Your new venture is finally gaining steam, and you’re feeling pretty good about where you’ve taken things so far. Now it’s time to meet a new milestone: hiring your first employee. And with it, entering the world of human resources (HR).
If you’re a new entrepreneur, it can be hard to know what’s expected of you, HR-wise. Keep reading to learn about the HR checklist for startups you should complete as you prepare to grow your team.
Why does HR matter?
Firstly, it’s the law. Staying compliant with employment laws is necessary to protect both your company and your people. That means following all federal, state, and local laws that govern how employers hire, pay, manage, and treat employees.
Beyond that, it usually pays off to go beyond the HR compliance checklist and intentionally create a work environment that puts your people first. Creating a structured, reliable workplace can help create a great company culture, improve employee engagement, and lower turnover. Recent Gallup research has found that:
Highly engaged business units have 78% less absenteeism and 14% higher productivity than their less-engaged counterparts.
Engaged business units have 21% less turnover overall.
Now that we’re on the same page about why HR matters, let’s take a look at the actual tasks you need to complete.
HR tasks to complete before you make your first hire
1. Create an employee handbook
An employee handbook is an HR must-have. Not only does it keep you compliant, it also sets expectations for an array of situations, scenarios, policies, and procedures so that everyone—managers and direct reports alike—is on the same page.
Despite its importance, many small businesses still don't have one. But you can break the mold.
A great handbook should consolidate everything your employees need to know about working with your company in one place. By writing a handbook and getting it reviewed by an expert, you’ll be able to protect both you and your team.
Your employee handbook should cover topics like:
Policies around things like Equal Employment Opportunity, harassment, PTO and leave, your code of conduct, employee benefits administration, and termination policy
Work hours and expectations around remote/hybrid work arrangements
Your performance review and feedback process
Any legally required workplace notices and policies
Focus on creating a handbook that's first and foremost legal, but also friendly and understandable enough that your team will actually enjoy reading it during onboarding. Once you tap into the right resources, it won't be as intimidating as you think.
2. Get familiar with worker classifications
Before you start sketching out who you want to hire, it’s important to understand the types of workers you can welcome to your team. Depending on your worker’s categorization, there are different tax, benefits, and liability issues that come into play. And as an owner, the responsibility ultimately falls into your lap.
To stay in the safe lane, here are two things you should have down pat:
Here’s the high-level difference between employees and contractors:
Employees are people who work for one employer, have a defined time and place to do that work, use company equipment, and are generally paid either an hourly wage or a salary.
Contractors can work for more than one company at once, are usually paid per project, and generally have more freedom over their work schedules. Misclassifying a worker can mean back taxes, unpaid overtime, and penalties, so be sure to stay up to date on the Department of Labor’s rules.
Now, on to exempt vs. nonexempt employees:
Folks who are exempt are not held to certain rules laid out in the Fair Labor Standards Act (FLSA). The federal FLSA exempt salary threshold is $684/week or $35,568 per year (with some states setting higher thresholds).
Nonexempt employees aren’t excused, so it means the FLSA protections for overtime, minimum wage, and a variety of other topics apply to them.
3. Spend some serious time on hiring
If you feel like you need to find your first hire right away, the first thing you should do is adjust your expectations. According to Society for Human Resource Management (SHRM), the median time to fill a non-executive role is 39 days.
Not to mention that hiring the wrong candidate is both stressful and expensive (though not uncommon: Robert Half recently reported that 43% of hiring managers have made a bad hire). SHRM’s 2025 benchmarking data puts the average cost per hire at $5,475 for non-executive roles, climbing past $35,000 for executive positions—not a hit you want to take more than once.
To avoid a hasty hire and improve employee retention, it helps to do two things:
Start with a clear and succinct job description that captures your expectations for the role. When you picture the ideal candidate for this role, who do you see? Write the job description for that person.
Outline an interview process that focuses on cultural alignment and tests all the areas you want your new hire to bring to the table. SHRM research links a strong workplace culture to significantly lower turnover—15% of employees who rate their company culture as good or excellent are actively job-hunting (or planning to soon), versus 57% of those who rate it poorly. Screening for culture fit during interviews is one way to build that foundation from day one.
4. Get the right files in order
If you’re hiring employees and not contractors, you’ll need to start keeping personnel files. This record-keeping includes a few big forms as well as some other documentation. Keep in mind that you’ll need a few other documents on hand if you’re hiring independent contractors.
The form I-9: This document verifies whether your employee can legally work in this country. Store the form for at least three years after your new hire starts or a year after they leave, whatever period of time is longer.
The W-4: This form helps your employee figure out their tax withholding amount. You don’t have to send this off anywhere, but hold on to it for at least four years.
Payroll information: This includes routing numbers for direct deposit, wage information, and other details that allow people to get paid nice and swiftly.
General file: This includes items like emergency contact details, a person’s home address, an employment contract, the offer letter, and other bits of information about your new hire.
Performance reviews: Collect a catalog of past performance reviews so you can track your team’s trajectory and contributions over time. This will help you and future managers carry out effective performance management. It also provides a critical record if you ever need to let someone go for performance reasons.
Once you get rolling on your own HR checklist, you’ll be well on your way to building the best team possible. Ready to simplify HR tasks and boost productivity? Check out our guide for the best HR software options designed specifically for small businesses.
FAQs
What's the difference between an employee and an independent contractor?
Employees work for one employer, follow a set schedule and location, use company-provided equipment, and are paid hourly or salaried wages. Independent contractors can work for multiple clients at once, are typically paid per project, and control their own schedule and methods. Misclassifying a worker can result in back taxes, unpaid overtime, and penalties.
How do I know if an employee is exempt or nonexempt under the FLSA?
Exempt employees are excluded from certain Fair Labor Standards Act (FLSA) protections, most notably overtime pay, while nonexempt employees are entitled to overtime, minimum wage, and related protections. As of 2026, the federal exempt salary threshold is $684 per week ($35,568 per year), though some states set higher minimums.
What forms do I need to hire my first employee?
At minimum, you'll need a completed Form I-9 to verify work eligibility (kept on file for at least 3 years), a Form W-4 for tax withholding (kept for at least 4 years), and payroll details like direct deposit routing and account numbers. You'll also want an offer letter and emergency contact information on file.
How long does it typically take to hire a new employee?
According to SHRM's 2026 benchmarking data, the median time to fill a non-executive role is 39 days from posting to offer acceptance. That timeline can stretch longer for specialized or leadership positions, so first-time hiring entrepreneurs should build extra runway into their plans rather than expecting to fill a role overnight.
What should I include in a small business employee handbook?
A small business employee handbook should cover your company's mission and vision, core policies (Equal Employment Opportunity, harassment, PTO and leave, code of conduct, benefits, and termination), work hours and remote/hybrid expectations, your performance review process, and any legally required workplace notices. The goal is a document that's legally sound but still clear enough that employees actually read it.
Quick note: This is not to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary by location, consult a lawyer or HR expert for specific guidance.
