Hiring Your Startup's First Employee: A Founder's Checklist

Hiring your first employee is a huge milestone. It means your startup has grown beyond what you can do alone — and that's exciting. But it also comes with a wave of legal, tax, and compliance requirements that most founders have never dealt with before.

The good news: it's far more approachable than it looks — if you set yourself up with the right tools first. The single most important thing you can do before hiring is choose a modern, startup-friendly payroll platform. It will automate or guide you through the majority of the compliance steps below, and it will save you from trying to navigate state agency websites and tax registrations on your own.

Step Zero: Pick a Payroll Platform

Do this first — before anything else on this list. A platform like Gusto or Rippling will handle or walk you through most of the administrative and tax compliance requirements that follow, including state employer registrations, tax withholding, W-2s, new hire reporting, workers' comp, and benefits. Trying to do these things manually before you have a payroll provider is a common founder mistake that leads to frustration and wasted time.

Here's what to look for:

• Gusto — excellent for early-stage startups. Simple onboarding, handles state registrations, bundles workers' comp, and integrates with Carta. Starts around $40/month plus $6/employee.
• Rippling — more robust HR, IT, and device management features. Better if you're scaling quickly or need to manage software access and equipment alongside payroll.
• Deel or Remote — if you're hiring employees or contractors outside the United States (increasingly common for startups), these platforms act as an Employer of Record (EOR) in foreign countries, handling local labor law compliance, payroll, and benefits so you don't need to set up a foreign entity. You can use Deel or Remote for international hires alongside Gusto or Rippling for your U.S. team.

Set up your payroll platform before your employee's start date. Most onboarding flows take 15-30 minutes, and the platform will guide you through the remaining registrations and tax setup.

With your platform in place, here's the rest of the checklist.

Before You Hire

1. Get an Employer Identification Number (EIN)

If you incorporated as a Delaware C-Corp (as most venture-backed startups do), you likely already have an EIN from the IRS. If not, apply online — it's free and takes about five minutes. You'll need this to set up your payroll platform.

2. Register for State Employer Accounts

You'll need to register as an employer in every state where you have employees. This typically means:

• State tax withholding account — for income tax withholding
• State unemployment insurance (SUI) account — for unemployment taxes

If you set up Gusto or Rippling first (as recommended above), they will either handle these registrations for you or walk you step-by-step through the process for each state. This is exactly why picking your platform first matters — navigating state agency websites on your own is one of the most time-consuming and confusing parts of the entire hiring process.

3. Set Up Workers' Compensation Insurance

Workers' comp is mandatory in almost every state — even if you only have one employee working remotely from their apartment. Your payroll provider can often bundle this or connect you with a broker. Don't skip it: operating without workers' comp can result in fines and personal liability.

Prepare Your Employment Documents

4. Draft an Offer Letter

Keep it simple. A good offer letter covers:

• Job title and reporting structure
• Start date
• Compensation (salary, any bonus structure)
• Equity grant (shares, vesting schedule, exercise price — referencing your stock option plan)
• Benefits eligibility
• At-will employment status
• Contingencies (background check, right to work verification)

For most hires, an offer letter paired with standalone agreements (below) is better than a full employment contract. See our guide on offer letters vs. employment agreements for the detailed breakdown.

5. Prepare a CIIAA (Confidential Information and Inventions Assignment Agreement)

This is non-negotiable. A CIIAA ensures that any intellectual property your employee creates in the scope of their work belongs to the company — not to them personally. It also covers confidentiality obligations.

Without a signed CIIAA, you could face serious problems during due diligence for your next fundraise. Investors and their counsel will ask for these, and gaps here are red flags. Read our deep dive on why every contributor needs a CIIAA.

Importantly, your CIIAA should be tailored to the state where the employee works. Enforceability of restrictive covenants — non-competes, non-solicitation clauses, and invention assignment provisions — varies dramatically by state. California, for example, voids most non-competes entirely, while other states enforce them with varying limitations. A CIIAA that's enforceable in Colorado may be unenforceable (or even sanctionable) in California. See our guide on non-competes and non-solicits for startups for more on this.

6. Set Up Your Equity Grant

If you're offering stock options (and you probably should be for early employees), make sure you have:

• A board-approved equity incentive plan (often called a Stock Incentive Plan or Equity Incentive Plan)
• A current 409A valuation — this sets the exercise price for your options and must be completed by an independent appraiser
• Board approval of the specific grant (shares, vesting schedule, cliff)

Your equity management platform (Carta, Pulley, AngelList) will generate the option grant notice and stock option agreement. Read our guides on setting up a stock option plan and 409A valuations if you haven't done this yet.

On (or Before) Day One

7. Complete Form I-9

Federal law requires you to verify your employee's identity and right to work in the United States within three business days of their start date. The employee fills out Section 1; you review their documents and complete Section 2. You must physically inspect original documents — copies aren't sufficient (though there's now an E-Verify virtual alternative for qualifying employers).

8. Have the Employee Complete Form W-4

Your employee needs to fill out a W-4 so you know how much federal income tax to withhold. Most payroll providers include this in their digital onboarding flow — one less form to chase down.

9. Report the New Hire to Your State

Most states require you to report new hires within 20 days (some are shorter). Again, your payroll provider will typically handle this automatically.

10. Distribute Required Notices

Depending on your state, you may need to provide your employee with written notices about:

• Pay rate and pay schedule
• Workers' compensation coverage
• Anti-harassment and anti-discrimination policies
• At-will employment status
• Paid leave and sick time policies

Requirements vary significantly by state. California and New York are particularly prescriptive; other states are more relaxed.

Post-Hire: Don't Forget These

11. Add the Employee to Benefits

If you're offering health insurance, dental, vision, or 401(k), enroll your employee within the eligibility window (typically 30 days from start date). Your payroll provider can broker benefits or integrate with providers like Justworks or your insurance broker.

12. Set Up Your Employee Handbook (When the Time Is Right)

You don't necessarily need a full employee handbook for your first hire, but you'll want one by the time you hit 5-10 employees. It should cover:

• Anti-harassment and anti-discrimination policies
• PTO and leave policies
• Remote work policies
• Code of conduct
• Expense reimbursement
• Termination procedures

Some payroll platforms include handbook templates. When you're ready, having counsel review your handbook against the specific states where your employees are based is a worthwhile investment.

13. Keep Clean Records

Maintain organized files for each employee:

• Signed offer letter
• Signed CIIAA
• Any restrictive covenants
• I-9 (stored separately from personnel files per federal guidelines)
• W-4
• Option grant documentation
• Benefits enrollment

This sounds like bureaucracy, but when you're doing due diligence for your Series A, having a clean, complete employee file for every person who's ever worked for you will save you days of scrambling.

The Quick-Reference Checklist

Here's everything above in one scannable list:

• Set up a payroll platform first (Gusto, Rippling — or Deel/Remote for international hires)
• Obtain EIN (if not already done)
• Register for state employer accounts (your payroll platform will help)
• Obtain workers' compensation insurance
• Draft and send offer letter
• Prepare state-specific CIIAA for signature (includes restrictive covenants)
• Set up equity incentive plan + 409A valuation + board-approve the grant
• Complete Form I-9 (within 3 business days of start)
• Collect Form W-4
• Report new hire to state
• Distribute required state notices
• Enroll in benefits (within 30 days)
• Begin employee handbook (by the time you hit 5-10 employees)
• Organize and store all employee documents

It's More Approachable Than It Looks

The list above might feel long, but here's the reality: if you picked a good payroll platform in Step Zero, it automates or guides you through at least half of these items. And once you've done it for your first employee, the process for employees two through ten is significantly faster.

The biggest mistakes we see founders make aren't in getting the details wrong — it's in skipping steps entirely. A missing CIIAA, an unsigned offer letter, no 409A on file — these are the things that create real problems down the road when investors, acquirers, or (worst case) former employees start asking questions.

If you want help getting your employment documents right or making sure your hiring setup is investor-ready, book a free call and we'll walk through it together.