Hiring your first employee is a big milestone

Bringing on your first employee is one of the most exciting steps in growing a business. It is also one of the most administratively complex. Suddenly you are responsible for payroll taxes, compliance, reporting, and making sure someone else gets paid correctly and on time every pay period.

Here is a clear step by step overview of what you need to do.

Get your employer identification number

Before you can run payroll, you need an Employer Identification Number from the IRS. This is essentially a tax ID for your business and it is required to report payroll taxes. If you do not already have one, apply for it before your employee's first day.

Set up payroll withholding

Your new employee will need to complete tax withholding forms so you know how much federal and state income tax to withhold from their paychecks. Keep these forms on file as they are part of your compliance documentation.

Choose your payroll schedule

Decide how often you will pay your employee and stick to it consistently. Most small businesses opt for biweekly payroll as it balances administrative simplicity with reasonable pay frequency for employees.

Understand your employer tax obligations

As an employer you are responsible for matching your employee's Social Security and Medicare contributions and paying federal and state unemployment taxes. These obligations exist on top of the wages you pay and must be factored into your budgeting from day one.

Keep accurate records

Payroll recordkeeping requirements are strict. You are generally required to keep payroll records for several years including pay stubs, tax filings, and time records. Staying organized from the start makes compliance straightforward.

Consider getting professional support

Managing payroll for even one employee involves significant complexity and the consequences of errors are serious. Working with a payroll service from the start means you get it right from day one and free yourself to focus on growing your business.