Practical Guide Before Hiring Employees

May 16, 2021

Legal knowledge

So, you have incorporated, raised funds, and worked with some independent contractors. Now you want to take your startup to the next level and hire long-term employees who can stay and grow with the company. What must you do before that happens?

Legal Compliance

Before you can hire employees, you must comply with these steps:

1. Obtain an Employer Identification Number (“EIN”).

This is often done while you are incorporating, but if you don’t have it yet, you can go to the IRS to apply for one.

2. Register with your state labor or employment division.

3. Set up worker’s compensation insurance if it’s required and/or applicable for your business.

4. Ensure you comply with the minimum wage requirements of your state.


Now that you are paying full employees as opposed to contractors, your obligations become more complicated as well. You must:

1. Withhold the right amount of federal and state taxes from their wages.

2. Record the total amount you are paying to your employees for the past four years

3. Withhold the right amount of social security taxes for both yourself and your employees

4. File all the necessary forms to the IRS and/or other local tax authorities

Given the intricacies of payroll requirements, it’s recommended for startups like yours to use a payroll service or software. Mature companies tend to use services such as Intuit. For smaller companies and startups, there are many up-to-date, easy-to-use solutions such as Gusto. It’s not worth trying to reinvent the wheel. Use your effort on things that matter more such as developing your product and building your team. Let the payroll experts take care of this part of your business.


Given we are increasingly becoming more and more global, it’s not rare for you to run into employees who you would like to hire who are international students or citizens who will need some kind of visa and green card sponsorships before they can work for you here in the U.S. This does bring an additional layer of cost and complication to your hiring process. Consult with one of the immigration lawyers on our website if you have any questions. When you hire international employees, they must fill out a form I-9 and you must verify their legal status to work in the US before you onboard them.

HR Related Best Practices

Now that you have employees, your responsibilities and obligations as an employer have also grown to the next level. It’s best practice to have an Employee Manual and train your managers to follow the best practices. It’s also a good idea to establish a formal HR department and have specific rules and procedures about what to do if an employee has a complaint. There are lots of things that could go wrong, so you want to make sure you can preempt the issues by documenting all the issues and having a mitigation plan for any potential issues. Overall, having employees is certainly a new milestone for a young company. You are certain to have members of your company who are more devoted, excited, and dedicated to building the dream together. But with great power comes great responsibility. Ensuring you follow all the right steps will go a long way in the future. If you have any employment-related questions, feel free to ask the lawyers on our platform!

Practical Guide Before Hiring Employees