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. 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.

This guide walks the sequence in the order the work actually happens, from the federal EIN through the ninetieth day. 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. If this is your very first hire anywhere, pair this with our general guide to hiring your first employee.

The Indiana First-Hire Sequence at a Glance

Nine steps, four agencies, and three hard deadlines. Everything below is either a legal requirement with an enforcement mechanism behind it or a step that unlocks the next one. Work top to bottom and nothing blocks.

The three items with real 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). Everything else is gated by your first payroll date rather than by a statutory countdown, which makes it easier to postpone and, in practice, easier to forget.

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 about ten minutes and the number is issued at the end of the session. 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 processing typically takes a couple of business days. You need the EIN in hand before you start.

Indiana withholds at two levels. For 2026 the state adjusted gross income tax rate for individuals is 2.95 percent, per Departmental Notice #1 issued by the Indiana Department of Revenue and effective January 1, 2026. On top of that, 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. Late WH-1 filings carry 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. Registered employers must file even in periods with no tax due.

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 code, mailing address, Indiana work location, date of first payroll, and responsible party details.

Indiana sets no minimum payroll before liability begins. The US Department of Labor lists Indiana's size-of-payroll trigger as any size in its January 2026 summary of state unemployment insurance laws, where 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.

The gap between 2.50 percent and 9.40 percent is the entire argument for filing on time. Failure to report or pay quarterly liabilities on schedule adds two percentage points to the rate under IC 22-4-11-2, and the increase compounds with any experience-rated deterioration. For the mechanics of how experience rating works across states, see our explainer on state unemployment tax.

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. Failing to insure under IC 22-3-5-1 is a Class A misdemeanor under IC 22-3-4-13, which IC 35-50-3-2 puts at up to one year in jail and a fine of up to $5,000. The board can also sue to enjoin the violation, and a court can order an uninsured employer to 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, certain agricultural and household workers, 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. For the broader picture of how coverage works and what it costs, see our guide to workers’ compensation insurance.

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

Form I-9 is federal, applies to every employer in every state, and carries the tightest clock in the sequence. Section 1 is completed by the employee 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.

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. Our primer on I-9 documentation walks through what qualifies and what a reasonable examination looks like.

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

Federal law does the work here, not Indiana law. 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. Our explainer on the Immigration Reform and Control Act covers the enforcement side.

E-Verify is a separate federal system, and Indiana does not require private employers to use it. IC 22-5-1.7 reaches only the public side: state agencies, political subdivisions, their service contractors, and grant recipients above $1,000 must enroll and verify newly hired employees. A private employer may enroll voluntarily, and many do once they bid on public work, but nothing in state law forces the choice. If work authorization is new territory, start with our overview of what work authorization means.

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, and $3,000 per year 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.

For everything that belongs in the day-one packet beyond the tax forms, our checklist on new hire paperwork is the fuller version of this step.

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, 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, and the reporting record is visible to the state in a way that shapes how other inquiries go. 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 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, and the laminated all-in-one panel you get mailed offers is the same content with a markup.

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 I-9, W-4, WH-4, and direct deposit forms come back before day one, the platform holds the three-day and twenty-day reminders, and 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. Our Indiana compliance hub tracks the same rules as they change.

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: our guide to the final paycheck covers the deduction limits that trip up employers who try to net out equipment or advances.

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 January 1, 2026. Six counties carry an asterisk in that notice, the Department of Revenue's marker for a rate that changed after the previous issue on October 1, 2025. That is the practical argument for re-reading the notice each January rather than trusting a saved payroll configuration.

One more wrinkle worth knowing before you hire across a state line: 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 contemporaneous time and attendance record of work location, 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 Indiana's 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. Getting that on file is how a genuine contractor documents the relationship, and its absence is one of the first things an adjuster looks for after an injury. If you are genuinely bringing on project help, our guide to hiring a contractor covers the agreement terms that support the classification.

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.

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