Payroll Basics for Hiring Your First Employee

Hiring the first employee is a milestone most business owners are excited about, and it also quietly changes what the business is required to do. A sole proprietor or single-member business paying itself is a different animal, tax-wise, than a business that pays someone else. The moment there's a first employee, payroll becomes a recurring obligation with its own deadlines, not a once-a-year task.

New hire reporting comes first

New hire reporting is one of the first things that has to happen, and it's easy to overlook because it doesn't feel like a tax task. It's a straightforward step, but it's also one that has a deadline attached and gets missed by first-time employers more often than almost anything else in the payroll process.

Payroll tax filing becomes a running schedule, not a single event

Once there's a payroll, there's a filing schedule that runs continuously, not just at year end. Payroll taxes get withheld and deposited on a schedule, and the filings that go along with them happen on their own recurring calendar. This is the part that surprises new employers the most, because it's not a once-a-year task like a personal return, it keeps going every pay period.

Workers' compensation isn't optional once there's an employee

Workers' compensation coverage is another piece that changes the moment a business has an employee on payroll, and it comes with its own audit process to make sure the coverage and the payroll match up. Getting this set up correctly from the start avoids a much more complicated conversation with an auditor later.

Direct deposit, paystubs, and year-end forms

Beyond the tax filings, there's the ongoing mechanics of actually running payroll, direct deposit, paystub management, and then W-2 preparation at year end for anyone kept on as an employee, or a 1099 for anyone paid as a contractor instead. Getting the worker classification right at the start, employee versus contractor, matters more than it might seem, because it affects which of these forms apply.

• New hire reporting, filed promptly after the hire
• Payroll tax withholding and deposits, on a recurring schedule, not just at year end
• Workers' compensation coverage set up correctly from the start
• Direct deposit and paystub management running every pay period
• W-2 or 1099 preparation at year end, depending on how the worker is classified

None of this has to be run in-house. Full-service payroll processing, including the QuickBooks payroll setup for businesses that want to see everything in one system, is built specifically for the business that's hiring for the first time and doesn't want the compliance calendar to become a second job on top of running the company.