Hiring Your First Employee: A Payroll Setup Checklist

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.

• 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.

• 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.

• 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

• 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

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.

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.