Setting up payroll for your first hire

Hiring your first employee triggers a cascade of payroll registrations, federal and state account numbers, deposit schedules, and reporting deadlines that did not exist when you were a sole proprietor or a single-member LLC paying yourself out of profit. This guide walks through every step in roughly the order you have to do them, from the offer letter forward.

1. Get a federal Employer Identification Number (EIN)

If you don't have one already, apply for an EIN at irs.gov before you make a written offer. The application is free, takes about 10 minutes online, and gives you the EIN immediately. You will use it to open a payroll bank account, register with state agencies, file Form 941, and remit federal payroll tax deposits via EFTPS. Do not use your SSN as the employer identifier on any payroll filing — even if you're a sole proprietor, switch to the EIN the moment you hire your first W-2 employee.

2. Register with your state

Most states require an employer account for state withholding tax and a separate account for state unemployment tax (SUTA). The agencies are usually the state revenue department and the state labor or workforce department. Several states (Florida, Texas, others) have no state income tax, so the withholding registration is unnecessary, but every state has SUTA. Both registrations typically take 1–2 weeks; start them the moment the candidate accepts the offer.

3. Choose a payroll cadence

Pick biweekly or semi-monthly per the guidance in biweekly vs. semi-monthly. Hourly hire = biweekly; salaried hire = semi-monthly is the simplest default. Set the first pay date so it lands at least 2–3 weeks after the hire date, which gives you time to collect the new-hire paperwork, set up direct deposit, and run a test payroll.

4. Collect new-hire paperwork

Federal Form W-4 (employee withholding), federal Form I-9 (employment eligibility verification), the state withholding allowance form, and a direct-deposit authorization form. Many states also require a new-hire reporting filing within 20 days of the hire date, which feeds the federal child-support enforcement system. Use a digital onboarding tool to collect everything in one workflow rather than chasing paper.

5. Set up payroll software (or a service)

Modern small-business payroll software (Gusto, Rippling, Justworks, OnPay, QuickBooks Payroll, Patriot, ADP RUN) automates the federal and state deposits, generates pay stubs, files Form 941 and Form 940 and the state quarterly wage reports, and produces W-2s at year end. Trying to run payroll manually with spreadsheets is technically possible but exposes you to penalty-and-interest risk that costs more in any given year than the software's annual subscription.

6. Enroll in EFTPS

Even if your payroll software files for you, enroll personally in the IRS Electronic Federal Tax Payment System (EFTPS) so you have direct visibility into deposits the IRS has received. Enrollment requires a mailed PIN that takes 5–7 business days to arrive, so do this before your first scheduled deposit deadline. See the EFTPS enrollment guide for step-by-step.

7. Build your payroll calendar

Pick the calendar from this site that matches your state, year, and frequency. Print it (Ctrl/⌘+P) and post it where you can see it. Note the IRS semi-weekly and monthly deposit deadline columns — new employers default to monthly until the lookback period exceeds $50,000 of total tax liability, at which point you automatically convert to semi-weekly the following calendar year.

8. Run a test payroll

Before the first real run, process a $0 or $1 test payroll through your software. Verify that the federal tax withholding, FICA (Social Security 6.2% + Medicare 1.45%), state tax withholding, and direct-deposit routing all post correctly. Catching a configuration error in a test run is much cheaper than fixing it after the first real check has cleared.

9. Post the labor-law posters

Federal and state labor-law posters must be posted in a "conspicuous location" at the worksite. The federal poster covers FLSA, FMLA, EEO, USERRA, and OSHA; each state has its own poster covering minimum wage, workers' comp, and unemployment insurance. Order the all-in-one poster for ~$30 rather than printing each one yourself.

10. Note your first quarterly deadline

Form 941 is due the last day of the month following the end of each quarter (April 30, July 31, October 31, January 31). If your software files it for you, you still have to authorize the filing in the software. If you missed any deposits during the quarter, the late deposit penalties (2%, 5%, 10%, or 15% depending on lateness) appear on the 941 — don't ignore them.

Related reading