How to Hire Your First Employee as a US Contractor

Hiring your first employee is one of the biggest steps in growing a contracting business — and one of the most administratively complex. Here is what you need to do, in order, to hire legally and set the employment relationship up correctly from day one.

Get an EIN and Register as an Employer

Before hiring anyone, you need an Employer Identification Number (EIN) from the IRS if you do not already have one (free, instant online). You must also register with your state’s tax and labour agencies — most states require employers to register for state income tax withholding and unemployment insurance. The SBA employer guide walks through the federal and state registration steps.

Workers’ Compensation Insurance

Workers’ compensation is mandatory for employers in almost every US state. It covers medical expenses and lost wages if an employee is injured on the job. Get this in place before your employee’s first day — operating without it exposes you to significant personal liability and regulatory penalties.

Employment Documentation

Every new employee must complete an I-9 (employment eligibility verification) and a W-4 (federal tax withholding). Most states have their own withholding certificate as well. An offer letter or employment contract documenting the job title, pay rate, hours, and key terms protects both parties. Consult an employment attorney for anything more complex than a simple hourly arrangement.

Payroll

As an employer, you are responsible for withholding federal income tax, Social Security, and Medicare from employee wages, and paying the employer’s matching portion of Social Security and Medicare. Quarterly payroll tax deposits and annual W-2 filings are required. Most small contractors use payroll software — Gusto, ADP, or QuickBooks Payroll — rather than managing this manually. IRS employer tax guidance covers the requirements.