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How to Run Your First Payroll: A Step-by-Step Compliance Guide for New Employers

August 12, 2026

Operational Checklist for Your First Payroll Run

Transitioning from a solopreneur to an employer requires strict adherence to federal and state labor laws. To run payroll correctly the first time, you must establish a legal framework for tax withholding and reporting.

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1. Secure Mandatory Tax Identifiers

Before issuing a single check, you must be registered with the appropriate government agencies:

  • Federal Employer Identification Number (EIN): Obtained via IRS Form SS-4. This acts as your business's social security number for tax purposes.
  • State Tax IDs: Most states require a specific account number for state income tax withholding and a separate account for State Unemployment Insurance (SUI).

2. Collect Employee Onboarding Documentation

You cannot legally pay an employee without these three documents on file:

  • Form I-9: Verifies the employee's identity and legal authorization to work in the United States.
  • Form W-4: Determines the federal income tax withholding based on the employee’s filing status and credits.
  • State Withholding Form: Required in states with income tax to determine local tax obligations.

3. Define Your Payroll Schedule and Pay Types

Establish a consistent pay frequency (weekly, bi-weekly, semi-monthly, or monthly). Ensure you are distinguishing between:

  • Gross Pay: The total amount earned before any deductions.
  • Net Pay: The "take-home" amount after taxes and voluntary deductions.
  • Overtime: Under the FLSA, non-exempt employees must receive 1.5x their regular rate for hours worked over 40 in a workweek.

4. Calculate and Withhold Statutory Deductions

For every pay period, you are responsible for calculating and withholding the following:

  • FICA Taxes: 6.2% for Social Security and 1.45% for Medicare (matched by the employer).
  • Federal Income Tax: Based on W-4 selections and IRS Publication 15 (Circular E) tables.
  • FUTA Tax: Federal Unemployment Tax Act (employer-only tax).
  • State and Local Taxes: Varies by jurisdiction.

5. File and Deposit Taxes

Running payroll is not finished until the funds are moved. You must deposit withheld taxes to the IRS and state agencies via the Electronic Federal Tax Payment System (EFTPS) according to your assigned deposit schedule (usually monthly or semi-weekly for new employers). Finally, file Form 941 quarterly to report total wages and taxes withheld.