What do I need to do to do this legally? I have no idea where to start or who to contact to ask... Thanks!

Where are you at? We get people all over the world here.

I'm in Boston Mass.

Well, I'm trying to find a one-stop place at the IRS for everything you have to do for taxes, but not coming up with it. So, the manual way:

First apply for a tax identification number if you do not have one. You'll have to have it if you have employees:
How to Apply for an EIN (http://www.irs.gov/businesses/small/article/0,,id=97860,00.html)

You will need to get an I-9 from employees and their social security, which you can get doing the I-9. You'll be fined if you don't have their proper SS number:
Hiring Employees (http://www.irs.gov/businesses/small/article/0,,id=98164,00.html)
This page also mentions having them fill out the W-4 so you'll need those. Also down near the bottom look for the blue link for the Circular E. You'll need that cause that has all the amounts for SS, medicare, federal unemployment, plus the tax charts. With one employee you may want to do it manually, so if you don't understand the Circular E when you get it, you can post back. (There's also specifically a payroll forum for that type of thing.)

Here's a page with a blurb on unemployment, but that'll be in the Circular E. Benefit stuff is here as well, if you need to worry about such things:
Employee Benefits (http://www.irs.gov/businesses/small/article/0,,id=101065,00.html)
Ignore the worker's comp - different subject under state (below).

Here's some more stuff, but most of it's covered in the Circular E anyway. (I'm going through these pages partly to remind myself of something I may forget. And this reminds me that you'll eventually need W-2's which can be picked up at Office Depot.)
Employment Taxes (http://www.irs.gov/businesses/small/article/0,,id=172179,00.html)
You can always do the electronic transfer of the tax payments. (Under depositing employment taxes.) Check to find out if you have to do it that way. If not, that's still an option. You need to get with your bank on that one. They know all about tax payments so they can lead you through it all. (Or should anyway.) Get going on this early. If it's not set up by time you need to make a payment, you can do it by paper or through a wire transfer. Again, the bank is used to this, though you may need to get to the right person.

Again, this junk is in the Circular E. When you get that I'd read it cover to cover. (There's a link up there somewhere to the online one, but get a hard copy. You'll want it in front of you and good place to scribble.)

Good idea to call the IRS:
1-800-829-4933
And they can make sure you get all the forms you need. Eventually you'll get them in the mail with all your info already filled out. Though you may have to do all the initial ones manually. There are local offices - I'm quite sure Boston has at least one. ;) Go here and stick your zip in:
IRS Local Office Locator (http://www.irs.gov/app/officeLocator/index.jsp)
They may have many, if not all, the forms you need there. You'll need W-4's, I-9's, the Circular E just to get started. Later you'll need 941, 990, W-2 and transmittal (W-3?). I'm probably forgetting something.

Then the state... I don't know diddly about Mass. But I'm sure it's pretty much like most states. I just Google for the main tax site and find stuff. The two pages you want to be checking out are for registering if you haven't already:
Register With DOR - Massachusetts Department of Revenue (http://www.mass.gov/?pageID=dorsubtopic&L=5&L0=Home&L1=Businesses&L2=Help+%26+Resources&L3=Starting+%26+Registering+a+Business&L4=Register+With+DOR&sid=Ador)
And this page of "business publications" which includes handbooks of their requirements:
Business Publications (http://www.mass.gov/?pageID=dorterminal&L=3&L0=Home&L1=Businesses&L2=Current+Tax+Year+Information&sid=Ador&b=terminalcontent&f=dor_business_buspubs&csid=Ador)
OK, if you go to "Guide to Massachusetts Tax & Employer Obligations" I think you'll find everything you need in that one place. In there go down to "Your Responsibilities as an Employer." Withholding, unemployment and workers comp is all in there (or links where you need to go). Even has a child support section.

I'm having a hard time finding withholding for Boston. (Maybe they don't have it? Hard to believe.) But just grab the phone book and look up the tax department and call. They'll lead you where you need to go. Usually you can use your federal tax ID, and there'll be a simple form to submit quarterly or yearly, and a copy of the W-2. That's usually about it. They can also tell you if there's any other "local" things, like school taxes or that type of thing.

OK, I know that was all taxes. Then we have the "compliance" laws. I just went to the DOL and went to the compliance link I knew would be there:
U.S. Department of Labor - Compliance Assistance Home Page (http://www.dol.gov/compliance/)
I don't know what all you may want. I'm sure you know there's a minimum wage and you can't discriminate and all that fun stuff. But to the right is categories if you think you know what you might want to brush up on, and down under "by Audience" there's a new & small business thing -- that looks like a good starting point. You might find some surprises, and also there's like posters you're supposed to stick up and such. It's all in there. (Depends how much of a stickler you want to be about being all legal like.)

States can have individual compliance issues, and I had a hard time finding exactly what I wanted. So here's a general link:
Businesses - Labor and Workforce Development (http://www.mass.gov/?pageID=elwdconstituent&L=2&L0=Home&L1=Businesses&sid=Elwd)
Just look around and see what might apply. Some of that is about unemployment and workers comp, covered elsewhere, but states can have different minimum wages and maybe their own safety rules, etc.

That's all I'm thinking of for the moment. Whew! :p I hope I covered what you were looking for. I tend to assume legal hiring includes tax stuff and usually is the biggest question in people's mind.

Wow... My head is spinning! Thanks you Thank you Thank you!!

You're welcome. You get used to it - some day your head won't be spinning anymore.