How to Hire Employees in Indiana: The First-Hire Compliance Sequence

The thing nobody tells you about hiring in Indiana is that the paperwork is not hard. The ordering is. This guide walks the sequence in the order the work actually happens, from the federal Employer Identification Number (EIN) through the ninetieth day.

I have watched founders open a state tax account, run a clean first payroll, feel good about themselves, and then find out in month four that they never registered with the second state agency and their unemployment premium rate has been bumped for delinquency. Nothing about that failure was a knowledge problem. It was a sequence problem.

Indiana splits employer registration across two agencies that do not talk to each other on your behalf. It layers a county income tax on top of the state rate, so a form most out-of-state employers have never heard of decides how much comes out of the first paycheck. And it requires workers' compensation from your very first employee, with no small-employer exemption to fall back on.

I built FirstHR after running this gauntlet myself, because the failure mode at a small business is never ignorance of the rules. It is a founder who knew the rule and ran out of days.

The Indiana First-Hire Sequence at a Glance

Nine steps, several agencies, and three hard deadlines. Steps 1 to 8 are each either a legal requirement with an enforcement mechanism behind it or a step that unlocks the next one, and step 9 decides whether the hire stays. Work top to bottom and nothing blocks.

The three items with day-level clocks on them are the I-9 (third business day), the new hire report (20 days), and workers' compensation (in force before the first shift). The rest are gated by your first payroll date or by the quarter you become liable rather than by a countdown of days, which makes them easier to postpone and, in practice, easier to forget.

Keep one sheet per hire with the account numbers, dates, and confirmations on it. The point is not the checkboxes. It is that six months from now, when someone asks which county code you withheld at or when coverage went into force, the answer is on one page instead of spread across two state portals, an insurance broker's email, and your memory.

Step 1: Get Your Federal EIN Before Anything Else

The federal Employer Identification Number is the key that opens every other door, so it comes first. Apply online with the IRS at irs.gov. The application takes minutes, has to be finished in one session, and the number is issued at the end of it. There is no fee.

You cannot register for an Indiana withholding account or an unemployment insurance account without it, and you cannot use your Social Security number in its place once you have employees. If you already pulled an EIN when you formed the entity, reuse it. A second one creates two tax identities and a reconciliation problem you do not need.

Sole proprietors who have been operating alone and filing under their own Social Security number are the most common exception. The moment you decide to hire, the EIN becomes mandatory. Get it before you write the offer letter, not after.

Step 2: Open an Indiana Withholding Tax Account

Indiana income tax withholding is administered by the Indiana Department of Revenue, and you register by filing the Business Tax Application, Form BT-1, through the INBiz portal. There is no fee for a withholding registration, and the Department of Revenue says processing of the online application can take up to two business days. You need the EIN in hand before you start.

Indiana withholds at two levels. The state adjusted gross income tax rate for individuals is a flat 2.90 percent from January 1, 2027 (2.95 percent in 2026), per the Indiana Department of Revenue, and the department's Departmental Notice #1 explains how to withhold it.

On top of the state rate, every one of Indiana's 92 counties levies a local income tax that you also withhold and remit.

Once the account is open you file Form WH-1 on your assigned periodic schedule and reconcile the year on Form WH-3, which is due January 31. Registered employers must file even in periods with no tax due.

Late filing is penalized on both forms. A late WH-1 carries a penalty of up to 20 percent of the tax due with a $5 minimum, and a late WH-3 carries $10 per withholding document.

Step 3: Open an Unemployment Insurance Account With DWD

Unemployment insurance is a separate agency and a separate portal. The Indiana Department of Workforce Development runs it, and you register through Uplink Employer Self Service. Register during the first calendar quarter in which your business becomes liable, and expect to supply your EIN, legal business name, NAICS industry code, mailing address, Indiana work location, date of first payroll, and responsible party details.

Indiana sets no minimum payroll before liability begins. In its January 2026 summary of state unemployment insurance laws, the US Department of Labor lists Indiana's size-of-payroll trigger as any size, while many other states show a 20-week or $1,500 quarterly test instead. Treat the first employee as the trigger.

Premiums are assessed on the first $9,500 of gross wages per employee per calendar year, the taxable wage base the same Department of Labor summary lists for Indiana.

The Indiana Department of Workforce Development assigns most new employers a rate of 2.5 percent for the first four calendar years they operate in Indiana. Construction employers get a different new employer rate, and governmental entities and successor employers are handled separately.

Filing and paying on time matters because the worst case is 9.40 percent, against 2.50 percent for a typical new employer. Reports or premiums still outstanding by the deadline in the department's merit rate delinquency notice add two percentage points to the next year's rate under the Indiana Code (IC 22-4-11-2), on top of whatever the experience rating already charges.

What worked for me

I now open both state accounts in the same sitting, before the offer letter goes out. Withholding through INBiz, unemployment through Uplink, back to back, with both account numbers pasted into the same document as the EIN. It takes under an hour once, and it eliminates the single most common Indiana registration failure.

Nick Anisimov, FirstHR founder

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Step 4: Put Workers' Compensation Coverage in Force

Indiana requires workers' compensation from the first employee, with no small-employer exemption and no elective opt-out for private employers. You either buy a policy from an authorized carrier or satisfy the Worker's Compensation Board that you can pay claims directly as a self-insurer. For a first hire, that means buying a policy.

The enforcement is not theoretical. Under IC 22-3-4-13, failing to insure as IC 22-3-5-1 requires is a Class A misdemeanor, punishable by up to one year in jail and a fine of up to $5,000 under IC 35-50-3-2.

The board can also ask a court to order the violation stopped. If a compensable claim goes unpaid, a court can order the uninsured employer to temporarily stop doing business in Indiana until it produces proof of coverage.

A short list of workers falls outside the requirement. Sole proprietors, partners, and LLC members are excluded by default and may elect to be covered on the company policy. Casual labor, farm and household employees, licensed real estate agents paid by commission under a written independent contractor agreement, and railroad employees in train service are also outside the system.

An independent contractor documents that status with a Worker's Compensation Clearance Certificate, applied for online through INTIME or on the board's paper application.

Every covered employer also has a posting duty. The Worker’s Compensation Board of Indiana publishes the notice in English and Spanish, and the form has blanks you fill in for the carrier or, for a self-insurer, the administrator handling claims.

Step 5: Send the Offer and Complete Form I-9

Send the written offer first, with the start date on it, because that date starts the Form I-9 clock. Everything the employee can fill in themselves, including Section 1 of the I-9, should reach them with the offer rather than land on them during the first morning.

Form I-9, the federal employment eligibility form, applies to every employer in every state and carries the tightest clock in the sequence. The employee completes Section 1 on or before the first day of work.

Section 2 is completed by you by the end of the employee's third business day, after examining acceptable documents in person, or remotely under the Department of Homeland Security alternative procedure that is open only to employers enrolled in E-Verify and in good standing.

You do not get to tell the employee which documents to present. The employee chooses from the lists of acceptable documents, and steering them toward a particular document is itself a violation.

Paperwork violations under the current federal penalty schedule reach $2,861 per form, and the Department of Justice confirmed that civil monetary penalty levels do not increase for calendar year 2026. Fines are assessed per form, so a handful of late I-9s at a small business compounds quickly.

Where E-Verify Fits for an Indiana Employer

E-Verify is optional for private employers in Indiana, but it now counts as a defense under the state's own work-authorization law. Federal law sets the rule, and since July 1, 2026, Indiana enforces its own version of it.

The Immigration Reform and Control Act, codified at 8 U.S.C. 1324a, bars every employer at every size from knowingly hiring or continuing to employ a person who is not authorized to work in the United States. Form I-9 is how you document that you looked.

The Indiana version, IC 22-5-9-7, covers conduct on or after July 1, 2026. It bars any employer from knowingly or intentionally recruiting, hiring, or keeping an unauthorized alien in Indiana, and the attorney general enforces it in court. A first violation can suspend the licenses and permits at that location for five business days, and repeat findings escalate to 180 days, then revocation.

E-Verify is a separate federal system, and Indiana still does not require private employers to use it. IC 22-5-1.7 reaches only the public side: state agencies, political subdivisions, their service and public works contractors, and grant recipients above $1,000 must enroll and verify newly hired employees. A private employer may enroll voluntarily, and nothing in state law forces the choice.

Indiana's new law is the reason to consider enrolling. IC 22-5-9-7 counts E-Verify checks, or diligence that follows industry standard best practices, as reasonable diligence, and an employer that confirmed work eligibility that way before hiring has not violated the statute.

Step 6: Collect Both Withholding Forms, W-4 and WH-4

Indiana new hires complete two withholding forms, not one. IRS Form W-4 sets federal income tax withholding. Indiana Form WH-4, the Employee's Withholding Exemption and County Status Certificate, sets state exemptions and the county code that determines the local rate. Missing the second one is the single most common Indiana payroll error at a first hire.

Without a signed WH-4 you have no exemption count and no county election, which means you withhold at the default with nothing claimed and you may be remitting to the wrong county.

Employees are generally entitled to deduct $1,000 per year per exemption claimed, $1,500 per qualifying dependent exemption, and $3,000 per qualifying adopted child, which the deduction constant tables convert into a per-paycheck figure.

Ask for the county of residence as of January 1 explicitly. Employees fill in where they live today, which is the correct answer only if they did not move. The rate is fixed on January 1 for the whole tax year, and a midyear move does not change it.

Step 7: File the New Hire Report Within 20 Days

Indiana gives you 20 days from the hire or rehire date to report a new employee to the Indiana New Hire Reporting Center. The obligation comes from IC 22-4-10-8 and the federal welfare reform law of 1996, and the data feeds child support enforcement and benefit integrity work.

Reports go in electronically. The reporting center takes an online form, a file upload, or SFTP (a secure file transfer), and paper is no longer an option.

Employers that transmit files get one alternative to the 20-day clock: two transmissions per month, twelve to sixteen days apart. For a small business making one hire at a time, filing the same day you finish I-9 Section 2 is simpler than tracking a transmission window.

The financial penalty is small on its face, up to $25 per unreported employee, but it climbs to $500 where the employer and employee agree not to report. Treat it as a five-minute task with a hard deadline, because that is exactly what it is.

Step 8: Post the Required State and Federal Notices

Indiana spreads its required postings across four agencies, so there is no single state download that covers everything. Federal posters come from the US Department of Labor separately. All of it has to be displayed where employees can see it before the first shift starts.

The Department of Workforce Development cites IC 22-4-17-1(e), IC 22-4-9-6, and 646 IAC 5-2-16 (a section of the Indiana Administrative Code) as the authority for its unemployment posting. Every one of these notices is a free download from the issuing agency. Nothing here justifies paying a poster vendor, because the laminated all-in-one panels that vendors mail out carry the same content at a markup.

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Step 9: Run Onboarding From Day 1 Through Day 90

Compliance gets the employee legally on your payroll. Onboarding decides whether they are still there in six months. Every step above should be finished before or on day one so the first morning is about the work, the team, and the expectations rather than a stack of forms.

I built the AI onboarding wizard in FirstHR for exactly this stretch. The offer goes out with e-signature, the W-4, WH-4, and direct deposit forms come back before day one, and Form I-9 sits on the first-day task list (the form itself is completed outside the platform). The wizard turns the job description into a 30-60-90 day plan instead of leaving you to write one at 11pm the night before.

Indiana-Specific Rules That Change How You Operate

Indiana is a low-friction state on paper and a detail-heavy one in practice. The differences below shape your employee handbook, your payroll configuration, and your exposure when a hire ends badly.

Two of these deserve emphasis for a first hire. The state discrimination law reaches employers at six employees, well below the federal Title VII trigger, so an Indiana small business can be covered by state law long before federal law applies. And because Indiana is an at-will employment state with narrow public policy exceptions, your handbook language matters more than your termination speech does.

On the exit side, Indiana does not impose an immediate final check requirement. When an employee leaves voluntarily, the amount due is payable on the next usual and regular payday the employer has established. That is a gentler rule than California's, but it is not permission to be slow.

County and City Rules: Where Indiana Gets Local

Indiana's local layer is fiscal, not regulatory. Cities cannot set their own minimum wage, because IC 22-2-2-10.5 bars a unit of local government from establishing, mandating, or otherwise requiring a wage floor above the state or federal rate. What local government does control is the county income tax, and that one affects every paycheck you write.

All 92 counties impose a local income tax, and the spread is wide. Departmental Notice #1 puts Porter County at 0.5 percent and Randolph County at 3.0 percent for 2026, a gap of two and a half points.

The rate follows the employee, not the employer. You withhold at the rate for the county where the employee lived on January 1 of the tax year or, if the employee lived out of state on that date, at the rate for the Indiana county holding their principal place of work or business.

Rates are from Departmental Notice #1 effective October 1, 2026. Six counties raised their rates on January 1, 2026, and Boone moved from 1.70 to 1.71 percent on October 1. Because rates can change every January and October, re-read the notice then rather than trusting a saved payroll configuration.

Hiring across a state line adds one more wrinkle. For withholding occurring on or after January 1, 2024, an employer is not required to withhold Indiana state or county income tax on some employees who will work in Indiana for 30 days or less during the taxable year.

The Department of Revenue attaches conditions, including a time and attendance record of work location kept as the work happens, so read the special rules section before relying on it.

Indianapolis and Marion County

The state civil rights statute at IC 22-9-1-3 protects race, religion, color, sex, disability, national origin, ancestry, and status as a veteran. Indianapolis and Marion County run a human rights ordinance on top of that, with a longer list of protected categories and a local complaint process.

If you employ people in Indianapolis, pull the current city-county ordinance and write your handbook's anti-discrimination policy to the local list rather than the shorter state one.

Outside Marion County, the practical answer for most employers is that federal and state law govern, and the county income tax is the only local variable in your payroll setup. Check the municipal website where you actually employ people once a year and move on.

Employee or Contractor: Indiana Applies a Three-Part Test

Misclassifying an employee as an independent contractor is the most expensive way to simplify a first hire, and the Indiana unemployment insurance test is stricter than the federal common-law test most founders have in mind. The Department of Workforce Development treats a worker as an independent contractor only when all three conditions are satisfied at once.

The department is explicit that a signed independent contractor agreement or a 1099 does not by itself establish the status. If reclassification happens, you owe back premiums plus interest and penalties, and serious cases can draw fraud allegations. Federal employment taxes are evaluated separately under the IRS common-law test, so a worker can fail one test and pass the other.

The workers' compensation system runs its own track, and it keys off the IRS guidelines rather than the three-part test above. An independent contractor who wants to stay outside the coverage requirement applies for a Worker's Compensation Clearance Certificate, fastest through INTIME.

The certificate is how a genuine contractor documents the relationship, and its absence is one of the first things an adjuster looks for after an injury.

When the answer is close, hire the person as an employee. The cost difference between a W-2 and a 1099 for one worker is small. The cost of a reclassification assessment, retroactive premiums, and an uninsured injury claim is not.

The Mistakes That Cost Indiana Employers the Most

These are the failures I see repeatedly, and every one of them is a process gap rather than a knowledge gap. The founder knew the rule. The task simply did not have an owner or a date.

Read that list again and notice the pattern: four of the six are timing or sequencing failures, one is an omission from the day-one packet, and the last is a shortcut taken under time pressure. That is why reminders and assigned owners beat compliance knowledge at small-business scale. Nobody forgets the twenty-day report because they never heard of it.

What worked for me

The habit that fixed this for me was writing the deadlines onto the hire itself rather than into a calendar. The offer letter creates a record with three dates attached: I-9 Section 2 by the third business day, new hire report by day twenty, first payroll on a named date with both state accounts confirmed. When the deadline lives on the hire, it moves when the start date moves. When it lives in a calendar, it quietly goes stale.

Nick Anisimov, FirstHR founder

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