Do the setup once and later pay runs take under 30 minutes. The first one is the hard one.
Four prerequisites gate everything: an EIN, state registrations, a funded bank account, and a W-4 plus I-9 for each employee.
Form I-9 is due within three business days of the employee's first day, and state registration before the first paycheck.
Classification comes first. Whether someone is a W-2 employee or a 1099 contractor determines every step after it.
Fund net pay plus all withheld and employer taxes, and fund it by the debit date rather than the pay date. Underfunding can fail the whole run.
Depositing taxes and filing returns are separate obligations with separate deadlines.
Confirm in writing which returns your provider files and which stay yours.
You hired your first employee. Somewhere between the offer letter and their first pay date, payroll became your job.
This is the sequence, in order, with rough time estimates. Do the setup work once and each pay run afterward takes under half an hour.
Before you start: what you need in place
Get these four things sorted before you touch a payroll platform. Missing any one of them will stop you mid-setup.
An EIN. Your Employer Identification Number from the IRS. Applying online takes about 15 minutes and you get the number immediately.
State tax and unemployment registrations. Register in every state where an employee works, which is where they physically sit, not where you're incorporated. Allow days to weeks depending on the state.
A business bank account with enough in it to cover wages plus employer taxes.
Employee paperwork. A signed Form W-4 and a completed Form I-9 for each hire.
Two of those have deadlines that arrive faster than people expect. Form I-9 must be completed within three business days of the employee's first day. State registration generally needs to be done before the first paycheck, not after.
Step 1: Classify each worker correctly
About 15 minutes per worker, longer if it's genuinely unclear.
Decide whether each person is a W-2 employee or a 1099 contractor before anything else, because everything downstream depends on it.
The test is control and independence. If you set their hours, direct how the work gets done, provide the tools, and the work is core to your business, they're almost certainly an employee. A contractor controls their own methods, typically serves other clients, and delivers a defined result.
Get this wrong in the direction of calling employees contractors and you're exposed to back taxes, penalties, and interest. When it's a close call, that's a question for an employment attorney or accountant, not a coin flip.
Step 2: Collect employee information
About 20 minutes per employee.
For each employee, collect their legal name, address, and Social Security number, a signed Form W-4 for federal withholding, a completed Form I-9 with document verification, any state withholding certificate your state requires, and bank details for direct deposit.
Don't start a pay run without a W-4. Withholding at the wrong rate creates a correction problem in both directions.
Step 3: Choose your pay schedule
About 10 minutes.
Pick weekly, biweekly, semi-monthly, or monthly. Biweekly is the most common for startups. Check your state's minimum pay frequency rules first, because some states mandate a minimum for hourly workers.
Two things to plan for: changing frequency later means notifying employees and often waiting a full cycle, and biweekly gives you two months a year with three pay dates, which will surprise your cash forecast if you budgeted a flat monthly number.
Step 4: Calculate gross pay
About 10 minutes per pay run once time data is clean.
For salaried employees, divide the annual salary by the number of pay periods. For hourly employees, multiply hours by rate and add overtime.
Federal law requires at least 1.5 times the regular rate for a non-exempt employee's hours over 40 in a workweek. Some states add daily overtime. Add bonuses and commissions paid this period, which are taxable wages, not gifts.
Step 5: Calculate and withhold employee taxes
Automatic with software; an hour or more by hand.
From each employee's gross pay, withhold federal income tax based on their W-4, Social Security at 6.2%, Medicare at 1.45%, and state and any local income tax. An additional Medicare tax of 0.9% applies to employee wages over $200,000.
Pre-tax deductions like health premiums and traditional 401(k) contributions come out before you calculate income tax withholding, which lowers taxable wages. Post-tax items like Roth contributions and garnishments come out after.
The IRS withholding methods live in Publication 15-T.
Step 6: Calculate employer payroll taxes
Automatic with software.
These are on top of wages and come out of company money:
Social Security, 6.2%, up to an annual wage base the SSA adjusts each year
Medicare, 1.45%, no cap
FUTA, 6.0% on the first $7,000 of each employee's wages, usually reduced to 0.6% by a credit of up to 5.4% for state unemployment taxes
SUTA, at the rate your state assigned you
Employer Social Security and Medicare together are 7.65% of wages. Treat total payroll cost as wages plus roughly 8 to 10%.
Step 7: Fund and process payment
About 10 minutes to submit, plus one to two business days to settle.
Submit the pay run and confirm the funding amount, which is net pay plus all withheld taxes plus your employer taxes. Direct deposit runs over ACH and takes one to two business days, so your provider debits your account before the pay date.
Two failure modes to avoid. Underfunding can fail the entire run, not just one employee. And bank holidays shift the timeline, so a holiday near your pay date usually means submitting a day early.
Step 8: Deposit taxes with the IRS and your state
Automatic if your provider does it; 15 minutes if you do.
Withheld taxes plus your employer share get deposited electronically through EFTPS.
Your schedule depends on history. If your reported employment taxes in the lookback period, the four quarters ending June 30 of the prior year, were $50,000 or less, you're a monthly depositor and taxes are due by the 15th of the following month. Above that, you deposit semiweekly. New employers are monthly depositors for their first calendar year. If accumulated taxes ever reach $100,000, deposit by the next banking day.
States have their own portals and schedules.
Step 9: File the required returns
About 30 minutes per quarter if you file yourself.
Depositing is not reporting. You still file:
Form 941, quarterly, due April 30, July 31, October 31, and January 31
Form 940 for FUTA, annually, due January 31
State returns, on your state's schedule
Form W-2 to employees and the SSA by January 31
Form 1099-NEC to contractors paid $600 or more, by January 31
Most providers file 941s and W-2s for you. Confirm which ones, in writing, and confirm whether state returns are included. That's the line where liability sits.
Step 10: Keep records
Ongoing; a few minutes per pay run.
Keep employment tax records at least four years per the IRS. The Fair Labor Standards Act requires payroll records for three years and wage-computation records like time cards for two years. Keeping everything four years covers all three.
Store the payroll register for each run, W-4s and I-9s, W-9s for contractors, hours and wage basis, deductions, and copies of filed returns. Keep them somewhere you'll still control if you switch providers.
After the first run
The first pay run is the hard one. Once registrations exist and employees are set up, later runs are approve-and-submit.
Three things worth putting on a calendar now: your deposit due dates, the quarterly 941 deadlines, and a reminder each time you hire in a new state to check whether you need to register there first.
Frequently asked questions
How do I run payroll for the first time?
Get an EIN, register with your state's tax and unemployment agencies, open a funded business bank account, and collect a W-4 and I-9 from each employee. Then classify each worker, choose a pay schedule, calculate gross pay, withhold employee taxes, calculate employer taxes, fund and submit the run, deposit the taxes, file the required returns, and keep the records.
Can I run payroll myself as a founder?
Yes, and many founders do at first. The arithmetic is manageable for a handful of employees. What makes it risky is the filing and deposit calendar, plus multi-state registration if anyone works remotely. Most founders move to payroll software once they pass a few employees or a second state.
How long does it take to set up payroll for the first time?
Plan on a few hours of your own work spread over one to three weeks. The EIN is immediate, employee paperwork takes under half an hour per person, but state tax and unemployment registrations can take days to weeks and have to be done before the first paycheck.
Do I need to run payroll for myself as a founder?
If you're a W-2 employee of your own company, yes, and you go through payroll like any other employee. If you're an owner of an S corporation, you generally must pay yourself reasonable compensation through payroll rather than taking only distributions. Ask your accountant what reasonable means for your situation.
What forms do I need to run payroll?
To set up, you need an EIN, a Form W-4 and Form I-9 per employee, and a Form W-9 per contractor. To report, you file Form 941 quarterly, Form 940 annually, Form W-2 for employees, and Form 1099-NEC for contractors paid $600 or more.
What happens if I miss a payroll tax deposit?
The IRS charges a failure-to-deposit penalty that scales with lateness, starting at 2% for deposits one to five days late and rising from there, plus interest. Withheld taxes are held in trust, so unpaid amounts can create personal liability for responsible individuals. If you miss one, deposit as soon as you find it.
Do I have to register in another state if I hire remotely?
Usually yes. Payroll obligations generally follow where the employee physically works, not where your company is incorporated. That normally means registering with that state's tax and unemployment agencies before the employee's first paycheck.