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Making the first hire is one of the most important milestones in any entrepreneur’s journey in the United States. The transition from solo operation to employer triggers a series of legal, tax, and labor obligations that, if ignored or poorly executed, can result in hefty fines, lawsuits, and even immigration issues. The American regulatory system distributes responsibilities among federal, state, and, in some cases, municipal agencies, which requires attention to multiple layers of compliance simultaneously.
EIN: The First Step
Before hiring any employee, the company needs an EIN (Employer Identification Number), the employer identification number issued by the IRS (Internal Revenue Service). The EIN is essential for filing taxes, registering with state agencies, opening business bank accounts, and processing payroll. The application can be made for free on the IRS website, and the number is issued immediately for companies with a U.S. address.
Form I-9 and Eligibility
The Form I-9 (Employment Eligibility Verification) is one of the most sensitive and closely monitored obligations for employers in the United States. Every employee hired must complete Section 1 on or before their first day of work. The employer must examine original documents that prove identity and authorization to work, such as a U.S. passport, green card, or a combination of a driver’s license and employment authorization card, and complete Section 2 within three business days after the start of work.
Completed I-9 forms must be kept securely on file by the company for three years after the date of hire or one year after employment ends, whichever is later. They are not sent to the government but must be available for inspection by ICE or DOL agents within three business days of request. Failures in the verification process can result in fines ranging from hundreds to thousands of dollars per violation.
Tax Withholding: W-4
Each employee must complete the Form W-4 at the time of hiring, indicating their federal income tax withholding preferences. Based on the information from the W-4, the employer calculates and withholds the appropriate amount from each paycheck, remitting these amounts to the government within established deadlines. The responsibility for correct withholding and timely remittance lies entirely with the employer, and errors in this process can result in IRS penalties.
FICA and Payroll Taxes
In addition to income tax, the employer is responsible for FICA (Federal Insurance Contributions Act) taxes, which fund Social Security and Medicare. In 2026, the rates remain at 6.2% for Social Security and 1.45% for Medicare, both for the employee and the employer, totaling 15.3% on each salary. The wage cap for Social Security contributions in 2026 is $184,500; above this amount, only Medicare continues to be charged. For employees earning over $200,000 annually, there is an additional 0.9% Medicare surtax.
Given the complexity of calculations, remittance deadlines, and periodic filings, the vast majority of small businesses in the U.S. use a third-party payroll service. These services automate tax calculations, issue paychecks, generate tax forms such as W-2 and 941, and ensure compliance with federal and state regulations.
State Registration
In addition to federal obligations, the employer must register with the agencies of the state where they operate. This includes registration for the SUTA (State Unemployment Tax Act), the state unemployment insurance tax, and registration for state income tax withholding, when applicable. Each state has its own rates, deadlines, and forms, which can significantly increase the administrative burden for companies operating in multiple states.
Workers’ Compensation
In almost all U.S. states, it is mandatory for the employer to maintain workers’ compensation insurance. This insurance covers medical expenses and lost wages in case of work-related accidents or illnesses. Texas is the only state that makes this coverage entirely optional for private employers, although even there, the absence of insurance exposes the employer to civil lawsuits without traditional legal protections. In most states, the requirement is triggered from the first employee hired.
W-2 versus 1099
One of the most dangerous pitfalls for entrepreneurs in the U.S. is the misclassification of workers. A W-2 employee is someone over whom the company exercises control over what will be done and how it will be done. For these workers, the employer must withhold taxes, pay FICA, and comply with all labor obligations. An independent contractor 1099 operates autonomously, sets their own methods and schedules, and is responsible for their own taxes.
Misclassifying an employee as an independent contractor can result in severe IRS penalties, retroactive collection of unwithheld taxes, DOL fines, and labor lawsuits. The IRS and courts use multi-factor tests to determine the true nature of the relationship. The title given to the worker in the contract is irrelevant if the practical conditions indicate an employment relationship.
Health Plan and ACA
The obligation to offer a health plan to employees depends on the size of the company. Under the Affordable Care Act (ACA), companies classified as Applicable Large Employer (ALE), with 50 or more full-time equivalent employees, are required to offer health coverage to at least 95% of their full-time employees and dependents up to age 26. For the 2026 fiscal year, the penalty for not offering coverage can reach $3,340 per applicable employee.
Companies with fewer than 50 employees are not required by the ACA to offer a health plan, but many choose to do so as a strategy to attract and retain talent. The federal minimum wage has remained at $7.25 per hour since 2009, but most states have significantly higher minimums, with 79 jurisdictions already reaching or exceeding $15 per hour in 2026.
Victoria Harper
Editor-in-Chief
Leading journalism and editorial content at Visto n’ Visa, Victoria helps make immigration topics clear, trustworthy, and easy to understand. Her focus is on delivering useful, human, and relevant content for people exploring new paths abroad.
