Before your first employee's first paycheck, you need an EIN, a state withholding account, unemployment registration, workers' comp, a W-4 and I-9 on file, and a deposit schedule. Here's the order, the IRS and state forms, and how to get it right before payroll day one.
Why Setup Order Matters
You can't run payroll until you have an EIN. You can't file federal deposits correctly until you know your deposit schedule. You can't withhold state tax correctly until the state assigns you a withholding number. You can't pay unemployment tax until you're registered with the state unemployment agency. You can't legally employ anyone without workers' compensation in most states.
These aren't parallel tasks. They're sequential. Start the long-lead items first, use the waiting time for the short ones, and be realistic: plan 3–4 weeks from "I want to hire" to "first paycheck runs."
This guide is the full sequence. Every form. Every deadline. Every "don't skip this step."
Step 1: Get Your Federal Employer Identification Number (EIN)
Form: SS-4 Where: irs.gov/EIN Time: Same-day online, 4 weeks by mail
If your business doesn't already have an EIN, this is the starting point. Even single-member LLCs that previously operated under the owner's SSN need an EIN once they have employees.
Apply online at irs.gov/EIN (the online tool is free; any service charging you to apply is reselling a free government form). You'll receive the EIN immediately on the confirmation screen.
Common Mistakes
- Applying with the wrong entity type: if you're an LLC taxed as an S-Corp, the SS-4 asks for both. Pick the wrong option and your EIN is flagged with the wrong classification.
- Using a DBA instead of legal name: the IRS matches the EIN to the legal entity name. Use the name on your Articles of Organization.
Step 2: Register for State Withholding Tax
Where: Your state Department of Revenue (or equivalent) Time: 1–2 weeks in most states; sometimes immediate online
Every state with an income tax requires employers to withhold state income tax from employee paychecks and remit it on a state schedule. You need a state withholding account number before you can file state withholding returns.
The 9 states without state income tax are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington*, Wyoming.** (*New Hampshire taxes interest/dividends only; Tennessee phased out interest/dividend tax in 2021; Washington has no income tax but has a capital gains tax on high earners.)
If you're in one of the 41 states with income tax, register with the state Department of Revenue. The exact portal varies — search "[state name] employer withholding registration" for the current URL. Most states issue the number within 1–2 weeks.
Multi-State Employees
If any employee lives or works in a different state than your business, you may need to register in both states and apply the correct reciprocity rule. See the state's reciprocity agreement list — Pennsylvania has agreements with 6 neighbors; Illinois with 4; Michigan with 5. These agreements determine where withholding happens and where the employee files their personal return.
Step 3: Register for State Unemployment (SUTA) and File New-Hire Reports
Where: State unemployment agency (name varies by state — EDD in California, DUA in Massachusetts, DOL in New York) Time: 1–3 weeks
State Unemployment Tax (SUTA) is separate from federal unemployment (FUTA). You register with the state's unemployment agency and receive:
- A state unemployment account number
- An initial experience rate — new employers get a starting rate (typically 2.5%–3.5%) that adjusts after 3 years based on your claim history
- A state wage base — the cap on taxable wages per employee per year (varies by state, often $7,000–$50,000+)
New-Hire Reporting (Separate, Mandatory, 20-Day Deadline)
Separate from SUTA registration, every state requires employers to report each new hire within 20 days of their start date (some states require 10 days). This is not optional and not payroll-system-dependent — it's a federal requirement under the Personal Responsibility and Work Opportunity Act.
The report includes the employee's name, SSN, address, and hire date. It's used to enforce child support orders. Missing the deadline triggers small per-employee penalties that add up fast in a state audit.
Step 4: Secure Workers' Compensation Insurance
Where: State-approved insurance carrier or state fund Time: 1–3 weeks
Every state except Texas requires employers with employees to carry workers' compensation insurance (Texas makes it optional but lets injured employees sue for negligence if the employer opts out). In the other 49 states plus DC, the number of employees that triggers the requirement varies:
- 1 employee: Alaska, California, Delaware, Nebraska, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, and others — essentially universal in these states
- 3 employees: Arkansas, Georgia, Michigan, Wisconsin, North Carolina
- 4 employees: Florida (non-construction), South Carolina
- 5 employees: Alabama, Mississippi, Missouri
Rates are calculated as dollars per $100 of payroll by job classification. Construction can be $10+ per $100; office work often under $0.50. Your insurance broker or the state fund will generate a quote once you provide job classes and estimated payroll.
Step 5: Collect Each Employee's Forms Before Day One
These forms must be completed before or on the first day of work.
Form I-9 (Employment Eligibility Verification)
Section 1: completed by the employee on or before their first day of work. Section 2: completed by the employer within 3 business days of the employee's first day.
The employer must physically inspect (or verify via authorized remote procedure) the employee's identity and work authorization documents (U.S. passport, or a combination of driver's license + Social Security card, or one of several other acceptable combinations).
Retention: keep I-9s for 3 years after the hire date, or 1 year after termination, whichever is later. ICE can audit at any time with 3 days' notice.
Form W-4 (Employee's Withholding Certificate)
The employee tells you how much federal income tax to withhold. The 2020 redesign eliminated personal allowances — employees now declare dependents, other income, and adjustments in dollar amounts.
If the employee doesn't submit a W-4, the IRS requires you to withhold as Single with no adjustments (the highest default withholding). That's a compliance floor, not a recommendation — remind the employee to submit a W-4 or they'll be over-withheld.
State Withholding Form
Most income-tax states have their own W-4 equivalent (CA DE-4, NY IT-2104, GA G-4, etc.). Collect this in parallel with the federal W-4.
Direct Deposit Authorization
Optional but standard. The employee provides a voided check or a signed ACH authorization with their routing and account number.
Offer Letter, Employment Agreement, Non-Disclosure, IP Assignment
Not payroll forms per se, but every first-day package should include these so your records are complete.
Step 6: Determine Your Federal Deposit Schedule
Form: Form 941 (quarterly); deposits made via EFTPS
The IRS assigns you either a monthly or semi-weekly federal tax deposit schedule based on your lookback period — total tax liability in the 4 quarters ending June 30 of the prior year.
- $50,000 or less in lookback period → monthly depositor (deposit by the 15th of the following month)
- More than $50,000 → semi-weekly depositor
- Paydays Wed/Thu/Fri → deposit by following Wednesday
- Paydays Sat/Sun/Mon/Tue → deposit by following Friday
- $100,000+ in a single day's liability → next-business-day deposit required, you become semi-weekly for the rest of the year and the next calendar year
As a brand-new employer with no lookback period, you start as a monthly depositor. If your liability exceeds $50,000 in any quarter, you may need to transition.
Set up EFTPS (Electronic Federal Tax Payment System) immediately — it's the only way to make federal tax deposits. Enrollment takes 5–7 business days and requires your EIN.
For a complete breakdown of federal deposit rules and penalty tracks, see our Form 941 compliance guide.
Step 7: Set Up Payroll Software
By now you should have:
- ✅ EIN (Step 1)
- ✅ State withholding account number (Step 2)
- ✅ State unemployment account number (Step 3)
- ✅ Workers' comp policy (Step 4)
- ✅ Each employee's W-4, I-9, state W-4, direct deposit info (Step 5)
- ✅ Federal deposit schedule confirmed (Step 6)
Now configure your payroll system with:
- Employer EIN, legal name, address
- Each state where you have employees (withholding + SUTA + local tax where applicable)
- Each employee's W-4 data and pre-tax benefit elections (401(k), HSA, Section 125)
- Pay frequency (weekly, bi-weekly, semi-monthly, monthly)
- Workers' comp class codes per employee (for experience-mod calculations)
Configure Employer-Side Taxes
- FICA: 6.2% SS (up to annual wage base) + 1.45% Medicare
- FUTA: 6.0% on first $7,000 per employee, offset by state credit to 0.6% effective rate in most states
- SUTA: state-assigned experience rate on state wage base
Step 8: Run Your First Payroll
Before you run the first actual payroll:
- Do a test run with a single employee. Verify the gross, each withholding, and the net pay match what you expect by hand.
- Verify direct deposit with a pre-note or test deposit if your bank supports it.
- Fund the payroll bank account with enough for gross pay + employer-side taxes.
- Confirm the deposit to EFTPS is scheduled.
Run payroll. Review totals. Approve. Direct deposits process overnight. Pay stubs go to employees.
Step 9: Stay on Top of the Ongoing Calendar
| Frequency | Filing |
|---|---|
| Per-payroll | Federal deposit (monthly or semi-weekly), state deposit, pay stubs |
| Monthly | State withholding return (some states) |
| Quarterly | Form 941 (federal), state withholding return (most states), state unemployment return (SUTA) |
| Annual | Form 940 (federal unemployment), W-2 + W-3 to employees and SSA (by Jan 31), state W-2 equivalents |
| As needed | W-2c (corrected W-2), 941-X (amended 941), new-hire reports for new employees |
Missing any of these triggers penalties. For penalty tracks and rates, see our Form 941 compliance guide.
Common First-Year Mistakes
Misclassifying Employees as Contractors
The fastest way to create a retroactive payroll crisis is to pay workers on 1099-NEC when they should be W-2. The IRS applies a three-factor test (behavioral control, financial control, relationship) plus the common-law test. California uses the stricter ABC test. If the IRS or state reclassifies a contractor as an employee, you owe back payroll taxes plus penalties — often retroactive to the first payment.
Treating the Owner as an Employee Incorrectly
- Sole proprietors and single-member LLCs (default): do NOT put themselves on payroll. Their income is passed through on Schedule C.
- S-Corp owners: MUST take a "reasonable salary" on W-2 before any distributions. The IRS audits this aggressively.
- C-Corp owners: payroll is normal; they're W-2 employees like any other.
Missing the First Quarter's 941
Your first 941 is due by the end of the month after the first quarter you have wages. Even if wages are $0 (you set up payroll but didn't run any yet), you may still need to file a $0 941 if you're registered.
State Registration Before Federal
You need the EIN before most state registrations. Starting state applications before the EIN is issued wastes time.
How Pleelo Accelerates New-Employer Setup
Pleelo's HR module has a guided new-employer onboarding that walks through the sequence above:
EIN and state registration tracking: Pleelo won't let you run payroll until the required accounts (federal EIN, state withholding, state unemployment) are populated. The dashboard shows which accounts are confirmed and which are pending.
Employee onboarding workflow: self-service links let employees complete W-4, I-9 Section 1, state W-4, direct deposit, and benefit elections from their phone. Section 2 of I-9 is completed by HR within 3 days.
New-hire reporting automation: when a new employee is added, Pleelo generates the state new-hire report automatically and stores the filing confirmation.
Deposit schedule management: Pleelo detects whether you're monthly or semi-weekly based on your lookback period, applies the correct deposit rules after every payroll, and reminds you before each deadline.
Multi-state support: employees in any of the 41 income-tax states or the 50 state unemployment systems are handled with the correct rates and forms.
Workers' comp class code tracking: each employee has their workers' comp class code; end-of-year audit reports match insurer expectations.
Full quarterly and annual filings: Form 941, Form 940, state equivalents, W-2/W-3 generation are all produced from the system.
Ready to Hire?
Setting up US payroll correctly the first time is cheaper than fixing it after a 941 notice, a state audit, or an I-9 inspection. The sequence isn't complicated, but every step has a deadline — and the deadlines cascade.
Pleelo's HR module guides new employers through the full sequence, from EIN registration to first payroll, with state and federal filings as a byproduct of running payroll correctly.
Three to four weeks from decision to first paycheck, done right. Everything tracked. Every deadline met.
