How to hire your first employee in the US

Your first employee changes the company more than your tenth probably will. Until this hire, a founder can keep priorities in her head, move money manually, and repair a confused week with a long Sunday. An employee needs a lawful employer, a role that can be understood, and a manager who makes decisions before the confusion reaches payroll.

The expensive mistakes rarely begin with a missing welcome lunch. They begin when a founder calls a continuing job a contract project, promises equity before checking the plan, misses a tax deposit, hires in a state where the company is not registered, or leaves a capable person guessing about success for three months. How to hire your first employee is therefore both a compliance question and an operating question. Treat either half casually and the other half suffers.

This is a US guide, with California examples because many Sisters readers build in the Bay Area. Employment rules depend on the state and city where the employee works, your industry, headcount, and the facts of the role. Use this as the control sheet for conversations with your payroll provider, broker, accountant, and employment lawyer, not as a substitute for advice on your facts.

Decide whether the work belongs to an employee

Use an employee when you are filling an ongoing role inside the business, especially when you will direct how the person works, set their priorities, and depend on their work as part of the company's ordinary output. Use a contractor for a genuinely independent business that controls its method, serves its own market, and delivers a defined result. Your budget preference does not decide the classification.

Founders often blur two separate decisions. The first is whether the company needs this capability for six weeks or for the foreseeable future. The second is whether the law treats the worker as an employee. A short engagement can still be employment, and a long engagement can sometimes be a legitimate vendor relationship. Duration alone settles neither question.

The contract label does not rescue the wrong arrangement. The US Department of Labor evaluates economic dependence under the Fair Labor Standards Act, while the IRS looks at behavioral control, financial control, and the relationship of the parties for federal tax purposes. States can apply stricter tests. California's ABC test generally starts by treating the worker as an employee unless the hiring company can show that the worker is free from its control, performs work outside its usual course of business, and independently operates that kind of business. Exceptions exist, but a 1099 and an independent-contractor clause do not create one.

Ask how the relationship will work on an ordinary Tuesday:

• Will you assign recurring priorities rather than buy a defined deliverable?
• Will the person represent your company to customers or build the product you sell?
• Will you control the schedule, tools, process, or place of work?
• Does the person market the same service to other clients and bear a real chance of profit or loss?
• Could the relationship continue without a new project or statement of work?

Several employee-like answers call for a classification review before anyone starts. Misclassification can produce unpaid overtime, payroll tax, unemployment and workers' compensation liabilities, penalties, and legal fees. The popular advice to "start them as a contractor and convert later" is wrong when the facts describe employment from day one. It is popular because it postpones setup; it is wrong because setup costs less than correcting payroll and wage records after the relationship breaks.

Classification is also different from overtime status. An employee may be exempt or nonexempt under federal and state wage law. Salary, a senior title, and employee preference do not automatically make someone exempt. Duties and applicable salary rules matter. If the person is nonexempt, build timekeeping, meal and rest practices where required, and overtime approval into the job before the first hour is worked. An approval rule can control conduct, but it generally cannot erase pay owed for overtime you knew or should have known was worked.

Write the job as a set of decisions and outcomes

A first role needs a narrower mandate than most founders initially write. List the decisions the employee can make, the outcomes she owns, the work that stays with you, and the constraints she must respect. A catalogue of ambitions attracts candidates but gives the eventual employee no stable way to choose among them.

Start with the business bottleneck. If customer conversations are plentiful but follow-up fails, you may need an account or operations hire. If demand is uncertain, hiring a full-time salesperson will not repair an untested offer. If every product decision waits for you, decide whether you need more building capacity or someone with authority to own a product area. A first employee should remove a defined constraint, not absorb everything the founder dislikes.

Write four documents before recruiting: a job description, an interview scorecard, a compensation range, and a 90-day outcome draft. The job description explains the actual work and minimum qualifications. The scorecard forces every interviewer to assess the same evidence. The range accounts for cash, equity if offered, benefits, location, overtime status, and internal affordability. The outcome draft proves that you know what you will ask this person to accomplish.

Separate requirements from preferences. If a credential, degree, or number of years is not necessary to do the job, remove it. Ask candidates for examples of comparable decisions and work. The Equal Employment Opportunity Commission advises small employers to keep questions focused on job qualifications and avoid collecting protected information that is irrelevant to the decision. Do not ask about age, disability, family plans, religion, or citizenship. You may ask whether a candidate is authorized to work in the United States and whether she will need sponsorship, provided you ask consistently and do not use the question as a proxy for national origin.

Score evidence while it is fresh. A simple one-to-four scale for each competency works if every score includes a note about what the candidate actually said or produced. "Great energy" is not evidence. "Found the renewal error, changed the handoff, and measured late renewals for two quarters" is. Keep interview notes factual because they may later have to explain why one candidate advanced and another did not.

If you use a paid work sample, make it short, relevant, and equally administered. Pay for meaningful work that the company may use. Do not ask candidates to solve a live business problem for free and then pretend the exercise was only evaluation. The way you run the process is the candidate's first evidence about how you manage.

Make an offer that can survive the actual job

The offer should state the terms you intend to honor and leave company policies where they belong. At minimum, identify the legal employer, title, manager, work location, start date, base pay and pay frequency, exemption status where appropriate, benefits eligibility, contingencies, and any equity that has been properly authorized or remains subject to approval. Include confidentiality and invention-assignment documents suited to the state and the work.

Do not copy an offer letter from a company in another state. At-will wording, leave language, restrictive covenants, invention assignment, pay disclosures, and required notices differ. Some promises that sound harmless in a founder's email can become evidence of a contract. Have employment counsel create a small set of templates for the states where you hire, then stop improvising around them.

Equity needs exact nouns and an approval path. Say whether you are discussing stock options, restricted stock, or another instrument; identify the amount or a good-faith way to understand it; state the vesting terms; and explain that the governing plan and grant documents control. Do not promise a percentage without specifying whether it is calculated on a fully diluted basis and when. Do not promise a grant date or exercise price that the board and valuation process cannot support. Candidates should get time to review their own tax position.

Make contingencies explicit. A role may depend on proof of work authorization, reference checks, a lawful background check, board approval of equity, or another job-related condition. Run the same conditions for similarly situated candidates. If a consumer-reporting company performs a background check, the Federal Trade Commission's FCRA guidance calls for a clear stand-alone disclosure and written permission before the report. If the report may cause you to withdraw the offer, give the candidate the report and the required summary of rights before deciding, then send the required adverse-action notice afterward. State and local rules can add limits, including when criminal-history questions may be asked.

Give the candidate a deadline that allows a real review, and name the person who can answer questions. A pressured signature does not create commitment. A clear offer followed by a call about the unglamorous details usually does: pay dates, working hours, location expectations, equipment, benefits timing, and what the first month will contain.

Put payroll in place before the start date

Payroll is a controlled movement of wages, taxes, filings, and records, not a recurring bank transfer. Set it up before the employee begins work, test every account, and understand which tasks the provider performs. The employer remains responsible when a provider misses a filing or lacks funds.

You need a federal employer identification number, state and sometimes local employer accounts, a payroll schedule that complies with the employee's work location, and a bank account that can reliably fund net pay and tax withdrawals. Register for unemployment insurance and any required state payroll programs. A remote hire usually creates obligations where she physically works, even when the company has no office there. Check foreign qualification, payroll registration, wage rules, leave, expense reimbursement, workers' compensation, and local taxes before approving the location.

Use this pre-start control sheet as a meeting agenda with your accountant or payroll specialist. Put an owner and due date beside every row; "payroll company" is not an owner unless the contract confirms the task.

1. Confirm federal and state employer accounts and the employee's work location. Keep the EIN confirmation, state account numbers, and registration receipts. This prevents rejected filings, wrong withholding, and an illegal pay schedule.
2. Match compensation and the tax profile to the signed offer. Keep an approved payroll record so an entry error does not become an underpayment or an unauthorized promise.
3. Collect Form W-4 and the applicable state withholding forms. Keep dated copies under restricted access so payroll never has to invent an employee's elections.
4. Turn on timekeeping for nonexempt work and submit a test timecard through its approval path. This exposes missing hours, time-zone errors, and unsupported overtime records before wages are due.
5. Test the tax debit, net-pay funding, and payroll preview. Keep the confirmations so the team can trace a first paycheck that does not arrive as expected.

The employee completes Form W-4 so you can calculate federal income-tax withholding. Do not fill in her elections or give personal tax advice. Federal payroll generally includes withheld income tax, employee and employer Social Security and Medicare taxes, and federal unemployment tax paid by the employer. State systems may add income-tax withholding, unemployment, disability, paid-leave contributions, or local tax.

The IRS says most employers report federal wages and payroll taxes quarterly on Form 941 and federal unemployment tax annually on Form 940, then issue Form W-2 and file it with the Social Security Administration after year end. Tax deposits and tax returns are separate duties. Depositing money does not file the return, and filing the return does not move the money. New Form 941 employers generally begin as monthly depositors, but the deposit schedule can change with tax liability, and the next-day rule applies after a large accumulation. Let the current IRS Publication 15 and your payroll calendar control rather than a deadline copied into an old spreadsheet.

Review the first payroll preview line by line. Check legal name, address, work state, rate, salary or hours, deductions, reimbursements, taxes, pay-period dates, and bank funding. Then reconcile the payroll register, cash withdrawal, and general ledger after pay day. A provider can calculate payroll; it cannot notice that you entered an annual salary as a per-period amount unless someone reviews the preview.

Finish the paperwork without turning it into surveillance

Collect only the information required to employ and pay the person, restrict access to it, and follow the deadline attached to each document. A founder's shared drive is not an acceptable personnel system once it contains identity documents, bank details, medical information, or investigation records.

For Form I-9, the employee completes Section 1 no later than her first day of employment, after accepting the offer. The employer reviews acceptable original documents and completes Section 2 within three business days of the first day. The employee chooses which permitted documents to present. Do not demand a passport, ask a noncitizen for extra documents, or run the process differently because of an accent. USCIS makes this choice explicit in the Form I-9 instructions. Follow the separate rules for remote document examination if you qualify to use an authorized alternative procedure; ordinary video inspection alone is not a universal substitute.

Keep I-9 records separate from the general personnel file so an inspection does not expose unrelated employment records. Create separate access-controlled locations for payroll and tax forms, benefits records, performance documents, and medical or accommodation information. Set retention rules from current federal and state requirements rather than keeping every file forever.

Report the new hire to the employee's state within that state's deadline. California employers, for example, report new or rehired employees to the Employment Development Department's New Employee Registry within 20 calendar days of the start-of-work date. California also requires an employer payroll tax account when its registration threshold is met. Other states use different portals and timing.

Buy required coverage before work starts. Workers' compensation rules are state specific; California requires coverage even for one employee, including an employee who works there for an out-of-state company in some circumstances. Ask a broker whether employment practices liability, cyber, professional liability, directors and officers, or added general-liability coverage fits your risks. Those policies do different jobs. Workers' compensation does not replace health insurance or cover every employment claim.

Deliver every required notice and poster based on work location, industry, employer size, and benefits. The Department of Labor's FirstStep Poster Advisor identifies federal posters, but it warns that state agencies may require more. Remote employees may need electronic notices or another method allowed by the governing rule. Keep a dated acknowledgment where one is appropriate; a folder named "handbook" proves little if no one received the current version.

Build onboarding around access, judgment, and belonging

Good onboarding lets the employee do useful work safely in the first week and make sound decisions without constant founder translation. It begins before day one with a schedule, equipment, accounts, security controls, payroll confirmation, and a named person for practical questions.

Give the employee a written map of the company: what you sell, who buys it, how money arrives, current priorities, major risks, and who owns each decision. Include the messy facts. If a launch is late or a customer relationship is delicate, say so and explain what the employee may communicate. Secrecy forces a new hire to infer context from fragments, which produces confident mistakes.

Access should follow the role. Create individual accounts, require multi-factor authentication where available, use a password manager, and grant the smallest useful permission set. Never share a founder login to save twenty minutes. Keep an access register that names the system, account owner, approval date, privilege level, and offboarding action. Test the employee's device, email, calendar, payroll login, and necessary applications before the welcome call.

Plan the first five days in blocks, leaving time to read and work alone. Include customer context, a product walkthrough, operating rhythms, security and confidentiality, payroll and benefits questions, and one small real assignment. Do not schedule eight hours of founder monologue. Ask the employee to play back her understanding of the goal, constraints, and next decision. That catches ambiguity without turning the exchange into a quiz.

Belonging at a one-employee company is practical. The employee needs to know when she is included in founder discussions, how disagreement works, whether private appointments require explanation, and what happens when priorities change. A glossy values page cannot answer those questions. Your repeated behavior will.

Manage the first 90 days with explicit evidence

The first 90 days should move from context to independent ownership, with weekly evidence of progress and a few scheduled decisions about scope. Waiting until day 89 to decide whether the hire is working is a management failure, even if the employment agreement allows a quick termination.

Use a plan built around outputs the employee controls. Revenue, fundraising, and product adoption can lag or depend on other people. Early outcomes can still test whether the employee understands the customer, produces accurate work, surfaces risks, and closes agreed loops.

1. During days 1-30, the employee learns the operating context, ships one bounded piece of work, and documents open questions. The manager supplies access, examples, weekly priorities, and feedback within two business days. At day 30, they confirm the role assumptions and remove missing access or context.
2. During days 31-60, the employee owns a recurring process or decision, improves one weak handoff, and reports results in the team's normal rhythm. The manager transfers real authority, introduces affected people, and corrects standards with examples. At day 60, they keep, narrow, or expand ownership based on observed work.
3. During days 61-90, the employee delivers a meaningful role outcome, forecasts the next cycle, and identifies a risk without prompting. The manager reviews performance against the written role and discusses development, pay promises, and workload. At day 90, they confirm the continuing mandate and write the next quarter's outcomes.

Hold a weekly one-to-one even when you talk all day. Use it for work that does not fit chat: decisions the employee needs, feedback in both directions, workload, relationships, and professional goals. Keep a shared list of topics. Status can live in the operating system; the meeting should reduce uncertainty and improve judgment.

Give feedback against an observed act and an agreed standard. "Be more strategic" is unusable. "The launch plan listed tasks but not the two decisions that can delay release; bring those decisions, owners, and dates to Monday's review" tells the employee what must change. Positive feedback needs the same precision so good work can be repeated.

Document changed priorities. A founder who asks for customer calls on Monday, investor analysis on Tuesday, and a launch repair on Wednesday cannot fairly evaluate the original weekly goal on Friday. Write which task displaced it and why. This is not bureaucracy. It is the only honest record of performance in a company where the plan moves.

Address a gap when it appears. Ask first whether the employee lacked skill, context, capacity, authority, or a clear standard. Agree on the expected change, support, evidence, and review date. Serious misconduct needs a different process, and termination rules, final-pay timing, accrued-leave treatment, and notice duties vary by state. Call employment counsel before a high-risk decision, not after sending the message.

Budget for the employer cost, not the salary

The cash cost of a first employee includes more than base pay, and the timing matters as much as the annual total. Build a monthly model for employer payroll taxes, workers' compensation, benefits, payroll and HR services, recruiting, equipment, software, travel, leave, bonuses or commissions, and legal setup. Add the equity dilution you are willing to approve even though it does not leave the bank account today.

Avoid a universal multiplier such as "salary plus 30 percent." Health benefits, workers' compensation rates, state programs, commission plans, and equipment needs vary too much. Price the actual package in the employee's location. Ask vendors for the first-year total, implementation charges, renewal assumptions, and the date each debit occurs.

Model a slow month and a failed hire. Can the company make payroll if a customer pays late? Can it cover notice, final wages, accrued obligations, recruiting again, and a temporary loss of output? Payroll money should not depend on a financing wire arriving the same morning. Directors and founders can choose to wait; employees must be paid on the lawful schedule.

Benefits promises deserve the same control as wages. Confirm eligibility dates, waiting periods, employee contributions, dependent costs, plan documents, and enrollment deadlines before describing the package. "We cover health insurance" is incomplete if you have not decided which plan, whose premium, and when coverage begins. If you offer a stipend instead, verify the tax and benefits consequences rather than inventing an informal reimbursement.

Fix the highest-cost mistakes before day one

The costliest errors are the ones that repeat every pay period or distort the working relationship every week. Correct classification, wage setup, insurance, account registration, and written terms before the employee starts. Correct unclear authority and missing feedback as soon as you see them. Time makes both categories harder to unwind.

Run a final readiness review three business days before the start date. The signed offer must match payroll. Required insurance must be active. The employee's work state must match registrations and withholding. The manager must have a week-one calendar and a 30-day outcome. Equipment and individual accounts must work. Someone must own I-9 completion, new-hire reporting, notices, benefits enrollment, and the first payroll review.

If one of those controls is missing, do not conceal it with enthusiasm. Move the start date when necessary. A slightly awkward call before employment is better than a missed paycheck or an uninsured workday.

Sisters gives women building companies a place to ask founders and operators how they handled practical hiring decisions, and its knowledge base and workshops cover the mechanics of building a business in the US. Peer advice can expose the question you missed; your lawyer, accountant, broker, and payroll specialist still need to answer for the part they own.

The first employee watches what the company does when convenience conflicts with a promise. Pay on time, write down changed decisions, and correct your own errors without making her chase you. That is already a management system, and it is far more convincing than a culture deck.