A milestone with strings attached
From solo operator to employer
Bringing on your first hire usually means the business is working. It also means New Jersey and federal employment laws now apply to you, many of them regardless of how small you are.
Owners who have run lean for years are often surprised by how much changes with one hire: registrations, withholding, insurance, record-keeping, required notices and written policies. None of it is unmanageable, but much of it has to be done before or on the first day, not after the first payroll.
This guide is general information. Employment rules change regularly, so confirm current requirements with your payroll provider, accountant and counsel before you hire.
First question: employee or independent contractor?
Before anything else, be sure the role really is employment. New Jersey uses the strict ABC test for wage-and-hour, unemployment and related purposes. In broad terms, a worker is presumed to be an employee unless the business shows the worker is free from its control, the work is outside the usual course of the business or its places of business, and the worker is customarily engaged in an independently established trade or business. Penalties for misclassification were strengthened in recent years.
If the person will work regular hours, under your direction, doing the core work of the business, expect them to be an employee. Our article on independent contractor versus employee status in New Jersey explains the test in more depth, and the firm's independent contractor agreements page covers genuine contractor relationships.
Registrations, payroll and insurance
Once you know you are hiring an employee, set up the employer infrastructure:
- Federal and state employer registration. Confirm you have an EIN and register with New Jersey as an employer so you can withhold and remit state income tax and the state's unemployment, disability and family leave insurance contributions.
- Payroll. Use a payroll service or professional. Errors in withholding and filings can create personal exposure for responsible owners, and fixing them later costs more than doing it right.
- New-hire paperwork. Complete Form I-9 employment eligibility verification and collect federal and state withholding forms at hire. New Jersey also requires employers to report new hires to the state.
- Workers' compensation. New Jersey employers generally must carry workers' compensation insurance from the first employee. Ask your broker whether general liability or employment practices liability coverage also makes sense.
Pay, hours and leave
New Jersey's minimum wage is higher than the federal rate and is adjusted periodically, so check the current figure for your business before setting pay. Decide whether the position is exempt or non-exempt from overtime; job titles and salary alone do not settle that, the duties do. Non-exempt employees must be paid overtime for hours over 40 in a workweek, and you need accurate time records to prove it.
Pay on a regular schedule and provide wage statements showing hours, rates and deductions. Deductions from pay are restricted under state law, so do not deduct for breakage, shortages or uniforms without checking first.
New Jersey's Earned Sick Leave Law applies to nearly all employers, regardless of size, and requires paid sick time to accrue for most employees. Other leave laws, including state family leave protections, apply based on the number of employees and the circumstances. Build compliant leave rules into your written policies from the start rather than improvising when someone is out sick.
Before day one
Documents and policies to have ready
A small business does not need a binder of policies to hire one person, but it does need these:
- An offer letter stating title, pay, schedule, start date and that employment is at-will, without promises you do not intend to keep
- A confidentiality and invention assignment agreement so the business owns the work the employee creates
- Carefully drafted restrictive covenants, such as a non-solicitation clause, only where the role justifies them
- A short handbook or policy set covering equal opportunity, anti-harassment, complaint procedures, anti-retaliation, sick leave and pay practices
- Required federal and New Jersey workplace posters, plus the notices New Jersey requires employers to distribute to employees in writing
- A personnel file system that keeps I-9s separate from other records
New Jersey's Law Against Discrimination applies to employers of every size, so written anti-harassment and complaint procedures matter even with one employee.
Mistakes first-time employers make
The most expensive errors are usually made with good intentions. Owners pay a first hire in cash or on a 1099 to keep things simple, then face back taxes and wage claims. They download an offer letter or handbook written for another state that contradicts New Jersey law. They make informal promises about bonuses, equity or a guaranteed job that later become claims. Or they wait until a problem appears to write any policies at all.
Non-competes deserve special care. New Jersey has no general non-compete statute; courts apply a reasonableness test and may narrow an overbroad covenant, and the law in this area continues to attract legislative proposals. A narrower non-solicitation clause is often a better fit for a first hire.
The firm drafts offer letters and key-employee agreements through its employment contract services and reviews policies through its employee handbook and HR policy review. Both fit within a broader legal risk analysis for growing businesses.
Questions & answers
First-hire questions
Do I need workers' compensation for just one employee?
Generally, yes. New Jersey requires most employers to carry workers' compensation insurance, and the obligation begins with the first employee rather than at a headcount threshold. Owners who are not themselves employees may be treated differently, so confirm the details with your insurance broker before your hire's first day.
Do I need an employee handbook for one employee?
Not every policy must be in a handbook, but a short written policy set helps. It sets expectations, documents required leave and anti-harassment procedures, and can support your position if a dispute arises. A concise, New Jersey-specific document is far better than a long generic one downloaded from the internet.
Can I use a template offer letter?
A template is a reasonable starting point, but adapt it. Many online templates are written for other states, include terms that undermine at-will employment, or promise benefits you have not decided on. Keep the letter short, accurate and consistent with any separate confidentiality or restrictive covenant agreement.
Can my first employee sign a non-compete?
It is possible, but New Jersey courts enforce employee non-competes only to the extent they are reasonable and protect a legitimate business interest. For many first hires, a confidentiality agreement and a client non-solicitation clause provide better-targeted protection with less enforcement risk.
