What forms do I need when I hire a new employee?
There are a handful of forms you need every time you bring someone on. Missing one can create problems with the IRS, California EDD, or both. Here is what you need to collect and file.
Form W-4 is the federal tax withholding form. The employee fills this out so you know how much federal income tax to withhold from each paycheck. They can update it anytime, but you need one on file before you run your first payroll for them.
Form I-9 verifies the employee is legally authorized to work in the United States. You need to complete Section 1 on or before the employee’s first day and Section 2 within three business days of their start date. The employee has to show you original documents like a passport or a driver’s license plus Social Security card. You review and record them but don’t send the form to the government. Keep it in your files. You’ll need it if you’re ever audited.
DE 4 is California’s state withholding allowance certificate. It works like the W-4 but for state taxes. If an employee doesn’t fill one out, you default to the “zero allowances” rate, which withholds the maximum amount.
New hire reporting is required in California within 20 days of the employee’s start date. You report to the California Employment Development Department (EDD) using either the DE 34 form or through their online e-Services portal. This is a legal requirement, not optional. The state uses this data for child support enforcement and other programs.
Beyond forms, make sure you have workers’ compensation insurance in place before anyone starts working. California requires it for every employer with at least one employee, and there is no grace period. If someone gets hurt on day one without coverage, that is on you.
You should also have the employee sign a direct deposit authorization if you’re paying electronically, and keep a copy of their Social Security number or ITIN on file for W-2 reporting at year end.
One thing that trips up a lot of trade and construction businesses is the difference between employees and independent contractors. In California, AB5 and the ABC test make it very difficult to classify workers as 1099 contractors. If someone works on your schedule, uses your tools, and does work that is a regular part of your business, they are almost certainly an employee under California law. Getting this wrong leads to back taxes, penalties, and interest from both the IRS and EDD. If you provide bookkeeping and tax services for contractors or run a crew yourself, this distinction matters a lot.
Setting up payroll correctly from the start makes all of this easier. When your system is configured properly, it handles the withholding calculations, generates the right reports, and reminds you of filing deadlines. Trying to manage it manually or catching up later almost always costs more than doing it right the first time.
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