Hiring Your First Technician: W-2 vs 1099, Paperwork, and Payroll (Gusto vs QuickBooks)

Updated 2026-10-17. Sources are listed at the end.

Your first helper changes your business. You now have payroll taxes, new-hire paperwork, and (in most states) a workers’ comp requirement. Here’s the checklist, with each rule linked to the agency that sets it.

Step 1: Employee or independent contractor?

It isn’t your choice to make by label. The IRS says that under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. That holds even if you give them freedom of action, and calling someone a contractor in an agreement doesn’t change it (IRS, Employee (common-law employee)). The IRS groups the evidence into three categories (IRS, Independent contractor or employee?):

• Behavioral: do you control, or have the right to control, what the worker does and how?
• Financial: do you control the business side of the work, such as how they’re paid, whether expenses are reimbursed, and who provides tools and supplies?
• Type of relationship: are there written contracts, benefits, an expectation that the work continues, and is the work a key part of your business?

A tech who works your schedule, on your jobs, under your direction, for an hourly wage, looks like an employee under these factors. IRS Publication 1779 is a short plain-English summary. If you’re unsure, you can ask the IRS to determine status with Form SS-8 (IRS). States can apply their own tests for unemployment insurance and workers’ comp, so check those too.

If someone really is a contractor: for payments made in 2026, file Form 1099-NEC for each nonemployee you pay $2,000 or more for services during the year (it was $600 for payments before 2026) (IRS, Am I required to file a Form 1099?).

Step 2: New-hire paperwork (employees)

The IRS hiring employees page lists the federal basics:

• EIN. You need an Employer Identification Number to report employment taxes. It’s free from the IRS (IRS, Get an EIN).
• Form I-9 for every new hire, to verify identity and work eligibility. USCIS says the employer must complete Section 2 within 3 business days of the employee’s first day of work (USCIS).
• Form W-4 so you know how much federal income tax to withhold. The IRS says if an employee doesn’t give you one, withhold as if they were single with no adjustments.
• Record the employee’s name and SSN exactly as on their Social Security card, for the W-2.
• New-hire report to your state. Federal law requires reporting new hires to the state within 20 days of hire, and some states require it sooner. States can fine up to $25 per unreported hire, or $500 if the failure results from a conspiracy (HHS Office of Child Support Services).
• State registration. Example: California’s Labor Commissioner tells new employers to register with the EDD for payroll taxes before the first employee starts (CA DIR). Your state’s tax and labor agencies have their own lists.

Step 3: Payroll taxes

As an employer you generally withhold federal income tax and the employee’s share of Social Security and Medicare, pay the employer share, and pay federal unemployment (FUTA) tax (IRS, Understanding employment taxes). You report on Form 941 (quarterly) and Form 940 (annual FUTA), and give each employee a W-2. This is where payroll software earns its fee.

Step 4: Workers’ comp

Most states require it as soon as you have one employee, but rules differ. California requires it for any business with one or more employees (CA DIR). Florida’s threshold for non-construction businesses is four employees (FL DFS). Texas lets most private employers opt out, but they must file a notice with the state and tell employees (Texas Labor Code ch. 406). Details are in our workers’ comp guide.

Step 5: Pick payroll software

Published prices, checked October 2026:

Sources: Gusto pricing, QuickBooks payroll pricing.

How to choose: if you already keep your books in QuickBooks, the bundle keeps everything in one login. If you don’t, Gusto’s per-person pricing is easy to predict for one or two techs. Either way, ask whether your state’s filings and new-hire report are included.

Price the hire before you make it

A tech costs more than their wage once you add employer taxes, workers’ comp, tools and the van. Put the full cost into the labor quote calculator and our pricing formula to see what you need to bill per hour.

Before hiring, check that the extra billable hours cover the cost with the labor rate calculator, and add workers’ comp to your insurance plan.

Sources

• IRS, Employee (common-law employee): https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee
• IRS, Independent contractor (self-employed) or employee?: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
• IRS, Publication 1779: https://www.irs.gov/pub/irs-pdf/p1779.pdf
• IRS, About Form SS-8: https://www.irs.gov/forms-pubs/about-form-ss-8
• IRS, Am I required to file a Form 1099?: https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return
• IRS, Hiring employees: https://www.irs.gov/businesses/small-businesses-self-employed/hiring-employees
• IRS, Get an EIN: https://www.irs.gov/businesses/small-businesses-self-employed/get-an-employer-identification-number
• IRS, Understanding employment taxes: https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes
• USCIS, Completing Section 2 of Form I-9: https://www.uscis.gov/i-9-central/completing-form-i-9/completing-section-2-employer-review-and-attestation
• HHS OCSS, New hire reporting: https://www.acf.hhs.gov/css/employers/employer-responsibilities/new-hire-reporting
• California DIR, Before the first employee starts work: https://www.dir.ca.gov/dlse/BeforeAnEmployeeStarts.html
• California DIR, DWC FAQs: https://www.dir.ca.gov/dwc/FAQs.html
• Florida DFS, Coverage requirements: https://www.myfloridacfo.com/division/wc/employer/coverage-requirements
• Texas Labor Code ch. 406: https://statutes.capitol.texas.gov/Docs/LA/htm/LA.406.htm
• Gusto, Pricing: https://gusto.com/product/pricing
• QuickBooks, Payroll pricing: https://quickbooks.intuit.com/payroll/pricing/