First-Time Employer Checklist: 11 Things to Do Before Your First Payroll

Hiring your first employee is one of the most significant milestones in running a small business. It is also one of the most compliance-heavy. Before you can legally pay that first employee, you need a federal tax ID, state employer registrations, specific forms completed within hard deadlines, and a payroll system that handles withholding and deposits correctly from day one.

On FRIDAY, we reviewed onboarding support requests across first-time employer accounts opened between January and December 2025 and found that 68 percent of compliance problems occurred in the first 30 days of the first hire. This analysis covered accounts with teams of 1 to 15 employees across retail, food service, field service, and professional services. The three most common issues are: missing I-9 Section 2 deadlines, skipping state unemployment registration before the first payroll run, and collecting the pre-2020 W-4 form instead of the current version. All three are preventable with a structured checklist completed before day one. For a broader overview of how payroll works once you are set up, see our guide on how to do payroll for a small business.

The Complete First-Time Employer Checklist at a Glance

Step 1: Get Your Employer Identification Number (EIN)

Your EIN is your business’s federal tax ID. The IRS uses it to track payroll tax deposits, quarterly filings, and year-end forms. Without it, you cannot legally run payroll, enroll in EFTPS for federal tax deposits, or open a dedicated payroll account.

Apply at IRS.gov online and receive your EIN immediately. The application takes about 10 minutes and is free. If you are a sole proprietor who previously operated without employees, using your Social Security number for business taxes, you still need a separate EIN before hiring your first employee. Using your SSN in place of an EIN on payroll tax forms is one of the most common first-time employer errors and delays EFTPS enrollment.

Step 2: Register With Your State Tax Agencies

Federal registration alone is not enough. Most states require a separate employer registration before you can legally withhold state income tax or pay state unemployment insurance. These are often two separate registrations, one with the Department of Revenue for income tax withholding and one with the Department of Labor for unemployment insurance.

State registration timelines vary significantly. Some states process applications in a few days. California and New York can take two to three weeks during peak periods. Do not wait until the first payday to start. Our employer registration by state resource covers specific registration requirements and links for every state.

If you have a remote employee working in a different state from your business address, you likely need to register in that state before running their first paycheck. California is the most common state where this surprises employers. A business headquartered in Texas that hires one remote employee in California must register with the California Employment Development Department for state income tax withholding, register for California State Disability Insurance withholding, and comply with California’s paid sick leave, pay transparency, and wage statement requirements from day one. All of these obligations activate with the first California employee, regardless of how small the team is.

Step 3: Confirm Worker Classification Before You Hire

Before completing any new hire paperwork, confirm whether the person you are hiring is a W-2 employee or a 1099 independent contractor. The classification affects every step that follows: which forms you collect, whether you withhold taxes, whether you report the hire to the state, and what employer tax obligations apply.

The IRS evaluates classification based on behavioral control, financial control, and the type of relationship, not the title in your contract. Misclassifying an employee as a contractor is one of the most expensive mistakes a first-time employer can make, with penalties reaching back up to three years. Our guide on W-2 vs 1099 worker classification walks through the full IRS test with a self-audit checklist. Everything from Step 4 onward applies to W-2 employees. For contractors, collect a W-9 before their first payment and track payments for 1099-NEC reporting.

Step 4: Complete Form I-9 Within 3 Business Days

Form I-9 verifies the employee’s identity and employment authorization. Every employer in the United States must complete an I-9 for every new hire, regardless of citizenship status, employment type, or company size. There are no exceptions based on business size.

The I-9 has two parts with separate deadlines:

• Section 1: The employee completes this on or before their first day of work. Not the first week. The first day.
• Section 2: You complete this within 3 business days of the start date by physically examining the employee’s original identity documents.

According to USCIS I-9 Central, I-9 violations for paperwork errors range from $252 to $2,507 per form as of 2026. Knowingly hiring an unauthorized worker carries penalties up to $28,619 per worker for first-time violations. A technology company that grew from 6 to 32 employees in 18 months allowed I-9s to be completed casually without enforcing the deadline. When audited, 11 of 32 forms were incomplete, resulting in $26,400 in fines.

Store I-9 forms separately from personnel files. Retain them for the longer of three years from the date of hire or one year after termination. Forms must be available for inspection within three business days if requested by ICE, DOL, or DOJ.

Step 5: Collect Form W-4 Before the First Paycheck

Form W-4 tells you how much federal income tax to withhold from each paycheck. The employee controls their withholding elections. You apply them. Without a completed W-4 on file before the first paycheck, your withholding calculations will be incorrect and your payroll records incomplete from the first run.

Key W-4 facts for first-time employers:

• Use only the current 2024 or later version of the W-4. The pre-2020 version uses an allowances-based calculation that produces different withholding amounts.
• If an employee claims to be exempt from federal withholding, they must re-certify by February 15 each year or withholding resumes at the default single rate.
• You do not submit W-4s to the IRS unless specifically requested. Keep them on file.
• Most states require a separate state withholding certificate in addition to the federal W-4. Confirm your state’s requirement through your employer registration by state page before the first payroll run.

Step 6: Report the New Hire to Your State Within 20 Days

Federal law requires all employers to report every new hire to their state’s New Hire Reporting Program within 20 days of the start date. Some states require reporting within 7 days. The information required is the employee’s full name, address, Social Security number, hire date, and your EIN. Most states accept this through an online portal.

Failing to report new hires carries state penalties typically ranging from $25 to $500 per unreported hire. In cases of conspiracy between employer and employee to avoid reporting, federal penalties can reach $25,000. If you use payroll software, new hire reporting is typically automated after you enter employee information, which eliminates this step from your manual compliance list entirely.

Step 7: Set Up Workers Compensation Insurance

Workers’ compensation is required in most states before an employee’s first day of work, not after the first paycheck. The threshold varies by state. Most require coverage as soon as you have one W-2 employee. A few states allow a threshold of two or three employees before coverage is mandatory.

Workers’ compensation is the single most commonly missed step among first-time employers onboarding through FRIDAY. In 2025, 23 percent of new accounts had not secured workers’ comp coverage at the time of their first payroll run, despite having employees already working.

The most common reason: owners assumed it was optional for small teams or that their general business liability insurance provided coverage. It does not. Workers’ comp is a separate policy that covers medical expenses and lost wages for employees injured on the job. Verify your state’s threshold at your state workers’ compensation board before the employee’s first day.

Step 8: Register for State Unemployment Insurance

State unemployment insurance (SUTA) is a separate registration from your state income tax withholding registration. You pay SUTA as the employer on top of wages. Register before running your first payroll because you cannot retroactively register and back-pay SUTA without penalties in most states.

New employers typically start at a standard new-employer SUTA rate set by the state, which adjusts over time based on your claims history. Paying SUTA on time also matters for your federal FUTA cost: late SUTA payments reduce or eliminate your FUTA credit, effectively raising your federal unemployment tax rate. Understanding how SUTA connects to your full small business payroll taxes picture helps you budget employer costs accurately before the first pay run.

Step 9: Choose a Pay Schedule

Your pay schedule determines how often employees are paid and shapes your payroll workflow, including cash flow timing, tax deposit deadlines, and overtime calculations. Choose before you set up payroll because changing mid-year creates tax complications and disrupts employee budgeting.

Biweekly is the most common choice for small businesses with hourly employees because each pay period aligns cleanly with the 40-hour workweek, simplifying overtime calculations. Some states set minimum pay frequency requirements for hourly workers. Our guide on biweekly vs semi-monthly pay covers the full comparison with real cost math and a state-specific frequency table.

Step 10: Set Up Your Payroll System

Before running payroll for the first time, you need a system that calculates gross-to-net pay, withholds the correct federal and state taxes, deposits those taxes on the correct schedule, and generates quarterly and annual filings. Doing this manually for even one employee carries a compounding error risk that most first-time employers underestimate.

Key setup tasks before the first payroll run:

• Enroll in EFTPS at eftps.gov. It takes approximately 7 business days to receive your PIN by mail. Do this before anything else.
• Set up direct deposit for small business by collecting a signed authorization form and verified bank details from each employee. Allow 1 to 2 business days for prenote verification before the first live direct deposit.
• Confirm your deposit schedule. New employers start as monthly depositors, meaning payroll tax deposits are due by the 15th of the month following each payroll.
• Enter all employee information, including W-4 elections, pay rates, pay schedule, and banking details, before running the first payroll.
• Run a test payroll before the first live run to confirm calculations and account mapping are correct.

Based on setup completion data from 2025 FRIDAY onboarding sessions, employers who completed all 11 setup steps before their first payroll run had an 89 percent lower rate of off-cycle payment requests in their first 90 days. Running payroll before registration is confirmed or banking details are verified creates a cascade of corrections that takes far longer to resolve than the original setup would have taken.

Step 11: Post Required Workplace Notices

Federal law requires employers to display specific notices in a visible location accessible to all employees before the first day of work. Posting a link in an employee handbook does not satisfy the federal posting requirement. Physical posters are required for any workplace where employees physically report.

Required federal posters for all employers:

• Fair Labor Standards Act (minimum wage and overtime rules)
• Family and Medical Leave Act (required once you reach 50 or more employees)
• Employee Polygraph Protection Act
• Uniform Services Employment and Reemployment Rights Act
• Equal Employment Opportunity poster
• Job Safety and Health Protection (OSHA)

Most states require additional posters covering state minimum wage, workers’ compensation, unemployment insurance, and paid leave laws. Federal posters are available free from the Department of Labor. Your state’s department of labor website provides state-required posters at no cost. For remote employees who work exclusively offsite, the DOL has clarified that electronic posting is acceptable. If any employee visits the office even occasionally, physical posters are still required.

Common First-Time Employer Mistakes That Create Penalties

Starting the I-9 late: The 3-business-day deadline for I-9 Section 2 is fixed. Block time on the employee’s first-day agenda specifically for I-9 completion before anything else happens that day.

Skipping state registration until after the first payroll: You cannot retroactively register for state unemployment insurance. Some states back-assess SUTA from the date you first had employees. Register before payroll number one.

Using the wrong W-4 version: The pre-2020 W-4 uses an allowances-based calculation that produces different withholding amounts. Collect a current W-4 from every new hire, including anyone you rehire who previously submitted an old version.

Not collecting a signed direct deposit authorization: A verbal agreement is not sufficient legal permission to access an employee’s bank account electronically. Collect a signed form with account type, account number, and routing number before the first direct deposit. A wrong routing number sends money to a different bank and the correction takes two to three business days.

Missing new hire reporting: New hire reporting is easy to forget because it does not connect visibly to payroll or tax filings. Build it into your onboarding workflow the same day the employee signs their paperwork, not as a separate task to remember later.

How FRIDAY Walks You Through Your First Payroll

The 11 steps above are manageable, but they require attention to detail across multiple government agencies, each with its own deadlines and requirements. Missing one step before the first payroll creates compliance problems that take months to unwind.

FRIDAY guides first-time employers through every setup step during onboarding. Employee records are collected through a self-service portal that prompts for every required field, including W-4 elections, I-9 documentation status, direct deposit authorization, and banking details. New hire reporting, EFTPS enrollment confirmation, and state registration status are all part of the onboarding flow before the first payroll run is enabled. Our employee onboarding checklist covers every document and task in the order they need to happen, and our payroll compliance checklist ensures nothing is missed on an ongoing basis after setup is complete.

Frequently Asked Questions

What do I need to do before hiring my first employee?

Before hiring your first employee, you need a federal EIN, state employer registrations for income tax withholding and unemployment insurance, workers’ compensation insurance, and a configured payroll system. You also need to complete Form I-9 within 3 business days of the start date, collect a W-4 before the first paycheck, and report the new hire to your state within 20 days.

What forms does a new employee need to fill out?

Every new W-2 employee must complete Form W-4 for federal income tax withholding and Form I-9 Section 1 on or before their first day. Most states require a separate state withholding certificate. You complete I-9 Section 2 within 3 business days and submit a new hire report to your state within 20 days of the hire date.

How long do I have to complete the I-9 for a new employee?

The employee completes I-9 Section 1 on or before their first day of work. You complete Section 2 within 3 business days of the hire date. This deadline has no exceptions. According to USCIS, paperwork violations range from $252 to $2,507 per form as of 2026.

Do I need payroll software for just one employee?

You do not legally need software, but manual payroll for even one employee creates meaningful compliance risk around deposit schedules, withholding calculations, and quarterly filings. Most first-time employers find payroll software justified by the reduction in error risk from the first pay run. FRIDAY’s Startup plan starts at $59 per month base plus $12 per user with no setup or cancellation fees.

When do I have to start paying payroll taxes?

Payroll tax obligations begin with the first paycheck. Federal income tax withholding, Social Security, and Medicare are due based on your assigned deposit schedule. New employers start as monthly depositors, meaning deposits are due by the 15th of the month following each payroll. FUTA and SUTA are due quarterly when liability exceeds the $500 threshold.

Disclaimer: This article is for general informational purposes only and does not constitute legal, tax, or accounting advice. Employment laws and requirements vary by state and change over time. Always verify current requirements with your state labor department, a licensed payroll professional, or an employment attorney before hiring your first employee.

Pincus Schiff

Pincus Schiff is a payroll software specialist at Friday App, where he helps businesses simplify payroll, stay compliant, and automate their workflows. He writes about payroll best practices, compliance, and the latest in workforce technology.