Employment Law Basics for First Hires: I-9, Wage Rules and Classification Errors

Hiring the first employees imposes three federal obligations immediately: verify work authorization on Form I-9 within three business days of the start date, pay at least the higher of the federal or state minimum wage with overtime at one-and-a-half times the regular rate after 40 hours for non-exempt workers, and classify each worker correctly as employee or independent contractor. Most first-year employment liability — I-9 fines, unpaid-overtime claims, misclassification assessments — traces to paperwork and default practices at exactly this stage, long before any dispute exists.

USA Post publishes information about employment regulation, not legal advice. State rules vary materially; confirm local requirements before hiring.

What does Form I-9 compliance require?

Every hire — citizen or not — completes Section 1 of Form I-9 by the first day of paid work, and the employer completes Section 2 after physically inspecting original documents establishing identity and work authorization within three business days. The forms are not filed with the government; they are retained for three years after hire or one year after termination, whichever is later, and produced on three business days' notice if U.S. Immigration and Customs Enforcement audits. E-Verify, the web-based photo-matching system, is optional federally but mandatory for employers in states that require it and for federal contractors. Penalty exposure is per-form: paperwork violations run a few hundred dollars each, and knowingly hiring unauthorized workers reaches criminal territory. The 2023 version of the form and the remote-examination rule — employers enrolled in E-Verify may inspect documents over video — changed practice; audited employers with clean retention and consistent practice fare far better than those with missing forms.

What are the wage-and-hour rules that actually generate claims?

The Fair Labor Standards Act sets the federal floor: a $7.25 hourly minimum, overtime at 1.5 times the "regular rate" beyond 40 hours, and record-keeping the employer — not the employee — must maintain. Claims cluster in three places. First, misapplication of the white-collar exemptions: job duties — not titles — determine exempt status under the salary-basis and duties tests for executive, administrative and professional employees, and a "manager" who performs mostly line work is non-exempt. The 2024 Department of Labor rule raising the salary threshold was vacated nationwide in November 2024 by a Texas federal court, reverting to the roughly $684-per-week level; employers who re-raised salaries often kept them, but the legal floor reverted. Second, the regular rate: nondiscretionary bonuses and commissions must be included in overtime calculations — a recurring source of back-pay claims. Third, off-the-clock work: preparatory tasks, training and after-hours messaging for non-exempt staff are compensable. State law frequently exceeds the FLSA — higher minimums, daily overtime in California, prompt-payment penalties — and applies to the employees working there.

Employee or independent contractor?

Misclassification is the most expensive first-year error, because it compounds: unpaid overtime, payroll-tax assessments with penalties, and benefits claims arrive together. There is no single test federally. The Department of Labor's 2024 rule restored a multifactor economic-reality test weighing opportunity for profit, investments, permanence, control and economic dependence — the 2021 independent-contractor rule was withdrawn; the IRS applies its own common-law control test for employment taxes, and states like California apply the ABC test, under which a worker is an employee unless all three prongs are met, including that the work is outside the usual course of the hiring entity's business. Practical guidance: if the person works only for you, on your schedule, with your tools, integrated into your operations, classify as an employee or restructure the relationship genuinely. The savings from contractor status are never larger than the assessment.

What else should a first-time employer set up?

1. Publish wage notices where states require them (New York, California and others mandate written pay notices at hire).
2. Adopt a short handbook with anti-harassment, anti-discrimination, leave and complaint policies; in some states (California, New York, Illinois, Connecticut, Delaware, Maine) harassment training is mandatory.
3. Register for workers' compensation before the first day worked — it is compulsory in nearly every state and occasionally criminal without.
4. Verify required postings (FLSA, OSHA, family leave, EEO) are displayed physically or electronically.
5. Use a payroll service: withholding, unemployment insurance and W-2 filing errors are the classic self-inflicted wounds.
6. Document performance problems contemporaneously — most discrimination claims are lost on process, not intent.

What do anti-discrimination laws require from day one?

Title VII, the ADA and the ADEA apply at 15 employees, but several state fair-employment statutes apply from the first employee, and retaliation claims — which require no threshold in most regimes — arise from how employers respond to complaints. The day-one obligations are practical: consistent job postings without age or citizenship references, structured interviews without medical or family questions, and a complaint channel someone actually monitors. For a small business, one documented investigation of a complaint, done promptly and fairly, prevents most exposure; ignoring a complaint converts an employment problem into a litigation problem.