First employee checklist for an LLC: what to set up before the first paycheck
Hiring your first employee is different from paying a contractor. Once someone is an employee, the LLC has payroll, tax, wage, recordkeeping, and often state insurance duties.
The short version
Before the first paycheck, an LLC should have an EIN, a payroll setup, employee tax forms, employment eligibility records, wage and hour records, and a clear answer on state requirements such as workers' compensation and unemployment insurance. The details vary by state, but the federal starting point is not optional.
The IRS says a business with employees must correctly classify the worker and, if the worker is an employee, handle withholding, depositing, reporting, and paying employment taxes. USCIS says all U.S. employers must complete Form I-9 for every person they hire for employment in the United States. The Department of Labor says the Fair Labor Standards Act sets federal minimum wage, overtime, recordkeeping, and youth employment standards for covered employees.
First employee checklist
| Step | Why it matters |
|---|---|
| Confirm the worker is really an employee | Do not use contractor treatment if the facts show employee control, ongoing supervision, and company-directed work. |
| Have an EIN | The IRS says a business with employees must have an employer identification number. |
| Collect Form W-4 | This tells the LLC how to withhold federal income tax from wages. |
| Complete Form I-9 | This verifies identity and employment authorization for employment in the United States. |
| Register for state payroll accounts | Most employers also deal with state withholding, unemployment, new-hire reporting, and local rules. |
| Set up payroll tax deposits and returns | Employment taxes include federal income tax withholding, Social Security and Medicare taxes, and federal unemployment tax. |
| Check workers' comp and required insurance | Workers' compensation rules are state-specific, and many states require coverage once you have employees. |
| Keep wage and employment records | FLSA-covered employers must keep employee time and pay records, and tax records need to be kept clean. |
1. Make sure you are not mislabeling the hire
The first employee checklist starts before payroll software. It starts with classification. If the person will follow your schedule, use your process, work under your supervision, and perform ongoing work inside the business, employee treatment may be the cleaner answer. If they are an independent business hired for a defined result, contractor treatment may fit. The label in the agreement is not the whole test.
This matters because employee status triggers a different operating system: withholding, payroll deposits, W-2 reporting, wage rules, and state employment accounts. If you are using contractor status only because payroll feels annoying, slow down and get advice.
2. Get the EIN in place
The IRS says that if a person is classified as an employee, the business must have an EIN. Many LLCs already get one for banking, but a first hire makes the EIN part of the payroll foundation. Do not wait until payday to discover that your payroll provider, state agency, or tax deposit setup needs it.
A single-member LLC that previously used the owner's Social Security number for some tax reporting may still need an EIN once employees enter the picture. A multi-member LLC usually has one already because it is normally treated as a partnership for federal tax purposes unless it elected different treatment.
3. Collect the employee's Form W-4
The IRS says employers should have a signed Form W-4 on file for each employee when they start work. The form tells the employer how much federal income tax to withhold based on the employee's filing status and withholding adjustments.
If a new employee does not give you a completed Form W-4, the IRS says to withhold as if the employee is single. That is not a great way to start a clean payroll relationship, so make W-4 completion part of onboarding before the first wage payment.
4. Complete Form I-9 and keep it on file
USCIS says all U.S. employers must properly complete Form I-9 for every person they hire for employment in the United States, including citizens and noncitizens. The employee attests to employment authorization, presents acceptable documents, and the employer examines and records document information.
Do not file Form I-9 with USCIS in the normal process. USCIS says employers keep the completed form on file and make it available for inspection if requested by authorized government officials. USCIS also states that employers must retain Form I-9 for three years after the date of hire, or one year after employment ends, whichever is later.
5. Register for state employment accounts
Federal setup is only half the job. The SBA reminds small businesses to consider state and local tax IDs, pay periods, payroll administration, required records, workers' compensation, state employment taxes, and unemployment insurance. Your state may also have new-hire reporting, disability insurance, paid leave, local taxes, industry notices, or labor-law posters.
This is where many first-time LLC employers get tripped up. The IRS page tells you what federal forms are needed. Your state labor and tax agencies tell you what state accounts and insurance rules apply. A payroll provider can help with mechanics, but you still need to give it the right state setup details.
6. Set up payroll tax deposits and returns
Once payroll starts, the LLC is not simply writing a check to the worker. The IRS says employer tax responsibilities include withholding, depositing, reporting, and paying employment taxes. Those taxes include federal income tax withholding, Social Security and Medicare taxes, and federal unemployment tax.
For many small LLCs, payroll software or a payroll service is worth it because missed deposits and late filings are painful. If your LLC has multi-state employees, tipped workers, family employees, nonresident alien employees, or unusual pay arrangements, get professional help before the first payroll run.
7. Check wage, overtime, and recordkeeping rules
The Department of Labor says the FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards. Covered nonexempt workers are entitled to at least the federal minimum wage, and overtime at not less than one and one-half times the regular rate after 40 hours in a workweek. Many states set higher minimum wages or stricter overtime rules.
Do not assume a salary automatically avoids overtime. Exemption rules are specific. The safer first-hire habit is simple: define the role, track time when required, keep pay records, and ask a qualified payroll or employment professional before relying on an exemption.
8. Check workers' compensation and other required insurance
The SBA lists workers' compensation, unemployment, and disability insurance as insurance areas that may be required by law, and says laws vary by state. The Department of Labor also maintains a directory of state workers' compensation officials, which is a useful starting point for finding the right state agency.
Even if your LLC is tiny, do not guess here. Some states require workers' comp after the first employee. Others have thresholds or industry-specific rules. The answer can also change if the employee works in a different state from the LLC's formation state.
What to have ready before day one
- EIN and legal LLC name exactly as shown in IRS records.
- Payroll schedule, pay rate, overtime classification, and work location.
- Signed Form W-4 and completed Form I-9 process.
- State payroll withholding, unemployment, and new-hire reporting setup.
- Workers' compensation decision documented from the state rule or a licensed advisor.
- Employee handbook or written basics for paydays, time tracking, expenses, confidentiality, equipment, and termination.
Bottom line
Your first employee turns an LLC from a simple owner-operated business into an employer. That is manageable, but it is not informal. Get the EIN, classify the worker correctly, complete W-4 and I-9 onboarding, register with the state, handle payroll taxes, and keep records from day one. If the worker is remote, multi-state, tipped, family, foreign, or highly paid under an exemption theory, get qualified help before payroll starts.