Hiring your first employee is one of the best days in a small business owner’s life—and one of the most administratively brutal. Overnight, you go from a solo operator to a “covered employer” in the eyes of four or five different government agencies, each of which expects you to have already registered before you cut that first paycheck. Most first-time employers find out about these requirements the hard way: a penalty notice in the mail, a state audit, or a payroll provider that flags missing account numbers at the worst possible moment. This article walks you through every registration that triggers the moment you make your first hire, in a logical sequence, with enough specifics to actually act on.

1. Get Your Federal Employer Identification Number (EIN) First

If you’ve been operating as a sole proprietor using your Social Security Number, that ends now. An EIN—sometimes called a Federal Tax Identification Number—is the IRS’s way of tracking your payroll tax obligations separately from your personal taxes. You cannot run payroll, open a business bank account for payroll purposes, or file most employment-related forms without one. The good news: the IRS issues EINs instantly and for free at irs.gov. The whole online application takes about ten minutes, and you receive the number immediately upon completion.

One thing most guides won’t tell you: if your business structure changes when you hire—say you convert from a sole proprietorship to an LLC or S-corp—you may need a new EIN even if you already have one. The IRS has a clear rule on this, and getting it wrong means your payroll tax deposits land in the wrong account. Confirm your structure is locked in before you apply.

2. Register with Your State’s Department of Revenue for Withholding

Every state with an income tax (that’s 43 of them, plus D.C.) requires employers to register separately as a withholding agent before they can legally deduct state income tax from employee paychecks. This is not automatic and it does not happen because you already have a state business license. You register through the state’s Department of Revenue or Department of Taxation—names vary—and you receive a state withholding account number, which is different from your state sales tax number.

Timing matters here. Most states require you to register before the first payroll, not within a grace period afterward. Some states—California and New York are the most aggressive—will assess penalties per employee per payroll period if you run withholding without a valid account number. In California, new employers register through the Employment Development Department (EDD) at edd.ca.gov and receive both their withholding and unemployment insurance account numbers through a single registration. In Texas, which has no state income tax, you skip this step entirely, but you still owe the unemployment registration in step 4.

3. Set Up Your Federal Payroll Tax Deposit Schedule

Collecting payroll taxes is only half the job. Remitting them to the IRS on the right schedule is where most new employers stumble. The IRS assigns every new employer a “monthly” deposit schedule by default for the first year. That means federal income tax withheld, plus the employee and employer shares of Social Security and Medicare (FICA), must be deposited by the 15th of the following month. Miss that date and you face a Failure to Deposit penalty that starts at 2% and climbs to 15% depending on how late you are.

Once your annual payroll tax liability crosses $50,000—which can happen faster than you think if you’re hiring full-time workers—you shift to a semi-weekly deposit schedule. Deposits for paychecks issued Wednesday through Friday are due the following Wednesday; deposits for Saturday through Tuesday paychecks are due the following Friday. All federal tax deposits must go through the Electronic Federal Tax Payment System (EFTPS). Enrollment at eftps.gov takes a few days to process because the IRS mails a PIN to your address of record, so do this before your first payroll, not after.

4. Register for State Unemployment Insurance (SUI)

Federal unemployment tax (FUTA) is handled through your EIN and paid via EFTPS, but state unemployment insurance is a separate animal with a separate registration. Every state runs its own unemployment insurance program, and as a new employer you are assigned a new-employer SUI rate—typically somewhere between 1% and 3.5% of taxable wages, depending on the state—until you accumulate enough claims history to be experience-rated. In many states, that rate applies to the first $7,000 to $15,000 of each employee’s wages per year.

Register with your state’s workforce agency immediately. In Illinois, that’s IDES (ides.illinois.gov). In Florida, it’s the Department of Economic Opportunity. In New York, it’s the Department of Labor. Most states now have online registration, and you’ll receive your SUI account number within a week or two. Some states charge a small registration fee; others don’t. What they all share is a quarterly filing requirement—you’ll owe a return even in quarters where no wages were paid, in most states.

5. Verify Work Authorization and Complete I-9s Before Day One

This is not optional, it’s federal law under the Immigration Reform and Control Act of 1986. Every employee—regardless of citizenship status—must complete Section 1 of Form I-9 on or before their first day of work. You, as the employer, complete Section 2 within three business days of the start date. You’re verifying identity and work authorization documents from the official List of Acceptable Documents. You do not submit I-9s to any government agency; you retain them for three years from the hire date or one year after termination, whichever is later, and make them available for inspection on demand.

If you have federal contracts or choose to participate voluntarily, E-Verify is an online system that cross-checks I-9 data against DHS and SSA databases. Some states—Arizona and Mississippi, for example—mandate E-Verify for all employers, not just federal contractors. Check your state’s requirements before you assume it’s optional.

6. Report the New Hire to Your State’s Directory

Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, every employer in the U.S. must report new hires to their state’s New Hire Reporting Directory within 20 days of the hire date (some states require faster reporting). The information goes to a national database used primarily to enforce child support orders. The form collects the employee’s name, address, SSN, date of hire, and your EIN. Most states let you submit online, by fax, or by mailing a copy of the W-4.

This one is consistently overlooked by first-time employers because it doesn’t feel like a “tax” thing—it lives in a different corner of state government, often the Department of Health and Human Services or a child support enforcement agency. The penalty for failing to report ranges from $25 per unreported employee in most states to $500 in cases where the failure appears intentional. It’s a small task that takes five minutes; there’s no good reason to skip it.

7. Get Workers’ Compensation Coverage Before the First Shift

Workers’ compensation is state-mandated insurance that covers employees for on-the-job injuries and illnesses. With very few exceptions—Texas is the notable outlier, where it’s technically elective—you must have coverage in place before your employee shows up for their first shift, not afterward. There is no grace period. Operating without it exposes you to personal liability for medical costs and lost wages, plus significant fines. In California, operating without workers’ comp is a criminal misdemeanor.

You can obtain coverage through a private insurer (most states), a state-run fund, or in some cases self-insurance if you meet minimum net worth requirements. The premium is based on your industry’s risk classification and your payroll. A desk worker in a marketing firm carries a far lower rate than a roofer or a warehouse employee. Get quotes from two or three carriers; rates vary more than you’d expect. Notify your insurer of any significant payroll changes during the year, since your annual premium is adjusted at audit time.

8. Configure Payroll to Handle W-4s and State Equivalents

The 2020 redesign of the federal W-4 eliminated withholding allowances entirely and replaced them with a dollar-based system tied to deductions, multiple jobs, and dependents. Every employee hired after January 1, 2020 must use the current version. Employees hired before that date don’t need to re-file unless their situation changes, but you should keep the old forms in their records. Many states have their own withholding certificate—California’s DE 4, New York’s IT-2104—and those must be collected separately.

Your payroll setup needs to correctly apply both federal and state withholding tables simultaneously, calculate FICA at 6.2% (Social Security, up to the annual wage base, which is $168,600 for 2024) and 1.45% (Medicare, no cap) per employee, and match those amounts as the employer contribution. This is where a dedicated payroll platform—Gusto, QuickBooks Payroll, ADP Run—earns its monthly fee by handling the math and deposit scheduling automatically. Running payroll manually in a spreadsheet for more than one or two employees is a liability, not a cost-saving measure.

Hiring your first employee is a commitment you make to another person’s livelihood—and the registrations above are the government’s way of making sure that commitment comes with a safety net. None of these steps are particularly hard on their own; the problem is that they all land on your plate at once, often right when you’re also onboarding someone new and running your actual business. Build a checklist from this list, knock them out in order, and you’ll start your employment relationship on solid ground rather than playing catch-up with penalty notices six months later.