Hiring Your First Employee: A Payroll Setup Checklist
Hiring your first employee is exciting — and a little overwhelming. This checklist walks you through every step of setting up payroll correctly from day one.
Hiring your first employee is a major milestone. It's also a compliance event that requires you to set up systems, register with government agencies, and take on new legal obligations. Here's a step-by-step checklist.
Before the First Day
- Get your EIN — Apply at irs.gov if you don't already have one. Free and instant.
- Register with your state — In Texas, register with the Texas Workforce Commission for unemployment insurance. Other states may require additional registrations.
- Set up workers' compensation insurance — Required in most states. Texas is the exception — it's optional but strongly recommended.
- Choose a payroll system — Software (QuickBooks Payroll, Gusto, etc.) or a professional payroll service.
- Open a separate payroll bank account — Keeps payroll funds separate from operating funds.
On the First Day
- Form I-9 — Verify employment eligibility. Must be completed within 3 days of hire.
- Form W-4 — Employee's federal withholding elections.
- State withholding form — If your state has income tax.
- Direct deposit authorization — Get the employee's bank account information.
- Employee handbook / offer letter — Document compensation, schedule, and policies.
Setting Up Payroll
- Add the employee to your payroll system with their W-4 information
- Set up direct deposit
- Confirm pay schedule (weekly, bi-weekly, semi-monthly, monthly)
- Set up your federal tax deposit schedule (new employers are monthly depositors)
- Set up state unemployment tax account
Ongoing Obligations
- Run payroll on schedule
- Deposit payroll taxes on time (monthly or semi-weekly)
- File Form 941 quarterly
- File Form 940 annually
- Issue W-2 by January 31 each year
The Cost of Getting It Wrong
Payroll errors and missed deposits result in IRS penalties that add up quickly. Many first-time employers find that the cost of a professional payroll service ($225–$300/month) is well worth the peace of mind. See our guide on payroll tax deadlines so you know exactly what's due and when.
Related Resources
- Payroll Tax Deadlines Every Small Business Owner Must Know
- 7 Payroll Mistakes Small Businesses Make
- Employees vs. Contractors: Payroll and Tax Implications
- Payroll Deductions Explained
- Our Payroll Services
- Contact Us
Ready to hire your first employee? The Gap ProAdvisors can set up and manage your payroll from day one. Contact us or see our payroll pricing.
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About the author
The Gap ProAdvisorsOwner & Lead Advisor — The Gap ProAdvisors
Angela is a Certified Bookkeeper, QuickBooks ProAdvisor, and IRS Registered Tax Return Preparer (PTIN) with over a decade of experience helping small businesses across Texas get their books right and keep more of what they earn. She founded The Gap ProAdvisors to make professional financial services accessible to every small business owner — no matter where they are.