How to Hire Your First Employee as a Contractor

Short answer first: hiring your first employee comes down to four things done in the right order. Register as an employer with the IRS and your state, get workers' comp in place before their first day, run real payroll from paycheck one, and file three pieces of new-hire paperwork on time: the I-9, the W-4, and your state's new-hire report. None of it is hard. All of it has deadlines. And the actual hiring part, finding someone who shows up sober and on time, is harder than the paperwork.

This is written for the contractor who's been running solo or with subs and is about to put someone on the books for the first time. If you're still deciding between an employee and a 1099 sub, read 1099 vs W-2 for contractors first, because misclassifying that choice is the most expensive mistake in this whole topic.

First, Know What an Employee Actually Costs

The wage is not the cost. Plan on the true cost running meaningfully above the hourly rate once everything is loaded in. A common rule of thumb puts an employee's real cost at somewhere around 1.25 to 1.4 times their base pay, and for construction it can run higher because of workers' comp. Treat that as a planning range, not gospel, and build your own number:

• Payroll taxes. You pay 7.65 percent on top of wages for Social Security and Medicare, the employer half of FICA. That's 6.2 percent Social Security (on wages up to $184,500 in 2026) plus 1.45 percent Medicare.
• Federal unemployment (FUTA). Nominally 6 percent on the first $7,000 of wages, but most employers who pay their state unemployment tax on time pay an effective 0.6 percent. That's a maximum of $42 a year per employee.
• State unemployment (SUTA). Varies by state, and new employers usually get an assigned starter rate for the first few years.
• Workers' comp. For field labor in the trades, this is usually the biggest add-on, priced per $100 of payroll and heavily dependent on your class code and state. We broke down the real cost of workers' comp separately.
• Everything else. Another truck seat or a truck, tools, small-tool losses, training hours, and the jobs you slow down to teach.

Do the math on a full year, not a week. If a $25-an-hour employee really costs you $33 loaded, you need the revenue to support roughly $66,000 a year before this hire makes sense. If your gross can't carry that through your slow season, hire later or start part time.

Step 1: Get Registered as an Employer

You likely have an EIN already if you run an LLC. If not, get one free from the IRS online in about ten minutes. Never pay a third-party site for an EIN.

Then register with your state, which usually means two separate accounts: state income tax withholding (if your state has income tax) and state unemployment insurance. Most states handle both through the state revenue and workforce agency websites. Do this before the first payday, because your payroll can't be run correctly without the account numbers.

Step 2: Workers' Comp Before Their First Day

Nearly every state requires workers' comp once you have an employee, and construction is the industry where states are strictest, with coverage often required from the very first hire. Texas is the lone state where it's technically optional for private employers, and even there, going bare means an injured worker can sue you with most of your defenses stripped away.

The practical rule: have the policy bound before your new hire's first day on a job site. One fall off a ladder on day two, uninsured, can end your business. Talk to your insurance agent when you're a few weeks out from hiring, and while you're at it, tell them about the hire anyway, because your general liability policy needs to know your payroll changed. Our contractor insurance guide covers how the pieces fit together.

Step 3: The Three Forms With Deadlines

Form I-9. This verifies your employee is legally allowed to work in the US. They complete their section no later than their first day; you review their documents and complete your section within 3 business days of their first day of work for pay. You don't mail it anywhere. You keep it on file, and fines for missing or sloppy I-9s are real.

Form W-4. Your employee fills this out so you withhold the right federal income tax. If your state has income tax, there's usually a state version too. Keep both on file and enter them into payroll.

State new-hire report. Federal law says every new hire gets reported to your state's new-hire directory within 20 days of their start date, and some states require it faster. It's a quick online form, and if you use payroll software, it's typically filed for you automatically.

Step 4: Set Up Real Payroll From Paycheck One

Do not pay your first employee with handwritten checks and a plan to sort out taxes later. Withholding, deposits, quarterly 941s, W-2s in January, new-hire reporting, this is exactly the kind of repetitive deadline work software should do.

Modern payroll services run roughly $40 to $60 a month plus a small per-employee fee, calculate and file everything automatically, and are the single best subscription a first-time employer can buy. If you have a bookkeeper or CPA, ask what they recommend and make sure it talks to your books. If your books are still a shoebox, fix that first with our bookkeeping guide for contractors.

Two rules that trip up new employers: hourly field employees are almost always non-exempt, which means time-and-a-half for hours over 40 in a week under federal law, and some states are stricter by the day. And track hours in writing from day one, even if it's just an app on their phone.

One more cheap task: hang the required federal and state labor law posters where your employee can see them, in the shop or wherever they report. They're free downloads from the Department of Labor and your state. Ignore the companies that mail you official-looking invoices for "mandatory poster compliance." That's a $50 solution to a free problem.

Step 5: Actually Finding Someone Good

The paperwork is a checklist. Finding a person worth all this effort is the real project.

Write the job ad like a sales pitch, not a list of demands. Lead with the pay range, the schedule, and what's in it for them, because good hands have options. Be specific about the work: "install windows and doors on residential remodels, Monday through Friday, home by 5" beats "seeking motivated individual."

Where to post: your own crew's and subs' word of mouth first, because referrals from people who'd have to work alongside the hire are pre-screened. Then the big boards. If you want the posting, screening, and distribution handled in one place, WizeHire is a hiring platform that writes trade-specific job ads and pushes them to 100+ job boards; plans start at $249 a month billed monthly, so it makes the most sense when you're hiring for a role you can't afford to leave empty.

When you interview, hire for reliability over résumé. Skills can be taught to someone who shows up. Call the references and ask one question that actually gets answered: "Would you hire them back?" The pause tells you everything.

Then set 90-day expectations in writing on day one: what showing up on time means, what a good day's work looks like, and when you'll sit down to review. Most first-hire disasters are expectation failures, not character failures.

The First-Hire Checklist

• Run the loaded-cost math for a full year, slow season included
• Get your EIN (free, IRS.gov) and state withholding + unemployment accounts
• Bind workers' comp before day one; update your GL policy
• Choose payroll software and enter the state account numbers
• Day one: employee completes I-9 Section 1 and W-4
• Within 3 business days: complete your I-9 section
• Within 20 days (or sooner, by state): file the new-hire report
• Hang the free federal and state labor posters
• Put 90-day expectations in writing

None of this requires a lawyer or an HR department. It requires an afternoon of setup, a payroll subscription, and the discipline to do the boring steps in order. Get the foundation right on employee number one and every hire after gets easier, because the system is already built.