Employees, Contractors & Payroll

1. 1

   Before you hire

   Set up the accounts and coverage you need before your first employee starts. You will need an EIN, a state payroll tax account, often a state unemployment insurance account and workers' compensation insurance where your state requires it.

   Requirements differ by state, so check with your state labor and tax agencies and ask your accountant. Write a clear job description with duties, pay and hours. Learn your state's minimum wage and overtime rules, which can be higher than federal rules. A payroll service can handle much of the setup and filing for you.

   • Register for state payroll tax accounts
   • Get workers' comp coverage if required
   • Check state wage and overtime rules
   • Write a clear job description
2. 2

   Employee or contractor

   Decide whether each worker is an employee or an independent contractor based on how the work is actually done, not on what you call them. In general, if you control how, when and where the work happens, the person is likely an employee.

   The IRS, the Department of Labor and your state may each use different tests. Getting it wrong can mean back taxes, penalties and claims. Contractors usually run their own business, set their own methods and serve other clients. When in doubt, ask your accountant or an employment attorney before the work starts.

   • Review who controls how the work is done
   • Check IRS and state guidance on classification
   • Ask an expert about unclear cases
   • Write down why you chose each classification
3. 3

   Hiring the right way

   Use the same fair process for every candidate. Post the job with clear duties and pay, ask every applicant the same core questions and judge them on skills and reliability.

   Federal and state laws ban discrimination based on things such as race, religion, sex, age, disability and national origin. Do not ask about these in interviews. Background checks and driving record checks have their own rules, including written consent, so check them before you run one. Call references, and give the offer in writing with the pay, schedule and start date.

   • Post the job with clear duties and pay
   • Ask every candidate the same core questions
   • Follow the rules for background checks
   • Make every offer in writing
4. 4

   New hire paperwork

   Have every new employee complete the required forms on or before their first day. The federal basics are Form W-4 for tax withholding and Form I-9 to confirm they can legally work in the US. Many states also have their own withholding form.

   Employers must report new hires to their state's new hire registry. Some states and industries use E-Verify, which may be required where you work. Keep I-9 forms apart from personnel files. For contractors, collect a Form W-9 before you pay them, so you have what you need to file a 1099‑NEC.

   • Collect a W-4 and complete the I‑9
   • Report the hire to your state registry
   • Check if E-Verify applies to you
   • Collect a W-9 from every contractor
5. 5

   Payroll and records

   Pay employees on a fixed schedule and withhold, pay and file payroll taxes on time. Federal payroll taxes include income tax withholding, Social Security, Medicare and federal unemployment tax. Your state likely adds its own withholding and unemployment taxes.

   A payroll service such as Gusto or ADP, or the payroll built into your accounting software, can calculate and file most of this for you. Track hours accurately for hourly workers. Keep payroll records, time sheets and tax filings for as long as your accountant advises. Send W-2s to employees and 1099-NEC forms to contractors after each year ends.

   • Pick a payroll service or tool
   • Pay on a fixed schedule
   • Track hours accurately for hourly staff
   • Send W-2 and 1099-NEC forms each year
6. 6

   Training and leading

   Train every new worker on your procedures, safety rules and customer standards before they work alone. Use your written job checklists so training is the same each time, and pair new people with a trusted worker for their first jobs.

   Set clear expectations and give feedback often, not only at a yearly review. Short weekly check-ins catch problems early. Recognize good work out loud. Write down any discipline issues with dates and facts. People stay longer when they know what is expected, feel respected and see a path to grow.

   • Train with written checklists
   • Pair new workers with a trusted mentor
   • Hold short weekly check‑ins
   • Write down problems with dates and facts
7. 7

   When someone leaves

   Follow the same checklist every time someone leaves, whether they quit or you let them go. Pay final wages on time, since states set different deadlines for the final paycheck. Check your state rules.

   Collect keys, tools, cards and devices, and remove access to email, software, bank accounts and your Google Business Profile the same day. Change any shared passwords. Give any required notices about benefits or unemployment. Keep the exit documents in their file. If the separation could lead to a dispute, talk to an employment attorney first.

   • Pay final wages by your state's deadline
   • Collect keys, tools, cards and devices
   • Remove all account access the same day
   • Talk to an attorney if a dispute is likely

General information only, not legal, tax or financial advice. See the Disclaimer.