Hiring Your First Employee: Payroll Taxes and Registrations

Hiring the first helper is a big step for a contracting business, and it changes your paperwork more than anything else. This guide lists the federal steps in order, using IRS, USCIS and HHS pages checked October 30, 2026, and shows how a state adds its own steps, using California as the labeled example. Many owners use a payroll service or a bookkeeper; either way, it helps to know what has to happen.

What do you need before the first day?

• An EIN. The IRS says you generally need an EIN to hire employees. It’s free; see our EIN guide.
• Workers’ comp, if your state requires it. California: employers must carry it even with one employee. See our workers’ comp guide.
• State employer registration. California: the Employment Development Department (EDD) says you must register as an employer within 15 days once you pay more than $100 in wages in a calendar quarter.

How does Form I-9 work?

The IRS and USCIS both say every U.S. employer must properly complete Form I-9 for every person hired for employment in the United States, citizens and noncitizens alike. The employee fills out their section and shows identity and work-authorization documents; you (or an authorized representative) examine them and complete the employer section. USCIS says not to file Form I-9 with the government; you keep it on file for three years after the date of hire or one year after employment ends, whichever is later.

USCIS lists the current edition date as 01/20/25. As of October 30, 2026, USCIS also allows a previous 08/01/23 edition with an expiration date of 05/31/2027. Check the edition at the bottom of the form before you use a stored copy.

What about Form W-4 and the employee’s SSN?

The IRS says you should have a signed Form W-4 on file for each employee to know how much federal income tax to withhold, effective with the first paycheck. If a new employee doesn’t give you one, you withhold as if they were single. You must also get each employee’s name and Social Security number for Form W-2, and the IRS says not to accept an ITIN in place of an SSN for employment.

When do you report a new hire?

The U.S. Department of Health and Human Services says federal law requires employers to report basic information on new and rehired employees within 20 days of hire to the state where the employee works, and that states may set shorter deadlines. The information goes into the National Directory of New Hires, which child support agencies use to locate parents who owe support.

California: EDD says you must report all new or rehired employees who work in California to its New Employee Registry within 20 calendar days of their start-of-work date, even if they stop working before the deadline.

Which payroll taxes apply in 2026?

From IRS Publication 15 (2026):

• Social Security: 6.2% from the employee and 6.2% from you, on wages up to $184,500 for 2026.
• Medicare: 1.45% from the employee and 1.45% from you, with no wage limit.
• Federal income tax withholding: based on the employee’s Form W-4.
• Federal unemployment (FUTA): paid by you only, on the first $7,000 of each employee’s wages. The credit for state unemployment taxes may be as much as 5.4%, and if you get the full credit, the IRS says the FUTA rate after credit is 0.6%.

States add their own. California: EDD administers Unemployment Insurance (UI), State Disability Insurance (SDI) withholding, the Employment Training Tax and California personal income tax withholding.

How and when do you pay payroll taxes?

The IRS says federal tax deposits must be made by electronic funds transfer, for example through the Electronic Federal Tax Payment System (EFTPS). There are two deposit schedules, monthly and semiweekly, and you determine which one applies before each calendar year based on IRS rules in Publication 15. Publication 15 says a new Form 941 filer is a monthly schedule depositor for the first calendar year of the business, with an exception: a $100,000 next-day deposit rule applies to large liabilities.

Which forms do you file, and when?

• Form 941, quarterly: the IRS says employers who withhold federal income tax, Social Security or Medicare taxes generally file it each quarter.
• Form 940, yearly: reports FUTA tax.
• Form W-2: the IRS says Forms W-2 must be furnished to employees and filed with the Social Security Administration by January 31.
• State returns: California: EDD payroll tax returns and wage reports on its schedule.

What else do employers have to do?

The U.S. Department of Labor says some federal laws require notices to be posted in the workplace or provided to employees; its poster advisor helps you find which ones apply. Your state has its own required notices, and California has a workers’ comp time-of-hire notice. Federal wage and hour rules (minimum wage, overtime and recordkeeping under the Fair Labor Standards Act) also apply to most employers, and many states set higher minimums. OSHA safety rules apply on jobsites.

What if you also pay subcontractors?

Payments to real independent contractors aren’t payroll, but they still have paperwork: ask for Form W-9 before you pay, and file Form 1099-NEC when required. Publication 15 notes the reporting threshold rises from $600 to $2,000 for payments made in 2026 under P.L. 119-21. See employee vs. independent contractor.

Should you use a payroll service?

Many small contractors do, because it handles withholding, deposits and filings on schedule. You stay responsible for the taxes even when a service files them, so review the reports each quarter. For free help, the SBA’s hiring guide links each step, and our sister site True Trade Guide covers field-service software if you need scheduling and time tracking.