PunchHiring Your First Employee: The Payroll and Time Tracking Checklist for Solo Contractors (2026)
Hiring Your First Employee: The Payroll and Time Tracking Checklist for Solo Contractors (2026)
The short answer: The day your first employee works a shift, you become an employer in the eyes of the IRS, your state, and the Department of Labor. Tax registration, eligibility paperwork, new hire reporting, insurance, and an accurate record of hours all start on that first day, not when the business "gets bigger." Most of the list is one-time setup. The part that repeats every single week is the record of hours, and that is the part owners most often leave to memory. Punch handles it from the first punch, and owners are always free.
Before the First Shift: Register as an Employer
A solo operator can often run on a Social Security number. An employer cannot. Before anyone works for you, you need the registrations that let you withhold and pay payroll taxes.
An Employer Identification Number (EIN). You apply with the IRS. It is free, and it is the number every payroll filing will carry.
State payroll tax accounts. Most states require you to register for state income tax withholding, if the state has an income tax, and for state unemployment insurance. The unemployment account matters for another reason: the federal unemployment tax (FUTA) is 6.0 percent on the first $7,000 of each employee's wages, and employers who pay state unemployment on time generally receive a credit of up to 5.4 percent against it.
Workers' compensation. Most states require coverage from the first employee. Some set a small headcount floor before it applies, and Texas makes it optional for most private employers. Check your state before the first shift, because a workplace injury on day two does not wait for your policy to start. Your time records will matter here too. Premiums are set on payroll, and the premium audit checks your records against what you reported.
Confirm they are actually an employee. If you control when, where, and how the work is done, you likely have an employee, not a contractor. Calling someone a 1099 contractor does not make them one. Our 1099 vs. W-2 guide walks through the tests.
The First Day: The Paperwork Stack
Form I-9. The employee completes Section 1 no later than the first day of work. You complete Section 2, reviewing their identity and work authorization documents, within three business days of that first day. Keep the form on file. You do not send it to the government.
Form W-4. The employee fills out the federal withholding form so you know how much income tax to withhold. Many states have their own version.
New hire reporting. Federal law requires employers to report each new or rehired employee to the state directory of new hires within 20 days of hire. Some states set a shorter deadline. This is the step first-time employers most often miss, because nobody asks for it on day one.
Required notices. The federal minimum wage poster under the FLSA must be displayed where employees can see it, along with any state postings. Some states also require a written wage notice at hire stating the pay rate and payday. For a crew that reports straight to job sites, electronic posting may be an option in some cases, but check before you rely on it.
Set the Pay Rules Before the First Paycheck
Pick a workweek and write it down. Overtime under the FLSA is calculated per workweek: a fixed, recurring stretch of seven consecutive 24-hour periods. Choose the start day now. Changing it later is allowed, but it cannot be done to dodge overtime. Our workweek guide explains why this one decision shapes every paycheck after it.
Pick a pay period your state allows. Weekly and bi-weekly are the common choices for small crews. Some states require certain workers to be paid more often than others. Check the pay frequency rules for your state before you promise a schedule.
Set the rate and the overtime rule. Nonexempt employees earn at least the federal minimum wage of $7.25 per hour, or your state or local minimum if it is higher, and one and one half times their regular rate for every hour over 40 in a workweek. Some states add daily overtime on top. Paying a first hire a salary does not by itself make them exempt. Our exempt vs. non-exempt guide covers the tests.
Decide how breaks work. Federal law does not require meal breaks, but many states do, and an unpaid meal period has to be a real one. If you plan to deduct lunch, record it. Do not assume it. See our guide to automatic lunch deductions for why.
The Obligation That Never Ends: A Record of Every Hour
Everything above is setup. This part runs every week for as long as you have staff.
Under the FLSA's recordkeeping rules, an employer must keep, for each nonexempt employee, the hours worked each workday and the total hours worked each workweek, along with pay rate, straight-time and overtime earnings, deductions, and the pay date. Payroll records are generally kept for three years. The time cards and schedules that support them are generally kept for two.
Note who carries that duty. It is the employer. If an employee later says they worked more hours than they were paid for, and you have no reliable records, courts can accept the employee's reasonable estimate and shift the burden to you to disprove it. A notebook on the truck seat and the owner's memory of "about eight hours" do not hold up well. Our timesheet dispute guide covers how that plays out.
This is where solo operators get caught. When you worked alone, your hours were your business. The moment you have one employee, their hours become a legal record you are responsible for, and the habits that worked for one person stop working.
What the First Hire Needs From a Time Clock
A first employee does not need an enterprise system. They need a way to punch in and punch out that is fast, accurate, and hard to fake, and you need records that produce a paycheck without retyping. Punch covers each piece.
Punch in on the phone they already carry. The employee installs Punch, joins your workspace, and punches in and out, with lunch recorded as its own entry. No hardware to buy.
Punch in where the work is. Set a geofence around each job site, and a punch-in from the phone app only counts when the employee is actually there. Nothing to argue about later. No camera in anyone's face and no photo at punch. A job-site boundary is the whole check.
Keep working with no signal. Basements, rural lots, and new builds lose service. Punch records the punch offline and syncs when the phone reconnects, so a dead zone never becomes a missing hour. More on that in our no cell service guide.
Overtime calculated for you. Set your weekly or bi-weekly pay period once. Punch totals each workweek and applies the overtime rule you set. It ships with overtime presets for more than 50 countries, so the math starts from the rules you are under.
Approve before you pay. Review the week, fix a missed punch with a clear note, and approve. When the team grows, managers can approve too, with bulk approve and reject.
Export straight to payroll. Send approved hours to QuickBooks Online through the integration, connect Square, or export a QuickBooks or Excel CSV for any other payroll provider. The hours you approve are the hours that get paid, and the record stays on file.
Handle time off the same place. When your first hire asks for a day off, the request and your answer live next to their hours instead of in a text thread. Our time-off request guide covers setting up the process.
Grow into it without a new bill per person. Punch uses flat pricing per organization. Owners are always free, and every plan includes every feature. Adding employee number two or three does not change what you get, and a per-seat price never punishes you for hiring. See our pricing comparison for how that stacks up against per-user apps.
Your First-Employee Checklist
Before the first shift
- Apply for an EIN.
- Register for state withholding, if your state has an income tax, and state unemployment insurance.
- Buy workers' compensation coverage if your state requires it.
- Confirm the role is an employee, not a contractor.
- Set your workweek start day and your pay period.
- Set up Punch and add your job-site geofences.
On the first day
- Employee completes I-9 Section 1 and Form W-4.
- Display the required federal and state posters.
- Provide any written wage notice your state requires.
- Employee joins your Punch workspace and punches in for the first time.
Within the first few days
- Complete I-9 Section 2 within three business days.
- File the new hire report with your state within 20 days, or sooner if your state requires it.
Every pay period
- Review and approve the hours in Punch.
- Export approved hours to QuickBooks Online, Square, or your payroll provider.
- Keep the records: at least two years for time cards, three for payroll.
The Bottom Line
Your first hire is the moment your business starts running on records instead of memory. The registrations happen once. The hours happen every day, and they are the record that decides every paycheck, every overtime dispute, and every audit that follows.
Start the habit right on day one. Give your first employee a punch button, let the overtime math run on its own, and approve a clean week before you pay it.
Start with Punch. Owners are always free.
Common Questions
What do I need before hiring my first employee?
An EIN from the IRS, state payroll tax accounts for withholding and unemployment insurance, workers' compensation coverage if your state requires it, a set workweek and pay period, and a way to record the employee's hours each workday and workweek.
How soon do I have to report a new hire?
Federal law requires employers to report new and rehired employees to the state directory of new hires within 20 days of hire. Some states require it sooner.
Do I have to track hours for my first employee?
Yes, for any nonexempt employee. The FLSA requires employers to keep hours worked each workday and each workweek. Payroll records are generally kept for three years and time cards for two.
When is Form I-9 due?
The employee completes Section 1 no later than the first day of work. The employer completes Section 2 within three business days of the employee's first day.
This article is general information, not legal or tax advice. Employment, tax, and insurance rules differ by state and change over time. Confirm your obligations with the IRS, the DOL, your state agencies, and a qualified professional before hiring.