What should businesses do before hiring their first employee?

Essential Steps Before Hiring Your First Employee in California

Before bringing on your first employee in California, it is important to complete several key operational tasks to ensure compliance and smooth onboarding.

Register Your Business and Obtain Required Identifiers

• Register with the California Employment Development Department (EDD): You must register as an employer to report taxes and payroll.
• Obtain an Employer Identification Number (EIN): This federal tax ID from the IRS is required for payroll and tax reporting.

Understand and Prepare for Payroll and Tax Obligations

• Set up payroll systems: Choose payroll software or service that supports California tax withholdings and reporting.
• Know your tax responsibilities: Be ready to withhold federal and state income taxes, Social Security, Medicare, and state disability insurance (SDI).
• Unemployment Insurance (UI) and Employment Training Tax (ETT): Register and plan for these mandatory California employer contributions.

Comply with California Employment Laws

• Employee classification: Correctly classify workers as employees or independent contractors to avoid penalties.
• Post required workplace notices: Display all state and federal labor law posters in a visible location.
• Prepare employee handbook or policies: Include California-specific policies such as meal and rest breaks, anti-harassment, and leave entitlements.

Set Up Recordkeeping and Reporting Processes

• Maintain accurate employee records: Track hours worked, wages, and employment eligibility verification (Form I-9).
• Prepare for new hire reporting: Report new employees to the California New Employee Registry within 20 days.

Obtain Necessary Insurance Coverage

• Workers' compensation insurance: California law requires employers to carry this insurance before hiring employees.

As of 2026, staying up to date with California’s employment regulations is critical. Automating payroll and compliance tasks can reduce errors and administrative burden when hiring your first employee.