Most women who start a business never hire anyone else. According to the Census Bureau’s 2024 Annual Business Survey, covering reference year 2023, women owned 14.2 million U.S. businesses with $2.8 trillion in combined receipts — but of the country’s roughly 5.9 million employer firms, the ones with at least one person on payroll besides the owner, only 1.4 million, or 22.9%, were women-owned. The nonemployer share tells the same story from the other direction: women owned 12.9 million of the 30.4 million U.S. businesses with no employees at all, per the Census Bureau’s 2023 Nonemployer Statistics by Demographics.
Put plainly: running a business and running a payroll are two different undertakings, and most women-owned businesses only ever do the first one. If you’re about to do the second, the paperwork has a specific order — and getting it wrong at the start is more expensive to fix than it is to do right the first time.
Decide if the role is really an employee — or a contractor
Before anything else, the IRS wants you to answer one question honestly: is this person an employee, or an independent contractor? The agency weighs three categories of evidence, none of them decisive on its own:
- Behavioral control — do you control, or have the right to control, what the worker does and how they do their job?
- Financial control — who controls the business side of the work: how they’re paid, whether their expenses are reimbursed, who supplies the tools?
- Type of relationship — is there a written contract or employee-type benefits, and is the work ongoing and central to what your business does, rather than a one-off project?
Calling someone a “contractor” because it avoids payroll taxes, when the actual relationship looks like employment under those three tests, is the single most common way small businesses end up owing back taxes and penalties. If you control the schedule, the method, and the tools, the IRS is very likely to see an employee no matter what the paperwork calls them.
Get an EIN before you pay anyone
An Employer Identification Number is the first concrete step, and the IRS is explicit that you need one the moment you have employees — it’s how employment, and in some cases excise, taxes get reported and paid. It’s free, it’s issued directly by the IRS, and nothing downstream — payroll, tax withholding, a business bank account set up for payroll — works without it.
Check your state’s requirements too: the SBA’s own small-business hiring guide notes that many states layer a separate state tax ID on top of the federal EIN before you can legally run payroll in that state.
Collect a W-4, and complete Form I-9 within three business days
Once someone is hired, two forms are due immediately, not “eventually”:
A completed Form W-4 tells you how much federal income tax to withhold from their paycheck.
Form I-9 verifies the person’s identity and their authorization to work in the United States, and it has a hard deadline: both you and the new hire have to complete your sections, with the required identity and work-authorization documents physically reviewed, within three business days of their first day of work. It is one of the few hiring steps where “I’ll get to it” is itself the violation — the clock starts on day one, not on the day you remember.
Register the new hire with your state — you likely have 20 days
Federal law requires every new hire to be reported to a state new-hire directory, and the SBA’s hiring guidance puts the deadline at 20 days from the date of hire. This feeds state systems used to enforce child support orders, among other things — it isn’t optional paperwork, it’s a legal reporting requirement with its own deadline, separate from anything the IRS asks for.
Get workers’ compensation insurance before their first day, not after
In nearly every state, hiring your first employee is also the moment workers’ compensation insurance stops being optional — the exact threshold and rules vary state to state, so check with your state’s labor department before, not after, that person starts work. It covers medical costs and lost wages if they’re injured on the job, and running payroll without it, where your state requires it, is the kind of gap that only surfaces at the worst possible moment: after an injury, not before one.
Pay at least the wage floor, and track overtime correctly
The federal Fair Labor Standards Act sets a minimum wage of $7.25 an hour and requires overtime — at least one and a half times the regular rate of pay — for any hours worked beyond 40 in a single week. Plenty of states and cities set a higher minimum wage than the federal floor; where that’s true, you owe your employee whichever number is higher, not the lower federal one. Get the classification of hourly versus salaried, and exempt versus non-exempt, right from the first paycheck — it’s far easier to set up correctly than to unwind later.
Know which laws start applying as you grow
A handful of federal workplace protections only kick in once you cross a certain headcount, and it’s worth knowing the numbers before you hit them rather than after: Title VII of the Civil Rights Act and the Americans with Disabilities Act generally apply once an employer has 15 or more employees, and the Age Discrimination in Employment Act applies at 20 or more. One employee doesn’t trigger any of them — but it’s the first step toward a headcount that eventually will, and the policies are cheaper to build in from the start than to retrofit under pressure.
You don’t have to figure this out alone
None of this is a reason to delay hiring — it’s a reason to do the paperwork in order instead of after the fact. The same instinct behind putting a co-founder’s equity split in a signed agreement instead of a handshake applies here: the cost of writing something down up front is tiny compared to the cost of sorting it out once someone else’s paycheck, or immigration status, or workers’ comp claim depends on it.
And if payroll and employment law feel like unfamiliar territory, that’s precisely the kind of gap a small, deliberately chosen advisory board exists to close — a single call with someone who has run payroll before is worth more than guessing your way through Form I-9 alone.
Frequently asked questions
Do I need an EIN to hire my first employee?
Yes. The IRS requires an Employer Identification Number for any business that has employees — it’s how you report and pay employment taxes, and you’ll need it before your first paycheck goes out. It’s free to apply for directly through the IRS.
How do I know if a worker should be an employee or an independent contractor?
The IRS weighs three categories of evidence: behavioral control (do you control what the worker does and how they do it), financial control (who controls the business side — how they’re paid, who provides tools and supplies), and the type of relationship (is there a contract, do they get benefits, is the work central and ongoing to your business). No single factor decides it on its own, and misclassifying an employee as a contractor to skip payroll taxes is the mistake that draws IRS attention first.
How quickly do I need to complete Form I-9?
Within three business days of the employee’s start date. Form I-9 verifies identity and work authorization, and both the new hire and the employer have to complete their sections and review the supporting documents in person within that window.
What’s the minimum wage and overtime rule I have to follow?
The federal Fair Labor Standards Act sets a wage floor of $7.25 an hour and requires overtime pay — at least one and a half times the regular rate — after 40 hours of work in a single week. Many states set a higher minimum wage than the federal floor, and when that’s the case, you owe the employee whichever number is higher.