operating without it where it's required carries real penalties, and it's the one people most often miss.

If the employee works in a different state from your business, all of this may be required in their state.

Payroll

Withholding, depositing, and reporting on a schedule. Deposits are frequently more often than quarterly, and late deposits carry penalties.

Payroll taxes are also an area where responsible individuals can be personally liable, so this isn't a place to improvise.

Paperwork before day one

Employment eligibility verification and withholding forms are generally required at or before the start of work, not whenever you get to them.

Policies

You don't need a handbook for one employee, but you should have something in writing on pay periods, time off, and expectations. It prevents most of the disputes that arise from assumptions.

Insurance beyond workers' comp

Employment practices coverage becomes worth considering. General liability policies typically exclude employment claims.

The classification question

If you're deciding between employee and contractor to avoid this list, decide it on the facts of the relationship rather than the paperwork burden. Misclassification costs more than compliance.

What to do

Start the registrations before you extend an offer — some take weeks. Get workers' compensation in place before the first day. And confirm which state's rules apply if your employee works remotely.

This is general information, not legal advice for your situation. If you want an answer for your business, book a consultation.