What Has To Be In Place Before Your First Employee Starts
The registrations, forms, insurance and agreements a founder needs before the first person joins payroll, and the order to tackle them in so nothing is missed.
The offer is signed and the start date is two weeks away. For many founders, this is the moment they discover that hiring an employee is not only a decision. It is a set of registrations, forms and policies that have to exist before the first paycheck goes out.
None of it is especially hard. The trouble is that it is spread across federal agencies, state agencies and private providers, and a missed step tends to show up months later as a penalty notice. Here is the order to work through it.
Get the company registered as an employer
If the company does not already have an Employer Identification Number from the IRS, it needs one. Most corporations get an EIN at formation, but confirm you have it. The IRS issues EINs directly and free of charge, so be wary of third-party sites that charge for the service.
Next, register with the state where the employee will work. Most states require an employer account for state income tax withholding, where the state has an income tax, and a separate account for state unemployment insurance. Some localities have their own payroll taxes as well. If the employee works remotely in a different state from your office, the registration follows the employee, not the headquarters.
Most early-stage companies use a payroll provider to handle withholding, filings and payments. A provider will usually help with state registrations, but the legal responsibility stays with the company, so check that every account has actually been opened.
Keep a simple compliance calendar from day one. Payroll tax deposits, quarterly federal and state returns and year-end wage statements all run on fixed schedules, and a provider can only file what it has been authorized to file. Check the first quarter's filings yourself rather than assuming they went out.
Handle the first-day paperwork
Every new employee completes Form W-4 so the company knows how much federal income tax to withhold. Many states have their own withholding form as well.
Every new employee must also complete Form I-9, which verifies identity and authorization to work in the United States. The employee completes their section by the first day of work, and the employer must examine the documents and complete its section within a short, fixed window after the start date. USCIS publishes the current form, the list of acceptable documents and the rules for remote document review. Keep completed I-9s separate from personnel files and retain them for the required period.
States also require employers to report new hires to a state directory within a set number of days, which is used to enforce child support orders. Your payroll provider may do this for you, but confirm it.
Arrange insurance and required notices
Workers' compensation insurance is required for employees in nearly every state, and the rules on when coverage must start and how it can be obtained vary. Some states run their own funds. Do not let an employee start work before coverage is in place.
Federal and state laws require certain workplace notices covering minimum wage, anti-discrimination, leave rights and other topics. For remote employees, many companies provide these electronically. Check the specific state requirements, because some states have rules on how electronic notices must be delivered.
Put the right agreements in writing
The offer letter should state the title, start date, compensation, whether the role is exempt or non-exempt from overtime, and, in most states, that employment is at-will. If you are granting equity, the letter should say that the grant is subject to board approval and the company's equity plan, rather than promising a specific number of options outright.
Classifying a role as exempt from overtime requires more than paying a salary. Under federal law the employee must generally meet a salary-level threshold and a duties test, and several states set higher thresholds. The federal figure has changed over time, so check the Department of Labor's current guidance.
Every employee should also sign a confidentiality and invention assignment agreement before they begin work. This is the document that makes sure the company, not the employee, owns the code, designs and ideas they produce on the job. Investors will check for it. Some states limit what these agreements can cover, so use a version reviewed for the state where the employee works.
What to do before the start date
Confirm the company's EIN and open state withholding and unemployment accounts in the employee's work state. Choose a payroll provider and complete setup at least one pay cycle before the start date. Bind workers' compensation coverage. Prepare the offer letter, invention assignment agreement, W-4, state withholding form and I-9, and check that new-hire reporting is handled. Then write a one-page first-week plan so the new hire spends their first days working, not chasing paperwork.
This is general information, not legal advice. Speak to a qualified attorney in your jurisdiction before acting on any of it.
Sources
IRS — Get an Employer Identification Number
