How to run payroll for your first employee

Hiring your first person is a big step. Here's the checklist that gets them paid correctly, and on time.

Before the first day

1. Get an Employer Identification Number (EIN) from the IRS if you don't have one. It's free and you can apply online.
2. Register with your state for state income tax withholding (if your state has an income tax) and for state unemployment insurance (SUTA). Your state will give you account numbers and your SUTA rate.
3. Decide how you'll pay: how often (weekly, every two weeks, twice a month or monthly), and whether by direct deposit or check. Some states set a minimum pay frequency.
4. Check workers' compensation insurance rules for your state; most require it once you have employees.

On the first day

1. Form W-4: the employee fills it in so you know how much federal income tax to withhold. Many states have their own withholding form too.
2. Form I-9: confirms the person can work in the US. The employee completes their part by the first day, and you review their documents within three business days of their start date.
3. New-hire report: report the new employee to your state's new-hire registry, generally within 20 days of hire (some states require it sooner).
4. Direct deposit details, if they want to be paid that way.

Running the first payroll

1. Add the employee with their pay rate, pay type (hourly or salary), W-4 and bank details.
2. For hourly staff, make sure their hours for the pay period are entered and approved.
3. Calculate payroll and review the paycheck: gross pay, each tax, deductions and net pay.
4. Approve it, send the payment (direct deposit file to your bank, or print checks), then record it as paid.
5. Set aside the taxes you withheld and your employer share (Social Security, Medicare and unemployment). These are deposited separately on the IRS and state schedules.

After payday

• Deposit payroll taxes on time: federal deposits are usually monthly or semi-weekly depending on your size.
• File quarterly returns: Form 941 for federal withholding and FICA, plus your state's returns.
• At year end: give each employee a W-2 by January 31, and file Form 940 for federal unemployment.
• Keep records of hours, pay and tax filings for at least four years.

How WageHarbor helps

WageHarbor calculates every paycheck's taxes, creates the direct-deposit file, gives your employee their own login for pay stubs and time off, and produces the tax liability, Form 941, W-2 and 1099 reports you need for filing. The company guide shows each step with pictures.

This article is general information, not tax or legal advice. Rules differ by state and change over time, so check the IRS and your state's websites, or ask an accountant.