1. Decide whether you're ready
- Hire for steady work, not one busy week. A good sign is being booked past your capacity for four to six weeks in a row, or turning work away.
- Know the true cost. Wages are the start. Add employer payroll taxes, unemployment insurance, workers’ comp, equipment and training.
- Make sure the work pays for the hire. Count only the hours customers will pay for, not every hour on the clock.
- Keep a cash cushion that covers several weeks of payroll before the new work starts paying you back.
- Write down how the job is done before you hand it over. You can’t train someone to a standard that only lives in your head.
2. Decide: employee or contractor?
- If you control how, when and where the work is done, the person is very likely an employee, whatever you call them.
- Labeling an employee a “contractor” to skip payroll taxes can bring back taxes, penalties and wage claims.
- Not sure? IRS Form SS-8 lets you request an official determination.
3. Set up as an employer
- Get a federal Employer Identification Number (EIN) from the IRS. It’s free.
- Register with your state for income tax withholding and unemployment insurance.
- Buy workers’ compensation insurance before the first shift, where your state requires it.
- Choose a payroll service to calculate withholding, file payroll taxes and issue W-2s.
4. Complete the paperwork for every new hire
- Form I-9: the employee completes section 1 by the first day of work, and you review their documents within 3 business days of the start date.
- Form W-4 and your state’s withholding form, before the first paycheck.
- New-hire report to your state within 20 days of hire. Some states require it sooner.
- E-Verify, if your state requires it.
- Workplace posters: the required federal and state notices, free from the U.S. Department of Labor and your state labor department.
5. Pay it right
- Pay at least the highest of the federal minimum wage ($7.25 an hour), your state’s minimum and your city’s minimum.
- Pay overtime at 1.5 times the regular rate for hours over 40 in a workweek. Some states also require daily overtime.
- Drive time between job sites during the workday counts as paid work time under federal law.
- Budget the employer costs on top of wages: 7.65% for Social Security and Medicare, federal unemployment (generally 0.6% of the first $7,000 of wages), state unemployment and workers’ comp.
6. Hire well
- Write a clear job description, and include the pay range. Several states and cities require it in job postings.
- Ask every candidate the same questions, and check references with former supervisors.
- If you use a background-check company, follow the Fair Credit Reporting Act: a written disclosure, the applicant’s written permission, and the required notices before and after turning someone down because of the report.
- Don’t ask about age, religion, family plans, national origin, disability or other protected characteristics.
7. The first 90 days
- Day one: your standards, safety rules and how the work gets done, with the paperwork finished.
- First weeks: they shadow you, then work while you check, then work on their own once their work meets your standard.
- Day 30: a check-in on what’s going well and what’s hard.
- Day 90: a formal review to set pay, goals and next steps.
Go deeper
Not sure it’s time yet? Read our research: When Should a Small Business Hire Its First Employee?
General information, not legal or tax advice. Employment rules vary by state and city; check with your state labor department or an employment attorney.
Published by Groundwork Business Advisory. Updated October 20, 2026.