Startup HR Checklist: What to Do at Each Hiring Milestone
A startup HR checklist keyed to milestones: what to set up before hire one, what the first hire triggers, and which laws switch on at 15, 20, and 50.
My first hire started on a Monday. The Friday before, I had a two-page document about how we give feedback, a slide deck about our values, and no workers compensation policy. The values deck had taken most of a weekend. The insurance took one phone call that I had not made, because nobody had told me I needed to.
That order of operations is almost universal among founders, and it is not carelessness. It is that every HR checklist you can find is organized by calendar: day one, week one, the first thirty days, the first ninety. Legal obligations do not arrive on a calendar. They arrive at milestones. Some attach the moment you decide to pay a person, some attach the moment somebody starts work, and some sit dormant until your headcount crosses a number written into a statute.
This is the sequence in the order it actually happens, with what to register, buy, sign, and file at each milestone. It is written for a founder with no HR background and no intention of hiring one yet. It is general information, not legal advice, and state law varies more than any national checklist can capture.
I build FirstHR, an onboarding and HR platform for teams without a dedicated HR person, which makes me biased toward records over rituals. That bias is the argument of this article.
What a Startup HR Checklist Actually Covers
A startup HR checklist is a sequence of four milestones, not a timeline. The first three arrive before you have anything resembling an HR function, and the fourth is where headcount thresholds take over.
The distinction matters because founders routinely assume there is a small-employer grace period. There is not. Wage and hour law, immigration verification, and workplace safety duties apply at one employee with no phase-in. What arrives later is a second layer: the federal discrimination statutes, continuation coverage, and leave and health coverage mandates.
The other reason to sequence by milestone is that the items that cost the most to miss have lead times measured in weeks. If you learn about state unemployment registration during your first payroll run, your first payday moves.
Before the First Hire: Accounts, Insurance, and a Payroll Path
Five things have to exist before you can legally pay anyone, and two of them run on a government agency’s timetable rather than yours. The right moment to start is the day you decide to hire, not the week the person arrives.
The table below splits them into six rows: the two state accounts are separate registrations, and electronic federal tax payments, part of the payroll path, get a row of their own.
| What you need | Who issues it | Realistic lead time | What it blocks |
|---|---|---|---|
| Employer identification number | Federal tax authority, free, online | Same session | Every other registration and filing |
| State withholding account | State revenue department | One day to several weeks | You withhold state tax with nowhere to send it |
| State unemployment account | State workforce agency | One day to several weeks | Unpaid state tax accrues with interest |
| Workers compensation policy | State fund or private insurer | Days, longer in hard-to-place industries | In most states, employing anyone at all |
| Electronic federal tax payments | Federal payment system | Days, plus a mailed confirmation | Deposits through the Electronic Federal Tax Payment System (EFTPS), though IRS Direct Pay also works |
| A decision on employee or contractor | You, documented | An afternoon of honest analysis | The correct version of every form above |
The employer identification number is the easy one: free, issued immediately online (IRS EIN application), and required before you can register anywhere else. The state layer is where first paydays slip, because registration follows the employee rather than the office. Three people in three states means three sets of accounts.
Workers compensation is the item founders most often discover late, because it is not federal and nobody sends you a notice.
Most states require coverage from the first employee, several set a threshold at three, four, or five, and Texas and South Dakota let most private employers decline the system entirely and accept the liability exposure that comes with it (Texas Department of Insurance; South Dakota Department of Labor and Regulation).
The payroll path is a decision rather than a purchase. Running it yourself is legal and reasonable at a couple of salaried employees in one state. What is not optional is that the money reaches the right agency on the right day.
Because two of these run on an agency timetable rather than yours, the useful artifact is not another list of what to do. It is a record of what you started, when, and what number came back. Fill the second tab once per state where an employee physically works.
| A | B | C | D | E | F | G | H | |
|---|---|---|---|---|---|---|---|---|
| 1 | Item | Agency or provider | Applied on | Confirmed on | Account, policy, or file reference | Effective date | Owner | Status |
| 2 | Employer identification number | Federal tax authority | Not started | |||||
| 3 | State withholding account | State revenue department | Not started | |||||
| 4 | State unemployment account | State workforce agency | Not started | |||||
| 5 | Workers compensation policy | State fund or private insurer | Not started | |||||
| 6 | Electronic federal tax payment enrollment | Federal payment system | Not started | |||||
| 7 | Employee or contractor decision, in writing | You, documented | Not started | |||||
| 8 | Exempt or non-exempt decision, in writing | You, documented | Not started | |||||
| 9 | Payroll path chosen and first pay date set | You, documented | Not started |
The Classification Decision That Comes Before Everything Else
Classification is the first real decision on the list, and it is made twice. First: is this person an employee or an independent contractor? Second: if they are an employee, are they exempt or non-exempt from overtime? Both answers change which forms exist, which taxes you owe, and which laws apply.
The employee or contractor question is not settled by the agreement you both signed. Agencies apply their own tests looking at behavioral control, financial control, and the economic reality of the relationship, and several states use a stricter presumption that treats a worker as an employee unless the employer proves otherwise.
Getting it wrong is expensive in a specific and compounding way. A reclassification usually brings back withholding, the employer share of payroll taxes, penalties and interest, unpaid overtime with liquidated damages, and an unemployment or workers compensation claim that pulls in everyone in the same role.
The exempt question is narrower and just as commonly botched. Under the federal rules for most white-collar roles, an employee is exempt from overtime only if they are paid on a salary basis, at no less than $684 a week (29 CFR 541.600), and their actual duties fit one of the recognized exemptions. A title does not create an exemption, and neither does agreeing to a salary.
The First Hire: What Has a Deadline Attached
Six items belong to your first hire, and four of them carry a specific deadline. The two without deadlines are the ones founders do first, which is a reasonable summary of the whole problem.
The remote examination box in step three deserves a line of its own. Immigration and Customs Enforcement lists an unchecked alternative procedure box in Section 2 or Supplement B among the substantive Form I-9 violations (ICE Form I-9 inspection fact sheet), which puts it outside the ten business days an employer otherwise gets to correct a technical error.
On the handbook question at hire one: skip it. A first-hire handbook is almost always a template nobody signed, describing policies you have not tested, and it creates obligations you may not want. What you need at one employee is the offer letter and the forms. The handbook belongs at the next milestone.
What Applies From Employee Number One
There is no small-employer exemption from wage and hour law, immigration verification, or workplace safety. These apply at one employee, with the same penalties a larger employer faces.
The Form I-9 band is the number founders underestimate. Federal regulation prices a paperwork violation at $288 to $2,861 for each individual the violation involves (8 CFR 274a.10), counted per person rather than per inspection, so a stack of twelve sloppy forms is priced twelve times over.
Federal wage and hour law reaches nearly every business, either because the enterprise meets the annual dollar volume test, set at $500,000 in annual gross sales or business done (29 USC 203), or because individual employees are engaged in interstate commerce.
Individual coverage in practice reaches anyone handling out-of-state orders, payments, or communications. Either route brings minimum wage, overtime at one and a half times the regular rate above forty hours in a workweek, the equal pay provisions, and a payroll records requirement with a specific list of fields.
Immigration verification has no threshold whatsoever, and the related anti-discrimination provision reaches employers with four or more employees, because the statute exempts only a person or entity that employs three or fewer (8 USC 1324b).
Workplace safety duties apply from employee one as well. You have eight hours to report a work-related fatality, and twenty-four hours to report an inpatient hospitalization, an amputation, or the loss of an eye (29 CFR 1904.39).
The injury log is the part that waits. Employers with ten or fewer employees throughout the previous calendar year are partially exempt from keeping it (29 CFR 1904.1), though the reporting duties above bind an employer of any size.
Then there is the state layer, which is where most founders are actually caught out. Many state discrimination statutes apply at counts far below the federal fifteen, sometimes from a single employee. Paid sick leave, pay frequency rules, final paycheck timing, and pay transparency requirements are all state-level, and many of them apply from the first employee.
The First Five Hires: A Written Policy Set and Somewhere to Put It
The first five hires need a written policy set and one place to keep records, because your memory stops functioning as a filing system and inconsistency starts producing the disputes that later become claims.
Federal law adds almost nothing in this window. The immigration anti-discrimination rule at four employees is the only new federal line, though several states start their own discrimination statutes at four or five.
The tell is specific and every founder recognizes it: two people got different answers to the same question about time off, and both answers came from you. At one employee an informal arrangement is just an arrangement. At five it is a pattern, and a pattern that varies by person is the raw material of a discrimination claim.
| Policy | Why it exists at this stage | Where it lives |
|---|---|---|
| Pay periods and paydays | Most states regulate pay frequency and the deadline after a period ends | Offer letter plus the policy set |
| Time off and how it accrues | Accrued unused time is a wage on separation in several states | Policy set, with a written balance per employee |
| Sick leave | Mandated by state or local law in a growing number of places | Policy set, tracked separately from vacation where required |
| Expense reimbursement | Several states require reimbursement of necessary business expenses | Policy set plus a submission route |
| Conduct and anti-harassment | The complaint route is what an investigation is judged against | Policy set, with a named alternative recipient |
| Acknowledgment of receipt | An unsigned policy is close to unenforceable in practice | Signed and dated, stored with the personnel file |
Four or five pages covering that table beats a fifty-page handbook copied from a template, because you will actually follow it. Time off is the item to get right first: whether it accrues, whether it carries over, and what happens to a balance on separation.
Payroll cadence deserves a decision rather than a drift. Pick the frequency your state allows for your worker types, set the paydays for the year, and write them down, because changing cadence later requires notice and irritates everyone. The conduct policy needs one thing most templates omit: a second person an employee can complain to, so that a complaint about the founder has somewhere to go.
The Records That Matter When Something Goes Wrong
Five documents get requested when an employment dispute starts, and none of them are the ones founders write first: the signed offer letter, the Form I-9, the time records, the policy acknowledgment, and the dated notes from the conversation before the decision.
Federal wage and hour rules are unusually specific about the payroll record: employee name and address, occupation, the day and time the workweek begins, hours worked each day and each workweek, the pay basis, regular hourly rate, straight-time and overtime earnings, additions and deductions, total wages, and the pay date and period covered (29 CFR 516.2).
Without time records, a wage claim is generally decided on the employee’s reasonable estimate, under the burden-shifting rule the Supreme Court set in Anderson v. Mt. Clemens Pottery Co. (1946).
Three retention clocks run at once. Wage and hour rules require payroll records for at least three years from the last date of entry (29 CFR 516.5), and two years for the supporting time cards, wage rate tables, and records of additions to or deductions from wages (29 CFR 516.6). Neither clock starts at the hire date.
The tax clock runs longer. Employment tax records stay for at least four years after the fourth quarter return for that year is filed (IRS employment tax recordkeeping).
Form I-9 retention runs three years after the hire date or one year after employment ends, whichever is later (8 CFR 274a.2). Keep everything until four years after you file the fourth quarter return for the year an employee leaves, and the arithmetic stops mattering.
Storage structure matters as much as retention. Form I-9 belongs in its own file rather than the personnel folder, so an inspection of I-9s does not become an inspection of everything else, and medical, disability, and benefits information belongs in a third location entirely.
Nick Anisimov, FirstHR founderWhere New Legal Obligations Switch On
Four employee counts matter most in federal law for a startup: four, fifteen, twenty, and fifty. The fifteen, twenty, and fifty lines are each measured over a lookback window rather than on today’s payroll, so you can be covered by a statute after a reduction and not covered while briefly above the line.
| Obligation | Trigger that switches it on | How the count is measured |
|---|---|---|
| Wage and hour law, minimum wage, overtime | First employee | No threshold, subject to enterprise or individual coverage |
| Form I-9 verification | First employee | No threshold at all |
| Workplace safety duties and severe injury reporting | First employee | No threshold; the injury log waits until eleven |
| Workers compensation | First employee in most states | State rule; a few states set it at three, four, or five |
| Immigration-related discrimination provisions | Four employees | Current headcount |
| Title VII, the disability statute, and the genetic information statute | Fifteen employees | Twenty or more calendar weeks in the current or preceding year |
| Age discrimination statute | Twenty employees | Twenty or more calendar weeks in the current or preceding year |
| Continuation of group health coverage | Twenty employees | More than half of typical business days in the prior year |
| Family and medical leave | Fifty employees | Twenty or more calendar workweeks in the current or preceding year |
| Employer health coverage mandate | Fifty full-time equivalents | Monthly average across the preceding calendar year |
| Annual workforce demographic report | One hundred employees | Current workforce, filed annually |
The fifteen-employee line is the first big jump, because it brings the federal discrimination statutes and their record and posting requirements with it. The statute defines a covered employer as one with fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year (42 USC 2000e). Part-time employees count, contractors generally do not, and the twenty weeks need not be consecutive.
State thresholds sit underneath all of this and are usually lower. Several states apply their discrimination statutes at five employees, some at one, and state family leave programs frequently reach employers far below fifty. The federal table is the floor, never the answer.
The quarterly review itself takes about twenty minutes and produces one number per line of that table. Write down the count you measured, the window you measured it over, and the date a threshold was first crossed, because that date is what a lookback test asks about later. The counting rule for each statute is the part to get right, since almost every one of them counts differently.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personWhat Changes as You Approach Fifty
Fifty is the largest single step in US employment law for a growing company, and two unrelated statutes land at once. Neither is something you can implement in the week you cross the line.
The Family and Medical Leave Act covers an employer with fifty or more employees for each working day during each of twenty or more calendar workweeks in the current or preceding calendar year (29 USC 2611). Employer coverage is only half the test. An individual employee qualifies only after twelve months of employment, 1,250 hours in the preceding twelve months, and work at a site with fifty or more employees within seventy-five miles.
The health coverage mandate uses a different count entirely. An applicable large employer averaged at least fifty full-time employees, including full-time equivalents built from part-time hours, across the preceding calendar year, where full time means thirty hours a week or 130 hours a month (IRS applicable large employer determination). Crossing it means offering coverage that meets minimum value and an affordability standard the IRS resets every year.
The penalties are annual per-employee amounts, indexed each year. Revenue Procedure 2026-22 sets the 2027 failure-to-offer amount at $3,780 and the unaffordable-coverage amount at $5,670 (Internal Revenue Bulletin 2026-22), both assessed only when an employee receives subsidized exchange coverage.
The affordability standard that decides whether an offer exposes you to the unaffordable-coverage amount is 10.22 percent of household income for plan years beginning in 2027 (IRS Revenue Procedure 2026-26). Reporting obligations attach separately, on their own forms and deadlines.
Practically, start preparing around thirty-five to forty employees. Benefits decisions take a plan year to implement, leave administration needs a written process before the first request rather than after, and the measurement periods that determine full-time status run for months. This is also the point where the case for a dedicated HR person stops being theoretical.
What to Build Now and What to Defer
Build anything that produces a record of the employment relationship. Defer anything that describes the company to itself. That single rule sorts most of the list, and it is the opposite of how the effort usually gets allocated.
Build now: the offer letter template with the pay basis stated, a signature process that produces a dated signed copy, a folder structure separating personnel files from I-9s and from medical information, time records for every non-exempt employee, and the short policy set with acknowledgments. That is a week of work in total, and every item is something an agency or a lawyer will actually ask you to produce.
Defer: performance review cycles, engagement surveys, career frameworks, the values document, formal training programs, and the full handbook. None of these are worthless. All of them are better built once you have enough people for the output to mean something, and none of them protect you from anything in the meantime.
The pattern I see repeatedly is a founder with a beautifully written culture page and no signed offer letters. It is an understandable trade: the culture work is visible and feels like leadership, while the records work feels like bureaucracy for a problem that has not happened. The asymmetry is that skipping the culture page for six months costs nothing, and a missing time record has a number attached.
The one piece of the people system worth buying before you feel you need it is somewhere for records to live and onboarding to run consistently. That is the specific gap I built FirstHR to close, because the value of a record is entirely retrospective and you cannot create it after the fact.
Who Runs Human Resources for Startups Before the First HR Hire
Somebody owns human resources at a startup from the first payday, and it is almost always the founder or whoever runs operations. That is the normal shape of HR at a small business, not a failure state. The question is which parts you keep in-house and which you rent until headcount justifies a salary.
Three arrangements cover most startups. The founder or an operations lead runs the whole function with software behind them, which holds up well into the twenties. A fractional consultant handles the judgment calls a few hours a month, which starts paying off once terminations and leave requests arrive. Or a professional employer organization takes the employer paperwork and group benefits for a per-employee fee.
Whichever one you pick, two things stay with you: the classification and offer decisions, because they create the obligations and nobody can assume those on your behalf, and the record trail, since a consultant leaves with their own inbox and a provider keeps what it needs rather than what you would want in a dispute.
Frequently Asked Questions
What HR does a startup legally need before the first employee?
Five things, and none of them are documents about culture. First, a federal employer identification number, which is free and issued online in a single session. Second, withholding and unemployment accounts in every state where an employee will physically work, which can take anywhere from days to weeks. Third, workers compensation coverage bound before the start date, since most states impose it from the first employee. Fourth, a payroll path, whether that is a provider, an accountant, or a spreadsheet you maintain yourself. Fifth, a written decision on whether this person is an employee or a contractor. Everything else on a startup HR checklist can wait a week. These five cannot, because the state accounts depend on agency processing times you do not control.
Does a startup need an employee handbook?
No federal law requires one, and at your first hire a handbook is usually the wrong thing to spend a weekend on. Start with a short written policy set that settles when people get paid, how time off works and whether it accrues, what your state requires for sick leave, how expenses are reimbursed, what conduct is expected and how harassment is handled, and how someone raises a complaint. Four or five pages will carry all of that, and a short document people actually follow beats a long generic one. A full handbook becomes worth building once you have a handful of employees and the answers have to match for everyone. Whenever you do write one, have each employee sign and date a receipt for it, and state plainly that the handbook is not an employment contract.
Which employment laws apply to a company with fewer than fifteen employees?
More than most founders expect. Minimum wage, overtime for non-exempt employees, and the payroll records requirement apply from your first hire, because federal wage and hour law reaches almost every business through enterprise or individual coverage. Immigration verification has no employee threshold at all, and the immigration statute’s anti-discrimination provision covers any employer with four or more employees. Workplace safety duties, including the duty to report a fatality, start at employee one. So do the federal posting requirements, military reemployment rights, and the equal pay provisions inside the wage and hour statute. Workers compensation is a state matter, and most states require coverage from your first employee. Finally, state discrimination laws often start at much lower headcounts than the federal fifteen, in some places at a single employee.
When does FMLA apply to a startup?
The Family and Medical Leave Act (FMLA) applies to an employer that has had fifty or more employees on every working day of at least twenty calendar workweeks, in either the current or the preceding calendar year. Because the test looks backward, a company that spent most of the preceding year at fifty-two employees stays covered even after a reduction. Employer coverage is only the first test. Each employee must also have been employed for at least twelve months, have worked at least 1,250 hours in the twelve months before the leave, and work at a location with fifty or more of your employees within seventy-five miles. That location clause matters for distributed teams, because a remote employee is generally assigned to the site they report to rather than their home address.
How many employees before a startup needs HR software or an HR person?
The software question arrives long before the headcount question. Most founders reach the point where they cannot reconstruct who signed what somewhere in the first handful of hires, and that is the real trigger: not a number, but the moment memory stops being a filing system. A system that stores signed documents, tracks onboarding tasks, and holds employee records is worth having before you feel you need one, because the value is retrospective. A dedicated HR person is a different decision and usually lands much later, often somewhere near the fifty-employee mark where family and medical leave, the health coverage mandate, and a real benefits program all arrive together. Before that, the work is better handled by an owner or operations lead with a system behind them.
What HR records does a startup have to keep, and for how long?
Three clocks run at once and you should satisfy the longest. Under federal wage and hour rules, payroll records covering daily and weekly hours, the pay basis, total wages, and deductions must be kept at least three years, and the time cards and rate tables behind them for two. The IRS asks you to keep employment tax records for at least four years after you file the fourth quarter return for the year. Form I-9 has its own schedule: keep it three years from the hire date or one year after employment ends, whichever comes later. The practical version is to keep a departed employee’s file until four years after the fourth quarter return for their last year is filed, which covers all three clocks. Hold each Form I-9 in its own file so a review of your I-9s stays limited to the I-9s, and put medical and benefits information in a third location.
Can a startup hire contractors instead of employees to avoid HR obligations?
Only when the relationship is genuinely an independent one, and the label on the agreement does not decide that. Federal and state agencies apply their own multi-factor tests, weighing how much you control the work, who controls the money side, and the economic reality of the worker’s position, and several states go further and presume employee status unless the employer can prove otherwise. A wrong call is costly in a specific way: the withholding you skipped, the employer’s share of payroll taxes, penalties and interest, overtime plus liquidated damages, and an unemployment or workers compensation claim that reclassifies the whole group at once. Contractors are legitimate for genuinely independent, project-based work. They are not a way to run the same job on cheaper terms, and the tell is usually that you set the hours and supervise the method.
What is the most common HR mistake founders make in the first year?
Spending the available effort on documents that describe the company and almost none on the records that describe the employment relationship. The values page gets four drafts and the offer letter gets a text message. Then something ordinary happens, a wage claim, an unemployment dispute, a discrimination charge, and the question is never what your culture deck said. It is whether you can produce a signed offer letter stating the pay basis, a completed Form I-9, time records for the weeks in question, an acknowledgment that the policy was received, and dated notes from the conversation that preceded the decision. Founders under-invest in exactly the five things that get requested. The fix is small: one folder structure, one signature process, and a habit of writing things down on the day they happen.
Make HR the easy part of running your business
Onboarding, e-signatures, training and core HR in one place. Up and running in 5 minutes.
- 7-day free trial
- No credit card required
- Cancel anytime