How to Legally Hire Employees for Your New Business
Introduction
Employment law is the area of law that governs the relationship between employers and employees.
If you’re starting a business in 2025, hiring employees is an exciting milestone—but it also comes with legal obligations. Skipping a step in the hiring process could lead to fines, lawsuits, or government investigations.
This guide breaks down the required steps to hire employees legally in the United States, including federal, state, and practical compliance tips for small business owners.
1. Do You Need an Employer Identification Number (EIN)?
Yes—most businesses must have an EIN before hiring. An Employer Identification Number is a federal tax ID issued by the IRS for tracking your business’s payroll and tax obligations.
- Apply online for free through the IRS EIN Application (as of August 2025).
- Even sole proprietors who plan to hire must get one.
📌 Tip: Keep your EIN confirmation letter in your permanent business records—you’ll need it for payroll, tax filings, and bank accounts.
2. How Do You Verify Work Eligibility?
You must complete Form I-9 for each employee to confirm they are legally allowed to work in the U.S.
- Use the U.S. Citizenship and Immigration Services (USCIS) I-9 form to document verification.
- Employees must present acceptable identification (e.g., passport or driver’s license + Social Security card).
⚠️ Legal Warning: Do not discriminate based on national origin or citizenship status. Follow anti-discrimination rules under federal law.
3. Register for State Payroll Taxes
Every state has its own payroll tax registration requirements.
- Most states require you to register for state income tax withholding and unemployment insurance tax.
- Check your state’s Department of Revenue and Department of Labor websites for specific instructions.
💼 Example: In California, you must register with the Employment Development Department within 15 days of paying more than $100 in wages in a quarter.
4. Report New Hires to the State
All employers must report new hires to their state’s designated agency within a set timeframe—usually 20 days.
- This helps enforce child support orders and prevent unemployment insurance fraud.
- Find your state’s new hire reporting program through the U.S. Office of Child Support Enforcement.
📌 Tip: Many payroll software platforms handle new hire reporting automatically.
5. Comply With Wage and Hour Laws
Federal and state laws set rules for minimum wage, overtime, and work hours.
- The Fair Labor Standards Act (FLSA) sets federal minimum wage and overtime requirements.
- Some states and cities have higher minimum wages—always follow the rate most favorable to the employee.
⚠️ Legal Warning: Misclassifying employees as independent contractors can lead to back pay liability and penalties.
See LLC Operating Agreements: Do You Really Need One? for guidance on defining roles and responsibilities.
6. Display Required Workplace Posters
Employers must display certain labor law posters where employees can see them.
- These include federal posters (e.g., Minimum Wage, OSHA, FMLA) and state-specific ones.
- Download free copies from the U.S. Department of Labor website.
🧠 Clarification: You cannot meet the requirement by simply giving employees a copy—posters must be displayed in the workplace.
7. Set Up Workers’ Compensation Insurance
Most states require workers’ comp coverage, even for one employee.
- This insurance covers medical costs and lost wages for work-related injuries.
- Requirements vary by state, so check your state’s Department of Insurance.
See Do All Businesses Need Insurance? Legal Requirements Explained for more coverage details.
8. Keep Accurate Employee Records
Federal law requires employers to maintain specific records for each employee.
You must keep:
- Job application and hiring documents.
- Form I-9 for at least three years or one year after termination (whichever is later).
- Payroll records for at least three years.
📌 Tip: Store documents securely to protect employee privacy.
FAQ
Q1: Do I need an EIN if I’m the only owner but want to hire one employee?
Yes. Any business hiring employees must have an EIN for tax reporting.
Q2: Can I hire someone without verifying their work eligibility?
No. Federal law requires you to complete Form I-9 for every employee.
Q3: How soon must I report a new hire?
Usually within 20 days, but some states require faster reporting.
Q4: Do federal laws override state hiring laws?
Not always—follow whichever rule is more protective of the employee.
📌 Conclusion
Key Takeaways:
- Get an EIN before you hire employees.
- Verify work eligibility using Form I-9.
- Register for state payroll taxes and report new hires promptly.
- Follow wage, hour, and posting requirements.
- Keep proper employee records to stay compliant.
If you need legal guidance on How to Legally Hire Employees for Your New Business, book a consultation with The Law Spot today: Schedule Here.
Last Updated: August 27, 2025