Do you know what is legally required when hiring employees? Are you aware of the pros and cons of different employment structures? Have you researched the various costs, tax implications, and risks for your business when hiring employees? If you are considering hiring employees for your small business, it’s a good idea to understand all that goes into the process. Instilling new team members can be overwhelming, but with the proper preparation and resources, it doesn’t have to be complicated. Learn more about what you need to know before hiring employees — so your business can stay compliant, profitable, and stress-free.

You Need an Employee Identification Number (EIN)

You will need an Employer Identification Number (EIN) if you have employees. The EIN is like a Social Security number for business. It identifies the business and reports your company’s payroll taxes. You can apply for an EIN online at the IRS Business Owner’s Toolkit website. Before requesting an EIN, make sure you have resolved the legal structure of your business. The type of business you are operating will determine if you are:

  • An S-corporation.
  • A C-corporation.
  • A limited liability company (LLC).
  • A partnership.
  • A sole proprietorship.
  • A joint venture.

You Need To Be Confident You Can Afford The Wages

The first step to hiring employees is ensuring you have the money to cover their wages, payroll taxes, and other related expenses. Hiring employees can add a lot to your business’s costs, so you must be confident you can cover those expenses. Remember that you are responsible for paying your employees’ wages, regardless of whether or not your business is making money. And if you are not making any profit, you may need to cut other areas of the company, such as expenses like marketing, to keep up with your wage payments. It’s essential to thoroughly assess your business’s current financial situation and projected financial situation as it relates to hiring employees. You may want to consider conversing with a financial advisor to help put together a budget and a plan to account for your new wage and payroll expenses.

Don’t forget to factor in employee benefits and relevant insurance you will require. Offering dental plans or health coverage along with an employer 401K plan will increase employee costs. While these can be attractive benefits, you need to be confident you can afford these costs regularly to avoid financial concerns or an inability to pay employees.

You Should Be Registered With Your State’s Labor Department

Registering with your state’s labor department is the first step to getting your business officially recognized as an employer. Depending on where you live, you may need to register with your state’s labor department before you start hiring employees. The registration process will vary from state to state – so it’s best to visit your state’s labor department website to learn more. You may need to provide information such as the number of employees you plan to hire, employee job descriptions, and the types of equipment they will use while on the job. Your state may also require you to put up a bond or purchase insurance as part of the registration process. Depending on your state and industry, your business may also be required to have workers’ compensation insurance.

You Need Workers Compensation Insurance

If your state’s labor department requires workers’ compensation insurance, it’s best to get it in place as soon as possible. This type of insurance protects your business against legal claims for workers’ compensation. You may also be required to provide workers’ compensation coverage for your team members, so ask about that when setting up your policy. Remember that the amount of coverage you need will vary based on factors such as the number of employees you have and the type of work they do. You may need to provide workers’ compensation insurance if hiring employees in specific industries, such as construction or driving. If you are not sure if your industry requires workers’ compensation insurance, it’s best to check with your state’s labor department.

You Need A Payroll System In Place

Before you start hiring employees, you need to have a payroll system in place. This is particularly important if you have employees in more than one location. You want to ensure you are calculating and paying employees correctly, can track employee hours accurately, and meet all state and federal payroll requirements. Several payroll providers can help you manage your employees’ payroll, including software-as-a-service providers. If you’re starting, you may hire an outside payroll provider to help you get started. Depending on the number of employees, it may be more cost-effective to use a payroll service that does all the work for you. Some payroll services charge a percentage of the gross pay of each employee. Others charge a flat fee for each employee.

Report each new employee to your state’s new hire reporting agency

Depending on where you live, you may need to report each new employee to a state agency within a certain period. For example, in California, you must notify each new hire within 5 business days. You can do this through an online system. The information you provide will depend on your industry and location. Generally, you will report each new employee’s name and contact information and the type of work they will do. Your state’s new hire reporting agency collects this information to help government agencies track workers’ compensation claims. Recording this information will help you stay compliant with the law and reduce your liability for workers’ compensation claims. In some cases, you may also be required to fill out a form for each new hire reporting. It’s essential to submit this information on time – even if it means spending a few minutes each day to report new hires.

Set Up Employee Benefits

Depending on the industry in which you’re operating, there may be certain benefits you’re required to provide your employees. This includes offering health insurance, paid sick leave, vacation time, retirement contributions, and more. You may be required to provide certain benefits if hiring employees in specific industries. For example, federal law requires certain types of employers, including transportation companies, to provide certain benefits. You may also want to offer certain benefits to help recruit and retain your best employees. This can include offering paid time off, health insurance, retirement plans, and more.

Fill In The Relevant Employee Paperwork Required

Before you can hire employees, you will need to fill in specific legal paperwork. You will need to fill out a W-9 form for each employee. You will also need to fill out a Form I-9 for each employee. The W-9 is used to record how much each employee earns each year. Form I-9 is used to record the identity and eligibility of each employee. You may also need to fill out a Form W-4 so that each employee knows how much is being withheld from their paycheck.

Make Sure New Employees Fill In The Correct Paperwork

You may also need to ensure your new employees complete specific paperwork. For example, you may need them to fill out an I-9 form to prove they are legally allowed to work in the United States. You may also need to have them sign an employment contract or offer letter. An employment contract is a written agreement between an employer and employee outlining the terms of employment, including salary, benefits, hours worked, and more. An offer letter is a written communication between you and an employee outlining the terms of employment, including salary, benefits, hours worked, and more.

Put Together An Employee Handbook

Before hiring employees, you should also put together an employee handbook. The employee handbook is a document that outlines employee and employer rights, responsibilities, and benefits. You can find pre-made employee handbooks online or put together a simple document that outlines the most critical information. When putting together the employee handbook, you should consider including the following details: 

  • What the company does and its mission and values. 
  • How the company is structured. 
  • Employee benefits, including paid time off, health insurance, and retirement plans. 
  • How employees are expected to conduct themselves and dress. 
  • How employees are expected to communicate and collaborate with each other. 
  • How employees should handle ethical dilemmas.

Make Sure New Employees Are Onboarded Correctly

Finally, ensure you have an onboarding plan for your new employees. This can be a single day or a few days, depending on the number of employees you have hired. During this time, you want to ensure each new employee has a clear understanding of the company culture and is trained on the ins and outs of the business. During onboarding, you should make sure employees have access to human resources and payroll information, as well as information about their benefits. 


Hiring employees for your small business can be intimidating. However, you can be more confident in your next steps by understanding what is required when hiring employees. Hiring employees can be overwhelming, from finding employees, to filling out the necessary paperwork, to implementing an employee handbook. However, it doesn’t have to be difficult with the proper preparation and resources.