Hiring Your First Employee: Why Your EIN Matters More Than You Think

You’re ready to hire your first employee.

But you don’t have an EIN yet. You think you can hire without it. You’re wrong.

You can’t hire employees without an EIN.

The IRS requires it. Payroll systems need it. Tax compliance depends on it. You’ll face penalties without it.

This guide explains why.

What an EIN is for hiring. Payroll requirements. Tax withholding rules. Compliance obligations. What happens if you don’t have one.

Read this. Understand the requirements. Get your EIN. Hire legally.

Why EIN Is Required for Hiring

The IRS requires an EIN before you can hire employees.

What it is: An Employer Identification Number (EIN) is a nine-digit number the IRS assigns to your business.

Why it’s required:

• IRS uses it to track employment taxes
• Required for payroll tax reporting
• Needed for employee tax forms (W-2, W-4)
• Required for state employment tax registration
• Needed for unemployment insurance

Legal requirement:

• Federal law requires EIN for employers
• State laws require EIN for state tax registration
• Cannot hire employees legally without it

The bottom line: You cannot hire employees without an EIN. It’s not optional. It’s required by law.

Payroll Requirements

Here’s what you need an EIN for in payroll:

Payroll System Setup

What you need:

• EIN to set up payroll accounts
• EIN to register with payroll providers
• EIN to process payroll transactions

Why it matters: Payroll systems cannot process payroll without an EIN.

Employee Records

What you need:

• EIN to create employee records
• EIN to track employee wages
• EIN to calculate payroll taxes

Why it matters: Employee records require an EIN for tax reporting.

Payroll Processing

What you need:

• EIN to process payroll
• EIN to calculate withholdings
• EIN to generate pay stubs

Why it matters: Payroll processing requires an EIN for tax compliance.

Pro tip: Get your EIN before setting up payroll systems. It speeds up the process and ensures compliance from day one.

Tax Withholding Rules

Here’s how EIN relates to tax withholding:

Federal Tax Withholding

What you need:

• EIN to register for federal tax withholding
• EIN to remit withheld taxes to IRS
• EIN to file employment tax returns

Requirements:

• Withhold federal income tax from employee wages
• Withhold Social Security and Medicare taxes (FICA)
• Remit taxes to IRS using your EIN

Why it matters: Federal tax withholding requires an EIN for proper reporting.

State Tax Withholding

What you need:

• EIN to register for state tax withholding
• EIN to remit withheld taxes to state
• EIN to file state employment tax returns

Requirements:

• Withhold state income tax (if applicable)
• Withhold state disability insurance (if applicable)
• Remit taxes to state using your EIN

Why it matters: State tax withholding requires an EIN for proper reporting.

Tax Forms

What you need:

• EIN to issue W-2 forms to employees
• EIN to file W-3 forms with IRS
• EIN to file quarterly employment tax returns (Form 941)

Why it matters: All employment tax forms require your EIN.

Pro tip: Without an EIN, you cannot properly withhold or remit taxes. This results in penalties and compliance issues.

Compliance Obligations

Here’s what you must comply with using your EIN:

Federal Compliance

What you must do:

• Register with IRS using EIN
• File quarterly employment tax returns (Form 941)
• File annual unemployment tax returns (Form 940)
• Issue W-2 forms to employees
• File W-3 forms with IRS

Penalties for non-compliance:

• Late filing penalties
• Late payment penalties
• Interest on unpaid taxes
• Potential criminal penalties for willful violations

State Compliance

What you must do:

• Register with state using EIN
• File state employment tax returns
• Pay state unemployment insurance
• Comply with state wage and hour laws

Penalties for non-compliance:

• State penalties vary by state
• Loss of business license
• Legal action

Record Keeping

What you must do:

• Maintain employee records with EIN
• Keep payroll records
• Keep tax records
• Retain records for required periods

Why it matters: Proper record keeping requires an EIN for organization and compliance.

Pro tip: Compliance obligations start the day you hire your first employee. Having your EIN ready ensures you can comply from day one.

What Happens Without an EIN

Here’s what happens if you try to hire without an EIN:

You Cannot Legally Hire

The problem:

• Federal law requires EIN for employers
• Cannot process payroll without EIN
• Cannot register for employment taxes without EIN
• Cannot issue proper tax forms without EIN

The result: You cannot legally hire employees without an EIN.

Payroll System Issues

The problem:

• Payroll systems require EIN to set up
• Cannot process payroll without EIN
• Cannot generate pay stubs without EIN
• Cannot file tax forms without EIN

The result: Payroll systems won’t work without an EIN.

Tax Compliance Problems

The problem:

• Cannot withhold taxes properly without EIN
• Cannot remit taxes to IRS without EIN
• Cannot file employment tax returns without EIN
• Cannot issue W-2 forms without EIN

The result: Tax compliance is impossible without an EIN.

Penalties and Fines

The problem:

• IRS penalties for non-compliance
• State penalties for non-compliance
• Interest on unpaid taxes
• Potential legal action

The result: Penalties and fines for trying to operate without an EIN.

Pro tip: Get your EIN before you need it. The application takes minutes and is free. There’s no reason to delay.

Getting Your EIN

Here’s how to get your EIN quickly:

Online Application

Where to apply: IRS website at irs.gov

How it works:

• Complete online application
• Answer all questions accurately
• Submit application
• Receive EIN immediately

Time required: 5-15 minutes

Cost: Free

Result: You get your EIN number immediately after submission.

Required Information

What you need:

• Business name (exactly as filed with state)
• Business address
• Your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
• Business formation date
• Entity type (LLC, Corporation, Partnership, etc.)
• Reason for applying (hiring employees)

Why it matters: Having this information ready speeds up the application.

After You Get Your EIN

What to do:

• Save your EIN confirmation letter
• Register with state employment agencies
• Set up payroll systems
• Register for employment taxes

Why it matters: Getting your EIN is just the first step. You need to register with state and federal agencies.

Pro tip: Apply for your EIN as soon as you know you’ll be hiring. Don’t wait until you’re ready to hire. Get it in advance.

Your Next Steps

Get your EIN. Prepare for hiring. Stay compliant.

This Week:

1. Get your EIN online (5-15 minutes)
2. Save your EIN confirmation letter
3. Research state employment requirements
4. Understand payroll obligations

This Month:

1. Register with state employment agencies
2. Set up payroll system
3. Register for employment taxes
4. Prepare employee onboarding process

Going Forward:

1. Withhold taxes properly
2. File employment tax returns on time
3. Issue W-2 forms to employees
4. Maintain compliance records

Need help? Check out our EIN application guide for getting your EIN, our state-by-state checklist for state requirements, and our registered agent guide for business address requirements.

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