How to Onboard an Employee in Gusto (w/Examples) + FAQs

Onboarding an employee in Gusto requires employers to complete federal Form I-9 and state tax forms within specific deadlines while collecting direct deposit information through Gusto’s platform. The Immigration Reform and Control Act of 1986 mandates that all U.S. employers verify each new hire’s identity and work authorization within three business days of their start date, and failure to complete Form I-9 properly can result in fines ranging from $288 to $2,861 per violation. According to recent data, approximately 52% of new employees leave their jobs within six months when onboarding is poorly executed.

What You’ll Learn:

🎯 How to set up a new employee in Gusto’s system from initial invite to first payroll run

📋 Which federal and state forms you must collect and the exact deadlines to avoid penalties

⚡ How to enable employee self-service so your new hire completes their own W-4, I-9, and direct deposit information

🚫 The seven most common onboarding mistakes that trigger costly fines and how to prevent them

💼 Real scenarios showing how to onboard employees in different situations (remote workers, multi-state employees, contractors vs. employees)

Understanding the Legal Framework Behind Employee Onboarding

The Fair Labor Standards Act establishes the baseline employment classification and wage requirements that determine how you onboard each employee type. Employers must classify workers as exempt or non-exempt before onboarding begins because this classification affects which tax forms are needed and how compensation is structured. The FLSA requires that non-exempt employees receive overtime pay at one and one-half times their regular rate for hours worked beyond 40 in a workweek.

When you onboard someone incorrectly as an independent contractor instead of an employee, you face back pay obligations for taxes, penalties, and potential lawsuits from the misclassified worker. The federal government loses tax revenue through misclassification, which is why enforcement agencies scrutinize this area heavily during audits. Your onboarding process in Gusto starts with confirming whether the person is truly an employee or a contractor.

State employment laws add another layer of requirements on top of federal mandates. New York employers must provide a Wage Theft Prevention Act notice before the employee begins work, while California requires specific pay statement disclosures that differ from other states. Texas has different background check timing rules than states with “ban the box” laws.

What Gusto Is and How It Handles Onboarding

Gusto is a cloud-based payroll and HR platform that automates employee onboarding by sending personalized invitations to new hires so they can complete their own paperwork digitally. The platform handles payroll tax calculations, files federal and state taxes, processes direct deposits, and stores required employment documents in a centralized location. Small businesses use Gusto because it combines payroll, benefits administration, time tracking, and compliance tools in one system.

When you add a new employee to Gusto, the platform guides you through entering basic information like name, email address, start date, job title, and compensation details. Gusto then sends the employee a secure email invitation to complete their personal details including their Social Security number, home address, tax withholding preferences on Form W-4, and banking information for direct deposit. This employee self-service approach reduces your administrative burden and speeds up the onboarding process.

The platform automatically generates state-specific tax forms based on where the employee lives and works. For example, if you hire someone in California, Gusto will include Form DE 4 for California state income tax withholding in addition to the federal W-4. The system stores digital copies of all signed forms so you can access them during audits.

Federal Form I-9: Your First Onboarding Requirement

Every employee hired after November 6, 1986 must complete Form I-9 to verify their identity and legal authorization to work in the United States. The employee must complete Section 1 of the form on or before their first day of work by providing their full legal name, address, date of birth, and Social Security number. You, as the employer, must complete Section 2 within three business days of the employee’s first day by physically examining original documents that prove both identity and work authorization.

The List of Acceptable Documents attached to Form I-9 shows three categories: List A documents (like a U.S. passport) prove both identity and work authorization, while List B documents (like a driver’s license) prove only identity and must be paired with a List C document (like a Social Security card) that proves work authorization. Federal law prohibits you from specifying which documents an employee must present—the employee chooses from the acceptable options. Demanding specific documents based on the employee’s appearance, accent, or national origin violates anti-discrimination laws.

Gusto allows employees to complete Section 1 electronically through the platform. However, you still must physically examine the original documents in person or through video if you meet certain remote verification requirements established during the COVID-19 pandemic. After examining the documents, you enter the document information into Section 2 of the form within the three-day deadline.

Failing to complete Form I-9 on time or making substantive errors triggers civil penalties. For first-time paperwork violations like missing signatures or incomplete fields, fines range from $272 to $2,701 per form. If Immigration and Customs Enforcement determines you knowingly hired an unauthorized worker, first-offense fines jump to $676 to $5,404 per employee, with subsequent violations reaching $8,106 to $27,018 per employee.

Form W-4 and Tax Withholding Setup

The Form W-4 tells you how much federal income tax to withhold from each paycheck based on the employee’s filing status, dependents, and other income sources. Employees complete this form during onboarding so their first paycheck has accurate tax withholding. The 2020 redesign of the W-4 eliminated withholding allowances and now uses dollar amounts for credits, deductions, and extra withholding.

When a new hire completes their W-4 in Gusto, they select their filing status (Single, Married Filing Jointly, Married Filing Separately, or Head of Household) in Step 1. Step 2 applies only if they hold multiple jobs or their spouse works. Step 3 allows them to claim dependents—$2,000 for each qualifying child under 17 and $500 for other dependents. Step 4 is optional and lets them request additional withholding or claim deductions beyond the standard deduction.

The employee signs the W-4 electronically in Gusto, and the platform stores the form in the employee’s digital file. You do not send the W-4 to the IRS—you keep it in your records in case of an audit. If an employee wants to change their withholding later because they got married, had a child, or took on a second job, they can submit a new W-4 anytime through their Gusto employee account.

Employees can claim exemption from federal income tax withholding if they had no tax liability last year and expect none this year. To claim exemption, they write “Exempt” in the space below Step 4(c) and skip the rest of the form. This exemption expires on February 15 of the following year, so exempt employees must submit a new W-4 each year to maintain the status.

State Tax Forms and New Hire Reporting

Most states require employees to complete a state withholding certificate similar to the federal W-4. New York requires Form IT-2104, California uses Form DE 4, and Texas has no state income tax so no state withholding form is needed. Gusto automatically includes the correct state form based on where the employee works.

Federal law requires all employers to report new hires to their state directory within 20 days of the hire date or first paycheck, whichever comes earlier. Some states like Maine require reporting within seven days. New hire reporting helps state agencies enforce child support orders and prevent unemployment insurance fraud.

The required information includes the employee’s name, address, Social Security number, and date of hire, plus your business name, address, and Federal Employer Identification Number. You typically submit this information using a copy of the employee’s W-4 or through an online portal. States impose penalties for late reporting—Delaware charges $25 per late report, while Maryland also charges $20.

Certain states require additional onboarding notices beyond tax forms. New York City employers must provide information about the Fair Workweek Law covering scheduling practices and premium pay for schedule changes. California employers must give new hires a comprehensive Wage Theft Prevention Act notice listing their rate of pay, pay schedule, employer contact information, and workers’ compensation carrier details.

Direct Deposit Authorization in Gusto

Direct deposit allows you to pay employees electronically by transferring wages directly into their bank accounts instead of issuing paper checks. Federal regulations permit employers to require direct deposit as long as the employee can choose which financial institution receives the funds. Some states restrict mandatory direct deposit, so check your state’s rules before implementing a direct deposit-only policy.

Employees entering their banking information in Gusto need their bank’s nine-digit routing number and their account number. They also specify whether the account is checking or savings. Gusto requires employees to indicate if they want their entire net pay deposited into one account or split across multiple accounts.

The Automated Clearing House system that processes direct deposits requires a pre-notification process before the first actual deposit. This “prenote” verifies that the routing and account numbers are valid and that the account belongs to the employee. The prenote takes one to two payroll cycles to complete, so employees who submit banking information less than two pay periods before their first payday may receive their first paycheck via paper check.

Employees must sign a direct deposit authorization form giving you permission to electronically deposit funds into their account and, if necessary, reverse erroneous deposits. Gusto presents this authorization digitally during the onboarding process. If an employee later wants to change banks or add a second account, they can update their banking information through their self-service portal in Gusto.

Step-by-Step: Adding an Employee in Gusto

Log into your Gusto account and click on the “People” tab in the left navigation menu. Click the button labeled “Add a team member” or “Hire” depending on your Gusto plan. The platform will ask you to choose between adding an employee or a contractor because the onboarding process differs for each classification.

Select “Employee” to begin the employee onboarding workflow. Enter the employee’s first name, last name, and personal email address in the basic information section. The email address must be unique and should be one the employee checks regularly because Gusto will send their onboarding invitation there.

Specify the employee’s start date using the calendar selector. This date determines when the employee appears on payroll and when tax withholding begins. Enter the employee’s job title, department (if applicable), and select who will be their manager from your existing employee list.

Enter compensation details by choosing between hourly or salary pay structure. For hourly employees, enter the hourly rate and indicate whether they are exempt or non-exempt from overtime under the Fair Labor Standards Act. For salaried employees, enter the annual salary amount and specify their exempt status.

Select the employee’s work location from the addresses you’ve registered in Gusto. This determines which state and local taxes apply. If the employee works remotely in a different state than your business location, you must register with that state’s tax agency before adding the employee.

Choose which time-off policies apply to this employee if your Gusto plan includes PTO tracking. You can assign vacation days, sick leave, and other paid time off policies that you’ve already created in the system. Gusto allows you to specify accrual rates or front-load a set number of PTO days.

Click “Invite employee to finish setup” to trigger Gusto’s onboarding email. The platform sends a personalized message to the email address you entered, asking the employee to create their Gusto account and complete their portion of the onboarding paperwork. This invitation includes a secure link that expires after a certain period for security purposes.

What the Employee Sees During Self-Onboarding

When the employee clicks the link in their invitation email, they land on a page asking them to create a password for their Gusto account. After creating their password, they proceed to the onboarding checklist that guides them through each required step. The checklist shows progress indicators so employees know how many steps remain.

The first section asks for personal information including full legal name (matching their Social Security card), date of birth, Social Security number, home address, and phone number. Employees must enter this information carefully because errors in Social Security numbers cause tax filing problems later. Gusto validates that the date of birth and Social Security number follow proper formatting.

Next, the employee completes their Form W-4 for federal tax withholding and any required state tax forms. Gusto presents these forms digitally with built-in instructions explaining each section. The platform calculates estimated withholding based on the employee’s inputs so they can preview how much will be deducted from each paycheck.

The direct deposit section requires the employee to enter their banking information. They can attach an image of a voided check or deposit slip to ensure they enter the routing and account numbers correctly. Gusto allows employees to split their paycheck across multiple accounts by specifying dollar amounts or percentages for each account.

Employees then move to Section 1 of Form I-9, where they attest to their citizenship or immigration status and provide their Social Security number. The form requires an electronic signature. After the employee completes Section 1, you receive a notification that you must complete Section 2 within three business days by examining their identity and work authorization documents.

The benefits section appears if you offer health insurance, retirement plans, or other benefits through Gusto. Employees can review plan options, see premium costs, and make enrollment elections during onboarding. Gusto shows eligibility waiting periods if new employees must wait 60 or 90 days before benefits begin.

Completing Your Portion as the Employer

After the employee finishes their self-onboarding tasks, you must complete your employer responsibilities before adding the employee to payroll. Log back into Gusto and navigate to the employee’s profile to see what tasks remain. The platform displays a checklist showing which items the employee completed and which require your action.

Schedule a time to examine the employee’s Form I-9 documents within the three-business-day deadline. You can do this in person by viewing the original documents, or remotely using video conferencing if you follow proper remote verification protocols. Acceptable List A documents include a U.S. passport, permanent resident card, or foreign passport with employment authorization.

Examine the documents to ensure they reasonably appear genuine and relate to the employee presenting them. Record the document title, issuing authority, document number, and expiration date in Section 2 of the Form I-9 within Gusto. The platform prompts you for all required information and won’t let you skip mandatory fields.

Review the employee’s compensation setup to confirm the pay rate, exempt status, and pay schedule match what you agreed upon. Verify that you selected the correct pay type (hourly vs. salary) because changing this after payroll runs becomes complicated. Double-check that the start date is accurate since this affects when the employee appears on your first payroll run.

Confirm the employee’s tax setup by reviewing their W-4 and state withholding elections in Gusto. The platform shows you the employee’s filing status and number of dependents they claimed. If something looks unusual—like a new hire claiming 15 dependents—you should verify this with the employee, though you cannot force them to change their W-4.

Add the employee to your first payroll run by going to the payroll calendar in Gusto. The employee must have a start date on or before the payroll period end date to be included. When you run payroll, Gusto calculates gross wages, subtracts tax withholdings and deductions, and shows the net pay that will be deposited into the employee’s account.

E-Verify for Employment Eligibility Confirmation

E-Verify is an optional online system that compares Form I-9 information against Social Security Administration and Department of Homeland Security records to confirm employment eligibility. While most private employers can choose whether to use E-Verify, federal contractors and employers in certain states are required to verify all new hires through the system. E-Verify is free and administered by the federal government.

States with mandatory E-Verify requirements include Alabama, Arizona, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, and Utah for most or all employers. Other states like Florida and Texas require it only for public employers or businesses with state contracts. If you operate in a state requiring E-Verify, you must enroll in the program and verify every new hire.

You must create an E-Verify case within three business days of the employee’s start date after they complete Section 1 and you complete Section 2 of Form I-9. You enter information from the Form I-9 into the E-Verify system, including the employee’s name, Social Security number, date of birth, and citizenship status. The system usually returns results within three to five seconds.

If E-Verify returns “Employment Authorized,” you’re done and can close the case. If the system returns a Tentative Nonconfirmation, you must notify the employee and give them eight federal workdays to contact Social Security Administration or Department of Homeland Security to resolve the mismatch. You cannot take adverse action against the employee during this resolution period, and federal law prohibits discrimination based on E-Verify results.

Background Checks and Onboarding Timing

Many employers conduct background checks on new hires to screen for criminal history, verify employment history, or check professional credentials. The Fair Credit Reporting Act governs employment background checks and requires you to obtain written consent from the candidate before ordering a background check. You must provide a clear disclosure that a background check will be conducted, separate from other onboarding documents.

If information in the background check report leads you to take adverse action (like withdrawing a job offer), you must follow the three-step adverse action process. First, provide the candidate with a pre-adverse action notice that includes a copy of the background check report and a summary of their rights under the FCRA. Give the candidate time to dispute inaccuracies in the report.

After a reasonable waiting period (typically five to seven business days), you can proceed with the final adverse action if you still intend to withdraw the offer. Send the candidate an adverse action notice stating that you’re taking adverse action, identifying the background check company that provided the report, and explaining that the company didn’t make the decision and cannot provide specific reasons for it.

Ban the box laws in cities and states across the country restrict when you can ask about criminal history during the hiring process. These laws generally prohibit including questions about criminal history on initial applications and require you to wait until after making a conditional job offer to conduct a criminal background check. The federal Fair Chance Act applies to federal contractors and agencies.

Some states prohibit considering arrest records that didn’t result in convictions when making hiring decisions. Others require an individualized assessment of candidates with criminal records, where you evaluate the nature of the crime, how long ago it occurred, and whether it’s relevant to the job duties. Blanket policies excluding all candidates with any criminal history likely violate anti-discrimination laws.

Common Scenario One: Onboarding a Remote Employee in Another State

You hire a software developer who lives in Colorado while your business is based in Texas. This creates a multi-state payroll situation because the employee performs work in Colorado, triggering Colorado tax obligations for your business. Before you can add this employee in Gusto, you must register with the Colorado Department of Revenue for income tax withholding and the Colorado Department of Labor for unemployment insurance.

Gusto helps with multi-state registration through its payroll setup process by identifying which states you need to register in based on employee locations. However, you remain responsible for completing the registration before the employee starts. States typically require you to register within 20-30 days of hiring your first employee in that state.

The Colorado employee completes the same federal forms (W-4 and I-9) as your Texas employees. Additionally, they complete Colorado’s withholding form to determine state income tax withholding. Gusto automatically includes Colorado-specific forms in the employee’s onboarding checklist when you select Colorado as their work location.

You must maintain workers’ compensation insurance coverage in Colorado even though your business is located in Texas. Most states require workers’ compensation coverage for employees working within their borders regardless of where the employer is headquartered. Failing to carry required coverage can result in fines and leave you personally liable if the employee is injured on the job.

Common Scenario Two: Onboarding Multiple Employees Simultaneously

You’re opening a new retail location and need to onboard 15 employees who all start on the same date. Gusto allows you to add multiple employees at once, but you still must complete Form I-9 verification for each employee individually. This means scheduling time to physically examine documents for 15 people within three business days of their start date.

Stagger the invitation emails by sending them in small batches rather than all at once. This prevents your inbox from being flooded with 15 notifications when employees complete their onboarding tasks. It also allows you to address questions from the first batch before the second batch begins.

Create template communications explaining what new hires should expect from Gusto’s onboarding process. Include screenshots showing where to find their invitation email, how to create a password, and what information they’ll need (Social Security card, voided check, and I-9 documents). Proactive communication reduces the number of questions you’ll need to answer individually.

Consider holding a group orientation session where you explain company policies, review benefits options, and answer common questions about payroll and timekeeping. This is more efficient than repeating the same information 15 times in individual conversations. However, you still must verify I-9 documents individually because each employee presents different document combinations.

Common Scenario Three: Converting a Contractor to an Employee

You’ve been paying a marketing consultant as a 1099 contractor for six months, but the working relationship has evolved to where they now work set hours, use your equipment, and follow your detailed instructions. Under IRS guidelines, this person likely qualifies as a common-law employee rather than an independent contractor, so you need to reclassify and onboard them properly.

The IRS uses a common-law test examining behavioral control, financial control, and the relationship between the parties to determine worker classification. If you direct how, when, and where the work is performed, provide training, and evaluate work quality, these factors indicate an employment relationship. Financial factors like whether the worker has opportunity for profit or loss and whether they invest in their own equipment also matter.

Reclassifying a contractor as an employee doesn’t require you to go back and change how you paid them in the past, though the IRS may assess back taxes if they audit and determine misclassification occurred. The Voluntary Classification Settlement Program allows employers to reclassify workers prospectively while paying a reduced penalty rather than facing full back taxes and penalties.

Add the newly classified employee to Gusto as a regular employee with their actual start date as an employee, not their original contractor start date. They must complete all standard onboarding forms (W-4, I-9, state withholding) even though they’re not truly “new” to your business. From this point forward, you withhold income tax and FICA taxes from their paychecks and pay employer payroll taxes on their wages.

Mistakes to Avoid During Gusto Onboarding

Missing the I-9 Three-Day Deadline: The most common and costly mistake is failing to complete Section 2 of Form I-9 within three business days after the employee’s start date. This triggers automatic penalties even if the employee is clearly authorized to work. Set calendar reminders for yourself when you add new employees to ensure you examine documents on time.

Accepting Photocopies or Expired Documents: Form I-9 requires you to examine original documents, not copies or photos. Accepting a photocopy of a driver’s license or Social Security card violates I-9 rules and counts as a substantive violation. Similarly, expired documents (except in limited circumstances) are not acceptable, and using them results in penalties during audits.

Requiring Specific Documents Based on Appearance: You cannot demand a “green card” from an employee who looks or sounds foreign, or require a U.S. passport from all new hires. Employees choose which documents to present from the List of Acceptable Documents. Requesting more or different documents than required, or rejecting documents that appear genuine, violates anti-discrimination provisions and can result in separate fines from the Office of Special Counsel.

Failing to Register in Employee’s Work State: If you hire a remote employee in a state where you’ve never had employees before, you must register with that state’s tax agencies before the employee starts. Running payroll without proper registration means you cannot withhold state income tax correctly, and the state may assess penalties for late registration and filing. Multi-state compliance errors cost companies an average of $1.2 million annually.

Not Verifying Direct Deposit Information: When employees enter their bank routing and account numbers incorrectly, their paychecks are deposited into the wrong account or rejected entirely. Always ask employees to attach a voided check image in Gusto to verify their banking information matches what they entered. Correcting misdirected deposits takes weeks and causes significant employee frustration.

Misclassifying Exempt vs. Non-Exempt Status: Classifying an employee as exempt from overtime when they don’t meet the salary basis, salary level, and duties tests under the Fair Labor Standards Act creates wage and hour violations. Non-exempt employees must receive overtime pay at 1.5 times their regular rate for hours over 40 per week, so misclassification means you owe back overtime wages plus penalties.

Skipping Benefits Enrollment Deadlines: Federal law gives employees 60 days from their hire date to enroll in health insurance under your group plan, but many employers offer only a 30-day window. Failing to communicate enrollment deadlines clearly means employees miss their opportunity to elect coverage, and you face complaints and potential legal issues if someone needed coverage but wasn’t enrolled.

Ignoring New Hire Reporting Requirements: All states require employers to report new hires to the state directory within 20 days, with some states requiring even faster reporting. This reporting helps states locate parents who owe child support and prevents unemployment insurance fraud. Missing the deadline results in fines ranging from $20 to $200 per late report depending on the state.

Do’s and Don’ts for Gusto Employee Onboarding

Do’s

Do send onboarding invitations immediately after the employee accepts your offer. This gives them two weeks to complete paperwork before their start date, reducing first-day stress and ensuring all tax forms are ready when you run your first payroll. Early completion also allows time to fix any errors in Social Security numbers or banking information before they cause paycheck problems.

Do physically examine I-9 documents even for trusted employees or family members. The law makes no exceptions for employees you know personally or who have worked for you as contractors previously. Every employee hired after November 6, 1986 must present documents proving identity and work authorization, and you must examine the original documents and record the information within the three-day deadline.

Do customize Gusto’s onboarding checklist for different employee types. Retail hourly workers need different forms than salaried remote employees in another state. Create templates in Gusto for your most common employee types so you don’t accidentally skip state-specific forms or assign inappropriate PTO policies.

Do verify employee classifications before starting onboarding. Determine whether the worker is truly an employee or an independent contractor, and if they’re an employee, whether they’re exempt or non-exempt under the FLSA. This affects which forms they need, how you calculate overtime, and which benefits they receive. Making these determinations upfront prevents costly reclassification later.

Do keep digital copies of all onboarding documents for the required retention period. Form I-9 must be retained for three years after hire or one year after employment ends, whichever is later. W-4 forms should be kept for at least four years after the tax year. Gusto stores these documents automatically, but verify they’re actually in the system and accessible during audits.

Don’ts

Don’t allow employees to start work before completing Section 1 of Form I-9. Section 1 must be completed on or before the first day of actual work. If someone shows up to start their first shift and hasn’t completed the form yet, they cannot legally begin working until they finish Section 1. Have them complete it electronically through Gusto before clocking in.

Don’t reject I-9 documents because they look “foreign” or have an unusual name. Documents that reasonably appear to be genuine and to relate to the person presenting them must be accepted. You’re not a document expert and shouldn’t refuse documents because the employee has an accent, the document is from another country, or you’re unfamiliar with a particular state’s ID format.

Don’t ask employees about their citizenship or immigration status beyond what Form I-9 requires. The form asks employees to attest to one of four categories: U.S. citizen, non-citizen national, lawful permanent resident, or alien authorized to work. Do not ask follow-up questions about their country of birth, when they came to the United States, or what type of visa they hold unless the document they present requires additional information.

Don’t change an employee’s W-4 elections because you think they’re claiming too many or too few dependents. Employees have the right to control their own tax withholding, and you cannot force them to claim a different number of dependents or file a new W-4. If a W-4 seems unusual, you can inform the employee that their withholding may be too low and they might owe taxes, but the final decision is theirs.

Don’t run payroll for a new employee before completing all onboarding steps. Missing tax forms, incomplete I-9 verification, or unverified direct deposit information will cause problems when you try to process payroll. Gusto may block you from including an employee in a payroll run if critical onboarding steps are incomplete, which protects you from compliance violations.

Gusto Onboarding Features and Self-Service Tools

Gusto’s employee self-service portal allows workers to access their pay stubs, tax documents, and benefits information 24/7 from any device. New hires can view their W-2 forms from previous years even after leaving the company, download PDF copies of pay stubs for loan applications, and print their own tax withholding forms when needed. This reduces the administrative burden on your HR team because employees aren’t constantly asking for copies of documents.

The platform includes an employee directory and organizational chart showing reporting relationships throughout your company. New hires can look up coworkers’ contact information, see who reports to whom, and understand team structure without asking HR. This feature helps remote employees who don’t physically meet their coworkers feel more connected to the organization.

Time-off requests and tracking are built into Gusto’s Plus and Premium plans. Employees can submit vacation or sick leave requests through the platform, and their manager receives an email notification to approve or deny the request. The system automatically tracks PTO balances and accruals so employees know how many days they have available before requesting time off.

Benefits enrollment happens within the Gusto platform if you offer health insurance, dental, vision, or 401(k) retirement plans through Gusto’s partner providers. During onboarding, new hires can compare different health plan options, see premium costs, and make elections without filling out separate enrollment forms. Monthly premiums are automatically deducted from paychecks and synced with payroll.

Time tracking integrations allow employees to clock in and out using Gusto’s time clock feature on tablets or computers at your business location. This is particularly useful for hourly employees or businesses with multiple job sites. The hours worked automatically flow into payroll calculations, ensuring accurate wage payments without manual time card entry.

Understanding Gusto’s Pricing for Onboarding

Gusto offers four pricing plans: Simple, Plus, Premium, and Contractor-only. The Simple plan costs $49 per month plus $6 per employee and includes basic onboarding features like offer letters, Form W-4, and I-9 completion, along with full-service payroll for employees in a single state. This plan works for small businesses with straightforward payroll needs and employees all located in one state.

The Plus plan costs $80 per month plus $12 per employee and adds multi-state payroll, next-day direct deposit, time tracking, and advanced hiring tools. This plan is appropriate for growing companies hiring remote workers in different states or businesses needing PTO tracking and time clock features. The onboarding process includes customizable offer letter templates and automated task reminders.

The Premium plan costs $180 per month plus $22 per employee and includes everything from the Plus plan along with a dedicated customer success manager and access to certified HR experts. This plan makes sense for companies dealing with complex compliance issues or wanting HR guidance during onboarding. The Premium plan’s compliance alerts notify you about changing employment laws in states where you have employees.

The Contractor-only plan costs $35 per month plus $6 per contractor and is designed for businesses that only work with independent contractors, not employees. This plan doesn’t include employee onboarding features because contractors don’t complete W-4 forms or I-9 forms. If you have both employees and contractors, you need one of the main payroll plans and can add contractors at the per-contractor rate.

Multi-State Payroll and Tax Compliance

When you hire employees in multiple states, you create tax nexus in each state, requiring registration and tax withholding in all applicable jurisdictions. State tax nexus is the connection between your business activities and a state’s tax authority that creates a filing obligation. Having even one employee physically working in a state typically establishes nexus for income tax withholding and unemployment insurance purposes.

Some states have reciprocal agreements allowing employees who live in one state but work in another to pay income tax only to their home state. For example, Illinois and Wisconsin have a reciprocity agreement, so a Wisconsin resident working for an Illinois company pays Wisconsin income tax instead of Illinois tax. The employee must provide their employer with a certificate of non-residence from their home state.

You must register with each state’s department of revenue or taxation within a specified timeframe, typically 20-30 days of hiring your first employee in that state. Registration requirements vary by state but generally include providing your Federal Employer Identification Number, business structure, estimated quarterly wages, and number of employees. Gusto can help identify which states you need to register in, but you’re responsible for completing the registration.

Each state has different tax rates, wage bases, and filing deadlines for unemployment insurance. California’s unemployment insurance wage base is higher than the federal $7,000 base, and new employers pay a different rate than established employers. States also differ in whether they require monthly, quarterly, or annual filings, so tracking multiple deadline schedules becomes complex without payroll software.

Wage Garnishments and Onboarding Considerations

A wage garnishment is a court order or government directive requiring you to withhold a portion of an employee’s wages to pay a debt. Common garnishments include child support orders, tax levies, defaulted student loans, and court judgments. Federal law limits how much can be garnished to 25% of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever is less.

When you receive a garnishment order for a new employee before they start, you must still complete the normal onboarding process. Add them to Gusto as usual and set up their tax withholding, direct deposit, and benefits. Then add the garnishment as an additional deduction in Gusto’s payroll system so the correct amount is withheld each pay period and remitted to the appropriate agency or creditor.

Child support orders have priority over most other garnishments and can take up to 50-60% of disposable earnings depending on whether the employee supports other children and whether they’re more than 12 weeks behind on payments. The Consumer Credit Protection Act prohibits you from firing an employee because their wages are garnished for a single debt, though this protection doesn’t extend to employees with multiple garnishments.

You’re legally required to respond to garnishment orders, withhold the specified amount, and remit payments by the deadline in the order. Failing to comply can make you personally liable for the debt amount that should have been withheld. Most states require you to respond to the garnishment order within 30 days indicating the employee’s employment status and wage amount.

Pros and Cons of Using Gusto for Onboarding

Required vs. Optional Onboarding Documents

Federal law requires Form I-9 and Form W-4 for all employees regardless of the state where they work or the size of your business. Form I-9 has been mandatory since the Immigration Reform and Control Act of 1986, and every employee hired after November 6, 1986 must complete it. Form W-4 is required so you know how much federal income tax to withhold from each paycheck.

Most states require a state withholding certificate similar to the federal W-4, though seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) have no state income tax, so no state form is needed. Two states (New Hampshire and Tennessee) don’t tax regular wages but may tax investment income. Your new hire’s work location determines whether a state tax form is required.

Direct deposit authorization is technically optional under federal law because you can pay employees by paper check. However, many employers prefer direct deposit for security, convenience, and cost savings. Some states prohibit mandatory direct deposit, so check your state’s rules before requiring electronic payment. Even in states allowing mandatory direct deposit, employees must be able to choose their own financial institution.

Benefits enrollment forms are required only if you offer benefits and the employee wants to participate. Employees generally have 60 days from their hire date to enroll in health insurance under special enrollment rules, though you can set a shorter deadline like 30 days. Retirement plan enrollment, life insurance, and other voluntary benefits have enrollment periods set by the plan documents.

Background check authorization forms are optional and depend on your company policy and the position’s requirements. Certain industries like banking, healthcare, and childcare have legal requirements for background checks, but most private employers can choose whether to conduct them. If you do conduct background checks, the FCRA requires written consent from the candidate on a standalone form.

How Long the Onboarding Process Takes

The employee self-service portion of onboarding typically takes 20-45 minutes for most new hires to complete. They enter personal information, fill out tax forms, provide banking details, and complete Section 1 of Form I-9. Employees who take time to carefully read instructions and consider their tax withholding elections may take longer than those rushing through the forms.

Your portion as the employer takes 10-20 minutes per employee including reviewing their information, examining I-9 documents, confirming pay setup, and approving their addition to payroll. If you’re hiring multiple employees simultaneously, you can batch some tasks like setting up PTO policies or assigning departments, which reduces the per-employee time.

The total onboarding timeline from sending the invitation to the employee being payroll-ready is typically 3-7 business days. This assumes the employee completes their portion within a few days of receiving the invitation and you examine their I-9 documents promptly. Remote employees in other states may add time if you need to register with a new state tax agency before finalizing onboarding.

Benefits enrollment can extend the timeline if employees need time to review health insurance plan options, compare costs, and make decisions about coverage levels. Open enrollment periods often allow 30-60 days for employees to make benefits elections, so the onboarding process might not be fully complete for several weeks even though the employee is working and receiving paychecks.

FAQs

Can I onboard an employee in Gusto before their official start date?

Yes. You should send onboarding invitations two weeks early so employees complete paperwork before their first day, reducing first-day administrative tasks.

Does Gusto automatically file new hire reports to states?

Yes. Gusto submits new hire reports to state directories within the required timeframe when you add employees, eliminating this compliance task from your to-do list.

Can employees change their W-4 withholding after onboarding?

Yes. Employees can submit updated W-4 forms anytime through their Gusto self-service portal to adjust withholding for life changes like marriage or children.

Do I need to print and sign Form I-9 or is electronic signing acceptable?

No printing required. Electronic Form I-9 completion is legal if the system prevents backdating and maintains a verifiable audit trail of signatures and timestamps.

What happens if an employee enters the wrong bank account number for direct deposit?

The deposit fails. Gusto notifies you, and you must issue a paper check or void the deposit, which delays payment by one to two weeks.

Can I require direct deposit instead of paper checks in Gusto?

It depends. Federal law allows mandatory direct deposit, but some states prohibit it, so check your state laws before eliminating paper check option entirely.

Does Gusto verify Social Security numbers during onboarding?

No. Gusto validates the format but doesn’t verify SSNs with Social Security Administration until you run payroll and file tax forms electronically.

How long must I keep Form I-9 records after an employee leaves?

Three years from hire or one year after employment ends, whichever is later, per Immigration Reform and Control Act retention requirements for audits.

Can I onboard contractors the same way as employees in Gusto?

No. Contractors complete Form W-9 instead of W-4 and I-9, and they don’t have tax withholding or benefits enrollment during their onboarding process.

What if an employee doesn’t have acceptable I-9 documents yet?

They cannot start. Federal law prohibits employing anyone who cannot prove identity and work authorization with acceptable documents from the approved lists.

Does Gusto handle multi-state tax registration for me?

No. Gusto identifies which states require registration based on employee locations but you must complete the actual registration with each state agency yourself.

Can I customize which onboarding forms employees see in Gusto?

Partially. You can create custom documents, but federal and state-required forms like W-4 and I-9 appear automatically and cannot be removed.

What happens if I miss the three-day I-9 deadline?

You face penalties. Immigration and Customs Enforcement can fine you $288 to $2,861 per late Form I-9 even if the employee is authorized.

Can remote employees complete Form I-9 entirely online without meeting me?

No. You must physically examine original documents, though some employers use video verification if they meet COVID-19 flexibility requirements or specific remote conditions.

Does Gusto automatically calculate overtime for non-exempt employees?

Yes. When hourly employees log over 40 hours weekly, Gusto calculates overtime at 1.5 times regular rate and includes it in paycheck calculations.

How do I onboard an employee who speaks limited English?

Use a translator. The employee can use a preparer or translator for Form I-9, but the translator must sign certifying they assisted with completion.

Can I edit employee information after they complete onboarding?

Yes. You can update addresses, pay rates, and tax elections through Gusto’s admin portal, though some changes require the employee’s electronic signature.

What if an employee refuses to complete certain onboarding forms?

They cannot work. Federal law requires W-4 and I-9 completion before employment begins, so refusal means they cannot legally start the job.

Does Gusto send automatic reminders if employees don’t finish onboarding?

Yes. The system sends reminder emails to employees who haven’t completed their onboarding checklist, reducing your need to follow up manually.

Can I onboard employees in U.S. territories through Gusto?

It depends. Gusto supports Puerto Rico and some territories, but coverage varies, so verify your specific territory is supported before starting onboarding process.