1. Understanding Federal and State Labor Laws
Before you hire your first employee in the United States, it’s essential to get familiar with the key labor laws that will shape your hiring process. These laws set the ground rules for how you pay, treat, and manage employees, both at the federal level and within your specific state. Here’s a simple overview of what you need to know:
Key Federal Labor Law: The Fair Labor Standards Act (FLSA)
The FLSA is a major federal law that covers:
- Minimum Wage: Sets the lowest hourly rate you can pay most employees.
- Overtime Pay: Requires time-and-a-half pay for hours worked over 40 in a workweek (for non-exempt employees).
- Child Labor: Restricts working conditions for minors.
- Recordkeeping: Requires employers to keep detailed records on wages and hours worked.
Federal FLSA Requirements at a Glance
| Requirement | Description |
|---|---|
| Minimum Wage | $7.25 per hour (as of 2024; some states require more) |
| Overtime Pay | 1.5x regular rate for hours over 40 per week (non-exempt employees) |
| Child Labor | Limits hours and types of work for those under 18 |
| Recordkeeping | Maintain wage, hour, and employment records for at least 3 years |
State-Specific Labor Laws
Each state can have its own rules that go beyond federal requirements—especially regarding minimum wage, meal breaks, paid sick leave, and more. Always check your state’s Department of Labor website or consult a local HR expert to stay compliant.
Examples of State Differences
| State | Minimum Wage (2024) | Sick Leave Required? |
|---|---|---|
| California | $16.00/hr | Yes (Paid Sick Leave Law) |
| Texas | $7.25/hr (follows federal) | No statewide requirement |
| New York | $15.00/hr (varies by location) | Yes (Paid Sick Leave Law) |
The At-Will Employment Doctrine
The U.S. is known for “at-will” employment. This means either you or your employee can end the work relationship at any time, with or without cause—unless there’s an employment contract or illegal reason (like discrimination). However, some states have exceptions, so it’s smart to learn about your local rules.
2. Registering Your Business and Obtaining an Employer Identification Number (EIN)
Why Registration Matters
Before you can legally hire your first employee in America, your business must be properly registered with the right government agencies. This ensures that you are recognized as a legitimate employer and allows you to comply with tax, employment, and regulatory requirements at the federal, state, and local levels.
Steps to Register Your Company
Federal Registration
The main step at the federal level is applying for an Employer Identification Number (EIN) through the IRS. This number works like a Social Security Number for your business and is necessary for payroll taxes, hiring employees, and opening a business bank account.
How to Apply for an EIN
| Step | Description |
|---|---|
| 1. Gather Information | Prepare your legal business name, structure (LLC, Corporation, etc.), address, and responsible partys Social Security Number or ITIN. |
| 2. Online Application | Go to the IRS EIN application page. The online process is quick and free. |
| 3. Receive Your EIN | You’ll get your EIN immediately after completing the application. Save this number—its crucial for all employment and tax forms. |
State Registration
Each state has its own requirements for business registration. Typically, you’ll need to register with your state’s Secretary of State office or similar agency. You may also need to register for state taxes, unemployment insurance, and workers’ compensation.
| Common State Registrations | Where to Register |
|---|---|
| Business Entity Registration (LLC/Corp/etc.) | Secretary of State website or office |
| State Employer Accounts (Payroll Taxes) | State Department of Revenue or Taxation Department |
| Unemployment Insurance & Workers Comp | State Labor or Workforce Agency |
Local Registration
Your city or county may require additional business licenses or permits before you can operate legally. Check with your local city hall or county clerk’s office for specific requirements in your area.
Pro Tips for Smooth Registration
- Name Consistency: Use the exact same business name on all federal, state, and local forms to avoid delays.
- Keep Records: File copies of all registrations and confirmations in one place—theyll come in handy during audits or when expanding your team.
- Check Renewal Dates: Some registrations and licenses need annual renewal; mark these dates on your calendar.
3. Classifying Employees Correctly
Getting employee classification right is a big deal for new business owners in America. Misclassifying someone can lead to legal trouble and costly fines. Here’s what you need to know when hiring your first team member.
Understanding Employees vs. Independent Contractors
Not everyone who works for you is legally considered an “employee.” Some people may actually be independent contractors. The difference matters because employees are entitled to certain rights and benefits under U.S. law, while contractors are not. The IRS and Department of Labor look at several factors:
| Factor | Employee | Independent Contractor |
|---|---|---|
| Behavioral Control | You direct how and when work is done | They decide how, when, and where to work |
| Financial Control | You provide tools, pay regular wages, and reimburse expenses | They invest in their own equipment and get paid per project or invoice |
| Relationship Type | Ongoing relationship, benefits, and written contracts as employees | No benefits; project-based or short-term contracts |
If you’re unsure how to classify someone, check the IRS guidelines or consult with a labor attorney before making your first hire.
Exempt vs. Non-Exempt Employees
The Fair Labor Standards Act (FLSA) sets rules about overtime pay. To stay compliant, you need to know if your employee is “exempt” or “non-exempt.” Here’s the difference:
| Status | Description | Overtime Eligible? |
|---|---|---|
| Exempt | Salaried employees in certain roles (like executive, administrative, professional) | No — they don’t receive overtime pay regardless of hours worked |
| Non-Exempt | Hourly workers or salaried employees who don’t meet exemption criteria | Yes — must be paid overtime (1.5x their hourly rate) for hours over 40/week |
Most first hires for small businesses are non-exempt, but double-check the job duties and salary levels to be sure.
4. Setting Up Payroll, Taxes, and Benefits
How to Handle Payroll Setup
Once you’ve made your first hire in the U.S., setting up payroll is a crucial step. Payroll means making sure your employee gets paid correctly and on time, while also following all legal requirements. Most small businesses use payroll software or services like Gusto, ADP, or Paychex to simplify the process. If you plan to do payroll manually, you’ll need to keep track of hours worked, wages, deductions, and payment schedules.
Tax Withholdings
Employers are required by law to withhold certain taxes from employees’ paychecks. Here’s what you’ll need to know:
| Tax Type | Who Pays? | Description |
|---|---|---|
| Federal Income Tax | Employee | Withheld based on IRS Form W-4 completed by the employee |
| Social Security & Medicare (FICA) | Both | Employers and employees split these taxes; rates are set by the IRS |
| State Income Tax | Employee | Not all states have this; check your state’s laws |
| Local Taxes | Employee | Certain cities/counties require additional withholding (e.g., New York City) |
You’ll need to register with both the IRS (for an EIN—Employer Identification Number) and your state’s tax agency.
Unemployment Insurance Requirements
You must pay federal and state unemployment insurance taxes (FUTA and SUTA). These provide temporary income for workers who lose their jobs through no fault of their own. Each state sets its own rates and rules, so check with your state’s department of labor for specifics.
Quick Steps for Unemployment Insurance:
- Register with your state’s unemployment insurance program after hiring your first employee.
- Report new hires as required by law.
- Add unemployment tax payments into your regular payroll process.
Mandatory Employee Benefits
Certain benefits are required by law for all employers:
| Benefit Type | Description |
|---|---|
| Workers’ Compensation Insurance | Covers medical costs if an employee is injured at work; required in most states even for just one employee. |
| Disability Insurance | Some states require short-term disability coverage (e.g., California, New York). |
| Family and Medical Leave | The Family and Medical Leave Act (FMLA) applies if you have 50+ employees, but some states have similar laws for smaller businesses. |
| Health Insurance | If you have 50 or more full-time employees, you must offer health insurance under the Affordable Care Act. Smaller businesses can still choose to offer coverage as a benefit. |
If youre unsure which benefits are required in your state, consult your state’s labor department website or speak with a local HR professional. Getting these details right helps keep your business compliant and gives your new hire peace of mind.
5. Required Documentation and Workplace Compliance
Mandatory New Hire Forms
When you hire your first employee in the U.S., there are specific documents you must collect and keep on file. Here’s a checklist of the most important forms:
| Form Name | Purpose | Who Completes It? |
|---|---|---|
| I-9 Employment Eligibility Verification | Confirms employees identity and legal right to work in the U.S. | Employee and Employer |
| W-4 Employee’s Withholding Certificate | Determines federal income tax withholding from paychecks | Employee |
| State Tax Withholding Form (if applicable) | Sets state income tax withholding, varies by state | Employee |
| Direct Deposit Authorization (optional) | Allows payroll to be deposited directly into employee’s bank account | Employee |
| Emergency Contact Form | Lists who to contact in case of emergency | Employee |
Required Workplace Posters
The law requires employers to display certain federal and state labor law posters where employees can easily see them. Common examples include:
- Fair Labor Standards Act (FLSA) Poster: Covers minimum wage and overtime rules.
- Occupational Safety and Health Administration (OSHA) Poster: Informs workers of their rights to a safe workplace.
- Equal Employment Opportunity (EEO) Poster: Explains anti-discrimination protections.
- Your State’s Required Posters: Check your state labor department for specifics.
Anti-Discrimination Policies
You must follow federal laws that protect employees from discrimination based on race, color, religion, sex, national origin, age, disability, or genetic information. To show compliance and set clear expectations, it’s best practice to create a written anti-discrimination policy and share it with every new hire. This helps build an inclusive culture from day one and protects your business legally.
Employee Handbook Essentials
An employee handbook isn’t required by law but is highly recommended. It should outline your company policies, workplace expectations, procedures for requesting time off, how payroll works, anti-harassment guidelines, and more. A clear handbook helps prevent misunderstandings and sets everyone up for success.
Sample Employee Handbook Sections:
- Welcome Statement & Company Mission
- Employment Classification (full-time/part-time)
- Work Hours & Pay Periods
- Sick Leave & Vacation Policy
- Code of Conduct & Anti-Harassment Policy
- Disciplinary Procedures & Complaint Process
- Sick Leave & Vacation Policy
- Sick Leave & Vacation Policy
- Sick Leave & Vacation Policy
