Hiring your first employee is one of the biggest milestones in building a business. It is also one of the most regulated decisions you will make as a California employer. The good news is that a little preparation up front means you can protect yourself, welcome your new hire properly, and start the employment relationship on solid legal footing. Here is what you need to have in place before you extend that offer.

What You Must Have in Place Before You Extend an Offer

1. Set Up Your Employer Accounts

• Get an Employer Identification Number (EIN) from the IRS.
• Register with the California Employment Development Department (EDD) for payroll taxes.
• Register with the California Department of Tax and Fee Administration if applicable.
• Verify city or county business license requirements.

2. Payroll and Tax Withholding

• Choose a payroll system that handles California overtime, paid sick leave accruals, meal and rest period tracking, and itemized wage statements.
• Set up federal and state income tax withholding, Social Security and Medicare, State Disability Insurance, and Unemployment Insurance.
• Prepare compliant wage statements and keep accurate time records.

3. Required Insurance

• Workers' compensation insurance is required even for one employee.
• Consider Employment Practices Liability Insurance for claims like discrimination or wage and hour violations.

4. Classification and Pay Structure

• Decide employee vs. independent contractor using California's ABC test. This is not a shortcut you want to get wrong.
• If non-exempt, set hourly rate, overtime eligibility, meal and rest break rules, and timekeeping.
• If exempt, confirm duties and salary meet California's strict exemption requirements.

5. Offer Letter and Onboarding Documents

• Offer letter covering job title, pay, exempt or non-exempt status, start date, and at-will status.
• Form I-9 for employment eligibility verification.
• Form W-4 (federal) and DE 4 (California) for tax withholding.
• Notice to Employee under Labor Code Section 2810.5.
• Paid sick leave notice and policy acknowledgment.
• Harassment, discrimination, and retaliation policy with complaint channels.

6. Required Posters and Training

• Post California and federal workplace posters in a visible location, or provide electronically for remote workers.
• Provide and document sexual harassment prevention training based on company size and roles.

7. Employee Handbook and Recordkeeping

• Handbook covering at-will employment, overtime, meal and rest breaks, paid sick leave, anti-harassment, expense reimbursement, and remote work policies.
• Keep personnel files, I-9s separately, and payroll records per retention requirements.

Step-by-Step: Getting Started

1. Obtain your EIN and register with EDD.
2. Purchase workers compensation insurance.
3. Choose a payroll provider and configure wage statements.
4. Draft your offer letter and assemble your onboarding packet.
5. Create a basic handbook and required policies.
6. Post required notices and schedule any required training.
7. Set up timekeeping and meal and rest break tracking.
8. Conduct a day-one orientation and collect signed acknowledgments.

Common Mistakes to Avoid

• Misclassifying employees as independent contractors.
• Paying a salary to avoid overtime when the role is non-exempt.
• Skipping workers compensation insurance.
• Missing meal and rest break tracking.
• No written paid sick leave policy.
• Forgetting to provide the 2810.5 Notice at hire.

Quick Checklist

• EIN and EDD accounts set up
• Workers compensation active
• Payroll and wage statements configured
• Offer letter ready
• I-9, W-4, DE 4, and 2810.5 Notice included
• Sick leave and anti-harassment policies in place
• Posters up and training scheduled

Frequently Asked Questions

Can my first worker be a 1099 contractor?

Only if they meet California's strict ABC test. Many roles that seem like contractor work do not actually qualify, and the consequences of misclassification can be significant.

Do I need workers compensation for part-time or family employees?

Yes, for nearly all employees regardless of hours worked or relationship to you.

Do I need a handbook with just one employee?

It is not legally required, but it is strongly recommended. A handbook reduces confusion, sets expectations, and gives you something to point to if a dispute arises.

Conclusion

A little preparation before your first hire prevents a lot of costly problems down the road. I work with California businesses to build the legal foundation they need to hire, operate, and scale, so they are protected and compliant from day one.

If you are a California business owner ready to get your legal foundation in order, I can help. Schedule a consultation today.

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Disclaimer: This post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.