What do I need to run payroll for my first employee?

An EIN, state withholding and unemployment registrations, a completed W-4 and I-9 from the employee, and state new-hire reporting. These should be in place before the first paycheck.

What payroll taxes does an employer pay?

Employers withhold federal income tax, the employee's share of Social Security and Medicare, and state income tax, then pay the matching employer Social Security and Medicare plus federal and state unemployment taxes.

How often do I deposit payroll taxes?

On an IRS-assigned schedule based on your payroll size, usually monthly or semiweekly for small employers, separate from how often you pay your employee. Quarterly and annual returns are also required.

Should I use a payroll service?

For most first-time employers, yes. Payroll software or a service calculates withholding, makes deposits, files returns, and keeps up with rate changes, which greatly reduces the risk of costly penalties.

How to Run Payroll for Your First Employee

Q: What is the difference between an employee and a contractor?

Employees receive a W-2 and are run through payroll, while contractors receive a 1099 and handle their own taxes. Classification depends on how much control you have over the worker's hours, methods, and tools.

Hiring your first employee is a milestone — and the moment payroll goes from something you read about to something you are responsible for. The rules are manageable, but the penalties for getting payroll taxes wrong are not forgiving. Here is what you need to set up payroll for your first employee correctly.

What do I need before I run payroll?

You need a few registrations and forms in place before the first paycheck. The essentials:

An EIN (Employer Identification Number) from the IRS, if you do not already have one.
State registrations for income tax withholding and unemployment insurance in each state where you have employees.
Form W-4 from the employee, which tells you how much federal income tax to withhold.
Form I-9 to verify the employee's eligibility to work.
State new-hire reporting, which most states require shortly after hiring.

Getting these in place first keeps your very first payroll compliant instead of something you have to go back and fix.

What payroll taxes do I have to withhold and pay?

You withhold taxes from the employee's pay and pay employer taxes on top. There are two sides to payroll tax:

Withheld from the employee: federal income tax, the employee's share of Social Security and Medicare, and state income tax where it applies.
Paid by you as the employer: the employer's matching share of Social Security and Medicare, plus federal and state unemployment taxes.

You then deposit these amounts to the IRS and state on a set schedule and report them on payroll tax returns. Missing a deposit deadline is one of the most common — and most penalized — payroll mistakes.

How often do I have to deposit payroll taxes?

On a schedule the IRS assigns based on your payroll size — usually monthly or semiweekly for small employers. The deposit schedule is not optional and is separate from how often you pay your employee. You also file a federal payroll tax return each quarter and annual forms at year-end, plus the equivalent state filings. Because the timing rules are strict, this is an area where automation or professional help earns its keep quickly.

Should I use payroll software or a service?

For almost every first-time employer, yes — the cost is small next to the risk of doing it by hand. Payroll software and services calculate withholding, make tax deposits, file the required returns, and keep up with changing rates and rules. The alternative — tracking deposit deadlines, computing taxes, and filing forms manually — is where small employers rack up penalties. Handing off the mechanics lets you focus on running the business while staying compliant. Our Payroll & Certified Payroll team sets up and runs payroll so your first hire is handled correctly from day one.

What is the difference between an employee and a contractor?

It comes down to control: employees get a W-2 and payroll, contractors get a 1099 and manage their own taxes. Misclassifying an employee as a contractor to avoid payroll is a serious and common mistake that the IRS and state agencies actively pursue, with back taxes and penalties attached. If the worker's hours, methods, and tools are directed by you, they are likely an employee. When your first hire is genuinely an employee, running real payroll — rather than paying them as a contractor — is the compliant path.

What payroll forms do I file at year-end?

At year-end you file wage statements for your employee and reconciling returns for the IRS and your state. The core federal pieces are the W-2 you provide to each employee and file with the Social Security Administration, the W-3 that transmits them, your final quarterly return, and your annual federal unemployment return. States have their own year-end wage and unemployment filings on top of that. Deadlines cluster in January, and W-2s have to reach employees and the government by their due dates or penalties apply. This end-of-year paperwork is a big reason first-time employers lean on payroll software or a service — it generates and files these forms automatically instead of leaving you to track every deadline by hand.

Setting up payroll right the first time saves a world of trouble later. If you are about to make your first hire, we are glad to get you set up.