Employee onboarding for startups: legal, operational and cultural steps

What paperwork does a new employee sign?

Most startup hires sign an at-will offer letter and a CIIAA. The offer letter covers the role, start date, pay, whether the role is exempt or non-exempt from overtime, benefits and equity. The CIIAA covers confidentiality and assigns everything the employee creates for the company to the company. It’s the CIIAA, not the offer letter, that makes the code and designs yours, so treat it as a day-one document rather than a follow-up. Founders sign CIIAAs too. Executives who negotiate severance get a longer employment agreement instead of an offer letter. See Startup Employment Contract Guide and The CIIA Agreement.

Leave probation periods out of the offer letter. A “probationary period” followed by “permanent” employment suggests the employee can’t be let go without a reason once it ends, which undercuts at-will employment. You can still check in at 30, 60 and 90 days.

If you have an employee handbook, ask the employee to sign an acknowledgment that they received and read it. Don’t ask them to “agree” to it, because that invites the argument that the handbook is a contract. Most startups don’t need a handbook until about 20 employees. See Startup Employee Handbook.

What’s the onboarding checklist, in order?

1. When the offer is accepted: signed offer letter and CIIAA.
2. Before the first payday: payroll provider set up, state withholding and unemployment insurance accounts open in the employee’s state, and workers’ compensation coverage in place.
3. By day one: the employee completes Section 1 of Form I-9 and fills out Form W-4 and any state withholding form. In New York, California and some other states, give the required wage notice at hire.
4. Within three business days of the start date: the company reviews the employee’s documents and completes Section 2 of Form I-9.
5. Within 20 days, or sooner where the state requires: report the new hire to the state.
6. At the next board action: board approval of the equity grant.
7. Within 30 days of the date restricted shares are issued: the employee files an 83(b) election, if they’re getting restricted stock.

What do I file with the government when I hire someone?

The first hire turns the company into an employer. You’ll need an EIN, which you probably already have, plus a state income tax withholding account and a state unemployment insurance account in each state where an employee works. Workers’ compensation insurance is required from the first employee in most states, including New York and California. A growing number of states also run disability or paid family leave programs that employers must register for and fund through payroll. A payroll provider handles most of the withholding and filing once the accounts exist, but it won’t open them for you in every state.

Form I-9 applies to every US hire, whether a citizen or not. Use the current version of the form from USCIS and keep completed forms separate from personnel files. E-Verify is voluntary for most private employers, but several states require it, often only above a certain number of employees.

Every employer must report new hires to the state’s new-hire registry. Federal law sets a 20-day outer limit, and some states require it sooner. Some states also require a written wage notice at hire: New York requires one stating the pay rate, pay day and other details, in English and the employee’s primary language, and California requires one for non-exempt employees.

When does the equity grant have to be approved?

An offer letter can promise equity “subject to board approval,” but the grant only exists once the board approves it, usually by written consent. Approve it at or shortly after the start date. For stock options, the exercise price is the fair market value on the grant date, based on the company’s 409A valuation, so a delay can mean a higher price for the employee. At Westaway, first hires typically get restricted stock until the company has its first 409A valuation, and stock options after that.

If the employee receives restricted stock, they have 30 days from the date the shares are issued to file an 83(b) election with the IRS, on Form 15620 online or by certified mail. The deadline can’t be extended, so tell the employee about it in writing on the day the shares are issued. See 83(b) Election and Promising vs Issuing Equity.

What if the employee works remotely in another state?

That state’s employment law applies, not the law of the state where the company is based or incorporated. Register for withholding, unemployment insurance and workers’ comp in the employee’s state, and follow its rules on wage notices, pay frequency, paid leave, final pay and non-competes. Having an employee in a state can also require the corporation to qualify to do business there. See Do I Need to Qualify My Delaware Startup in My Home State? and Non-Compete Clauses.

What about converting a founder or contractor to an employee?

Each agreement governs its own subject. A founder’s restricted stock purchase agreement covers the shares, and their CIIAA covers IP. When a founder goes on payroll, or a contractor becomes an employee, sign a new offer letter and make sure the CIIAA covers everything they created before the switch. The offer letter should say that it, together with the CIIAA and the equity documents, is the entire agreement about employment and replaces any earlier understanding about the job.

How is onboarding a contractor different?

A contractor signs a contractor agreement with a present assignment of IP (“hereby assigns”) instead of an offer letter and CIIAA, and gives you a Form W-9 instead of a W-4 and I-9. There’s no payroll, new-hire report or wage notice, but you’ll file Form 1099-NEC at year end if payments reach the IRS reporting threshold. If the person will work full time on your core product under your direction, they’re probably an employee, so onboard them as one. Interns are their own category: an unpaid intern is treated as an employee unless the program passes the Department of Labor’s primary beneficiary test, so give interns their own offer letter or internship agreement rather than a contractor agreement. See Can My Startup Have Unpaid Interns?, Startup Contractor Agreement and Independent Contractor vs Employee.

Can early employees work for equity only?

Not if they’re employees. Wage and hour laws apply even when someone is glad to work for stock, and an employee can’t waive them by agreement. A non-exempt employee must be paid at least the minimum wage in cash for every hour, plus overtime, and an employee you treat as exempt must be paid a salary at or above the exempt threshold. Equity can sit on top of that pay, but it can’t replace it. Getting this wrong is expensive: an employee can recover the unpaid wages, damages and penalties that can add up to several times that amount, and their attorneys’ fees.

Founders are a different case. Under federal law, a founder who owns at least 20% of the company and actively manages it is exempt from minimum wage and overtime, though state law may not follow that rule. A founder who isn’t being paid should have a salary of zero set in writing and approved by the board, rather than an unpaid salary that keeps accruing. Before anyone else works unpaid, including an early executive or a friend helping out, talk to counsel. See Can Startup Workers Be Paid Only in Equity? and Independent Contractor vs Employee.

What does good operational onboarding look like?

The legal checklist is the floor. Operational onboarding is what lets a new hire do real work in their first week. It starts before day one: send the start time, where to go or which link to join, and who to contact if something goes wrong. Order equipment early and make sure every account and system login works on the first morning, especially for remote hires.

In the first week, introduce the hire to the people who will support them, whether that’s a co-founder handling people questions or whoever owns IT. Give them access to the documents, templates and tools they need in one place rather than a scavenger hunt through old Slack threads. Then set clear goals. A simple 30, 60 and 90 day plan tells the hire what success looks like and gives their manager a natural point to check in. Pair the plan with regular one-on-ones, weekly at first.

For a complex role, plan on-the-job training: pair the new hire with someone experienced on real projects instead of leaving them to learn alone.

How do I bring a new hire into the culture?

Culture is the part founders skip most often and the part that decides whether a good hire stays. Explain the company’s mission, values and how decisions get made, ideally in writing. Some companies put this in a culture deck that new hires read before they start. Assign each new hire a buddy or mentor outside their direct reporting line who can answer the questions they’d rather not ask their manager. A team lunch in the first week costs little and makes the first few days much less lonely.

The first impression starts before the first day. A short welcome note from a founder, a clear plan for day one and a desk or account that’s ready all tell the hire they made the right choice.

Which startups are known for great onboarding?

A few companies are often cited for how they bring people in, and each shows a different emphasis:

• Zapier runs a highly systematized process that gives new hires more freedom as they get up to speed, which works well for a fully remote team.
• Buffer pairs each new hire with a culture buddy who helps them learn how the company works, alongside structured training.
• Slack uses its own product to guide new hires through their first days, so onboarding doubles as product training.
• Square has run a multi-day orientation on the company’s history, culture and values, backed by checklists for remote and in-person hires.
• Netflix built onboarding around its widely shared culture deck, which sets out the values and expectations it holds employees to.
• Warby Parker puts personality into welcome packets and makes training an executive priority.

You don’t need any of their budgets to borrow the ideas. Most of them come down to preparation, a clear plan and making someone responsible for each new hire’s first month.

For more, see What Agreements Should Startups Have With Their Employees?, Exempt vs Nonexempt Employee and What Should Founders Know About Startup Employment Law? If you’d like help with offer letters and CIIAAs for your first hires, see our Employment Agreement and Confidential Information and Invention Assignment Agreement services or contact us.