How do I hire my first employee the legal way?

Hiring your first W-2 employee turns you into an employer overnight, and the law expects a specific set of steps: verify their work eligibility on a Form I-9 within three days, report the hire to your state, get workers' comp in place before they set foot on site, and put them on real payroll. Miss the workers' comp piece in particular and one injury can end your business. This guide is the employment-law checklist. The payroll-tax mechanics (deposits, 941s, withholding math) are a separate topic covered in its own guide, cross-linked below.‍‌​​‌‌‌​‌​​​‌​‌​‌​​​‌‌​​​‌​​‌‌​​‌‍

First, are they actually an employee?

Before any of this, be sure you are hiring an employee and not paying a genuine subcontractor. It changes everything. An employee gets a W-2, payroll taxes, and workers' comp. A true independent sub gets a 1099 and runs their own business. If you control how the work gets done and the person does your core trade, they are an employee no matter what you call them, and slapping a 1099 on them to skip the steps below is exactly what enforcement hunts for. Sort the classification first (see the guide on 1099 versus W-2), then come back here for hiring an actual employee.

Verify work eligibility: Form I-9

Every employee you hire, including U.S. citizens, has to complete a Form I-9 to prove identity and authorization to work. The timing is strict:

• The employee completes their section on or before their first day of work for pay.
• You complete the employer section within three business days of their start date, after physically examining their documents (or using an authorized remote-review process).

Keep the completed I-9 in your own files. You do not send it to the government. You retain it and produce it only if audited. Use the current edition of the form, and check uscis.gov for which edition is valid, because editions expire and using an outdated one is itself a violation.

E-Verify is a separate, online check of that eligibility. It is voluntary for most private employers under federal law, but mandatory for federal contractors and subcontractors, and a number of states require it, some for all employers, some above an employee-count threshold, and some specifically for construction (Ohio's mandate for nonresidential construction contractors is a recent example). Whether you are required to use E-Verify is a state-specific question, so confirm it in Working in Your State.

Report the new hire to your state

Federal law requires you to report every new hire to your state's new-hire reporting agency, generally within 20 days of their start date. This feeds the child-support enforcement system, and it is easy to forget. You report to the state where the employee works, with your business details and the employee's name, address, and Social Security number. Some states set a shorter window than 20 days, so check your state's deadline in Working in Your State.

Get workers' comp in place first

This is the one that ends businesses when it is skipped. In most states, hiring your first employee triggers a legal requirement to carry workers' compensation insurance, and construction is often held to a stricter standard than other industries, with some states requiring coverage from the very first construction worker (and sometimes for owners too). Have the policy bound before the employee starts work, not after.

Two reasons this is non-negotiable:

• An uninsured injury is catastrophic. Without comp, an injured worker's medical bills and lost wages land on you personally, plus penalties, and you lose the lawsuit protection comp normally gives you.
• General contractors will demand proof. On most sites you need a certificate of insurance showing comp coverage before you can bring a crew on. No certificate, no work.

The exact trigger, the owner-exemption rules, and whether your state runs a monopolistic state fund all vary, so get the details from Working in Your State and the workers' comp guide.

Set up payroll and withholding

Once someone is an employee, you cannot just hand them a check. You have to run payroll: collect a Form W-4 so you know how much federal income tax to withhold, collect any state withholding form, and withhold and deposit taxes on the IRS schedule. This is the tax-mechanics side, and it carries the steepest penalties in the code if you fall behind on deposits. Most contractors hand it to payroll software or a service. The full mechanics (EIN, EFTPS deposits, Forms 941 and 940, the trust-fund rules) are covered in the guide on payroll taxes for your first employee.

Onboard as an at-will employer

Unless you deliberately promise otherwise, employment in every state except Montana is "at-will," meaning either side can end it at any time for any legal reason. Protect that:

• Give a short offer letter or handbook that states the job is at-will. Avoid language like "you'll have a job here as long as you do good work," which a court can read as a promise of job security.
• Provide a basic safety orientation on day one. You are now an employer covered by OSHA, and training is your duty.
• Post the required federal and state labor-law notices where the crew can see them.

Firing, discipline, and unemployment claims are their own topic once the person is on board (see the guide on firing a worker).

The first-30-days shape of it

• Before they start: confirm they are an employee, not a sub; bind workers' comp; line up payroll.
• Day one: employee completes I-9 Section 1; collect the W-4 and state withholding form; give the safety orientation.
• Within three business days: you complete I-9 Section 2; run E-Verify if you are required to.
• Within 20 days (or your state's shorter window): file the new-hire report.
• Ongoing: withhold and deposit payroll taxes on schedule, and keep the paperwork.

Common questions

What is the first thing I have to do when I hire an employee?

Confirm they are genuinely an employee rather than a subcontractor, then get workers' compensation insurance in place before they start work. In most states hiring an employee triggers a mandatory comp requirement, and construction is often held to a stricter standard than other trades. From there you handle the Form I-9, the new-hire report, and payroll setup. Bind the comp policy first, because an uninsured injury can land the full cost on you personally.

How long do I have to complete a Form I-9 for a new hire?

The employee completes their section of the I-9 on or before their first day of work for pay, and you complete the employer section within three business days of their start date. You examine their documents and keep the form in your own files rather than sending it anywhere. Use the current edition of the I-9, which you can confirm at uscis.gov, because using an expired edition is itself a violation.

Do I have to use E-Verify to hire someone?

Under federal law E-Verify is voluntary for most private employers, but it is mandatory for federal contractors and subcontractors, and a number of states require it, some for all employers and some specifically for construction. Whether you have to use it depends on your state and the type of work, so confirm your requirement in Working in Your State. E-Verify is separate from the Form I-9, which every employer must complete regardless.

Do I need workers' comp for just one employee?

In most states, yes. Hiring even one employee usually triggers a legal requirement to carry workers' compensation, and construction is frequently held to a stricter standard, with some states requiring coverage from the very first construction worker. Have the policy bound before the person starts work. The exact trigger and any owner-exemption rules vary by state, so confirm them in Working in Your State and see the workers' comp guide.

Do I have to report a new employee to the government?

Yes. Federal law requires you to report every new hire to your state's new-hire reporting agency, generally within 20 days of their start date, and some states set a shorter deadline. You report to the state where the employee works, with your business information and the employee's name, address, and Social Security number. It is easy to overlook, so build it into your onboarding routine and check your state's deadline in Working in Your State.

The honest bit

• The federal timing here is current for 2026: the I-9 three-business-day rule, the 20-day federal new-hire baseline, and E-Verify being voluntary for most private employers but mandatory for federal contractors. Verify the current I-9 edition and rules at uscis.gov and dol.gov.
• State E-Verify mandates, shorter new-hire windows, workers' comp triggers and exemptions, and state income-tax withholding all vary. Route them to Working in Your State.
• The payroll-tax mechanics (EIN, deposits, Forms 941 and 940, the trust-fund rules) are covered in the payroll-taxes guide, not here, and getting them wrong carries heavy penalties, which is why most contractors use a payroll service.
• This is general guidance, not legal advice. For your first hire, a short call with a CPA or an employment attorney to set up payroll and comp correctly is money well spent.

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