First Payroll Run Checklist: What You Need Before You Pay Your First Employee
Before you run payroll for the first time
Running your first payroll is more administrative than most people expect. The actual pay calculation takes minutes once everything is set up. The setup itself, getting all the government registrations and tax accounts in place, can take two to four weeks if you start from scratch.
This checklist walks through what you need before your first payroll run.
The checklist
Federal requirements
Employer Identification Number (EIN) Every business that pays employees needs an EIN. Apply at irs.gov for free. If you apply online, you get your EIN immediately. Paper applications (Form SS-4) take 4 to 6 weeks. Your payroll software will ask for this on day one.
Federal withholding setup Your employees need to complete Form W-4 before you can calculate how much federal income tax to withhold from their pay. The current W-4 does not use allowances anymore. Employees enter their filing status and any additional withholding amounts directly.
Federal payroll tax account You will need to make federal payroll tax deposits (withholding plus the employer share of Social Security and Medicare) through the Electronic Federal Tax Payment System (EFTPS). Register at eftps.gov before your first payroll date. Registration can take up to 7 business days for your PIN to arrive by mail.
State requirements
State employer registration Most states require you to register as a new employer before you can withhold state income tax. The registration process varies by state. Some states let you register online instantly; others have multi-week processing times. Check your state’s department of revenue or department of labor website.
State withholding account Most states with income tax require a separate withholding account number, different from your state business registration number. Your payroll software will ask for this.
State unemployment insurance (SUI) account Every employer in every state pays state unemployment insurance taxes. Register with your state’s unemployment agency to get your SUI account number and assigned tax rate. New employers typically get an assigned rate (often 2.5 to 3.5 percent, varies by state) until they have enough wage history for an experience rating.
Workers’ compensation Required in most states for any business with employees. You purchase workers’ comp through a private insurer (in most states) or a state fund. Some payroll software providers (Gusto, for example) integrate workers’ comp so premiums are calculated and paid automatically.
Employee documentation
Form I-9 for each employee You are legally required to verify that every employee is authorized to work in the US. Complete Form I-9 within 3 business days of their start date. You do not send it to the government; you keep it on file for 3 years after hire (or 1 year after termination, whichever is later).
W-4 for each employee See federal withholding setup above. Collect before their first paycheck.
State tax withholding forms Many states have their own equivalent of the W-4 for state income tax withholding. Collect these from employees in states with income tax before their first paycheck.
Direct deposit authorization Collect bank routing numbers and account numbers from employees who want direct deposit. Most do. Some payroll software has employees enter this information directly through an employee portal.
New hire reporting Federal law requires employers to report new hires to their state’s new hire reporting agency within 20 days of the hire date. Most payroll software handles this automatically once you enter the employee’s information.
Payroll setup
Pay schedule Decide how often you will pay employees before you set up payroll. Common options: weekly (52 pay periods per year), biweekly (26 pay periods), semi-monthly (24 pay periods), or monthly (12 pay periods). Most employees prefer biweekly. Some states have minimum pay frequency requirements.
Classification: employee vs contractor If someone is a true independent contractor (not a misclassified employee), they do not go through payroll. You pay contractors without withholding, collect a W-9 from them, and file a 1099-NEC at year-end if you pay them $600 or more in a calendar year. Misclassifying an employee as a contractor is a common and costly mistake.
Pay rates and hours Make sure you have each employee’s pay rate documented in writing before their first paycheck. For hourly employees, track their hours accurately from day one. The first week of employment is when payroll records are most likely to have errors.
What to do if you miss the first deposit deadline
Federal payroll tax deposits have deadlines tied to your pay frequency and deposit schedule. Missing a deposit triggers a penalty: 2 percent for deposits 1 to 5 days late, up to 15 percent for deposits 16 or more days late.
If you realize you missed a deadline, deposit as soon as possible. The penalty for a day-1 miss is much lower than for a day-16 miss. The IRS does not automatically assess first-offense penalties if you call and request penalty abatement based on reasonable cause.
Frequently asked questions
How long does it take to set up payroll for the first time? Allow 3 to 4 weeks before your target first payroll date if you are starting from zero. The most time-consuming steps are waiting for your state employer account registration and EFTPS PIN to arrive. If you are already registered and just switching payroll software, setup can take a week or less.
Do I need a payroll service or can I do it manually? Manual payroll is legal but error-prone. Payroll software (Gusto, OnPay, Patriot) handles tax calculations, deposits, and year-end W-2 filing automatically. For 1 to 2 employees, manual payroll is manageable if you are comfortable with the tax rules. For 3 or more employees, the risk of errors makes payroll software worth the cost.
What is the employer share of payroll taxes? Employers pay 7.65 percent of each employee’s wages in FICA taxes: 6.2 percent for Social Security (on wages up to $176,100 in 2025) and 1.45 percent for Medicare (no wage cap). This is on top of the employee’s share of FICA, which is also 7.65 percent withheld from their paycheck.
Do I need to withhold state taxes for remote employees in other states? Yes, if an employee works remotely from another state, you generally need to withhold that state’s income tax and register as an employer in that state. This is one of the more complex compliance issues for companies with distributed teams. Payroll software with multi-state support handles the calculations, but you still need to register in each state where employees work.