Hiring your first employee: the payroll checklist
Before your first employee starts, get an EIN, register for state withholding and unemployment accounts, buy workers' compensation if your state requires it, and set up payroll. On day one, collect Form W-4 and Form I-9. Report the new hire to your state, usually within 20 days.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- Before day one. EIN, state withholding and unemployment accounts
- On day one. Form W-4, and Form I-9 within three business days
- Then. Report to your state, usually within 20 days
What do you need before they start?
- Get an EIN if you don't have one. A sole proprietor with an employee needs one.
- Register with your state for income tax withholding, if your state has it, and for unemployment insurance. Some states have no wage income tax.
- Sort out workers' compensation. Most states require it once you have employees.
- Enroll in the IRS system for paying payroll taxes, unless your payroll provider does it for you.
- Choose a pay schedule and a payroll system.
What paperwork does the employee fill out?
Form W-4 tells you how much federal tax to withhold, and some states have their own version. Form I-9 confirms they're allowed to work in the US. They fill out their part by day one, and you review their documents within three business days of the start date. Keep I-9s in your files. They don't go to the government.
Set up direct deposit, and share your handbook or written pay policies if you have them. Report the hire to your state's new hire directory, generally within 20 days.
What taxes will you pay?
On each paycheck you withhold federal income tax, state tax where it applies, plus 6.2% Social Security and 1.45% Medicare from the employee. You then match that 7.65%. Social Security stops at $184,500 of wages in 2026. Add federal unemployment tax and your state's rate on top. Here's what an employee really costs.
What are the ongoing filings?
You deposit payroll taxes on a monthly or semiweekly schedule, file Form 941 each quarter and Form 940 each year, and send W-2s by January 31. A payroll provider handles most of that, but you still have to check it's being done.
Should you run payroll yourself?
You can, but payroll is one of the few bookkeeping jobs where a mistake brings penalties fast. Most owners use a service like Gusto or ADP. We set it up and run it if you'd rather not deal with it.
Sources
General information, not tax advice for your situation.
How long does it take to set up payroll?
It depends on your state. Federal setup is quick, but state tax accounts can take time, so start a few weeks before the first pay date if you can.
Do I need workers' compensation for one employee?
In most states, yes, though rules vary. Check with your state before the person starts.
Can I pay my first employee as a contractor to start?
Not if the work looks like employment. Classification follows the facts, not your preference.
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