How to Run Payroll for the First Time: Step-by-Step Guide for New Employers (2026)

You hired your first employee. Congratulations — and also, now you have to run payroll. If that sentence just made your stomach drop a little, you're in the right place. Running payroll for the first time isn't complicated, but it is unforgiving. Miss a tax deposit by one day and the IRS charges you a penalty. Get a deduction wrong and you're amending returns. So let's walk through it correctly, start to finish.

What You Need Before You Run Payroll

Don't skip this part. Every first-time payroll mistake we see traces back to someone missing one of these items. Get them squared away first, and the rest flows.

• Employer Identification Number (EIN) — Apply free at IRS.gov. Takes about 5 minutes online. You can't deposit payroll taxes without one.
• Completed W-4 from every employee — This determines how much federal income tax to withhold. No W-4 means you're guessing, and guessing means errors.
• State tax registration — Most states require you to register as an employer before withholding state income tax. Check your state's department of revenue or labor website.
• Employee pay rates and pay schedule — Decide now: weekly, biweekly (every two weeks), or semi-monthly (twice a month). This affects your tax deposit schedule too.
• Bank account for payroll — Whether you're writing checks or setting up direct deposit, keep payroll funds separate from your operating account. It simplifies everything.

How to Run Payroll: 6 Steps for New Employers

Here's the thing: payroll is just a sequence of math steps followed by a payment and a record. Once you do it twice, it becomes routine. Here's what that sequence looks like.

Marcus, a restaurant owner in Austin who hired his first two employees in early 2026, didn't realize he owed a matching FICA contribution on top of what he withheld. His first payroll cost him about 15% more than he budgeted. Get this number into your labor cost calculations before you hire.

After You Run Payroll: Tax Deposits and Records

The paycheck going out is only half the job. Three tasks follow every payroll run — and the IRS is not patient about them.

1. Deposit payroll taxes. You must deposit the federal income tax withheld plus both the employee and employer shares of FICA to the IRS. Use EFTPS.gov (free, takes about 10 minutes to enroll). Most new employers are monthly depositors — taxes collected in one month are due by the 15th of the following month. If your total payroll tax liability ever exceeds $50,000 in a lookback period, you shift to semi-weekly deposits.

2. File Form 941 quarterly. This form reports wages paid, federal income tax withheld, and FICA taxes for the quarter. Due dates are April 30, July 31, October 31, and January 31. Missing these triggers penalties that stack fast.

3. Keep payroll records. The IRS requires you to retain payroll records for at least 4 years. That includes W-4s, pay stubs, tax deposit confirmations, and Form 941 copies. Some states require longer retention — check yours.

Frequently Asked Questions

How often should I run payroll as a small business?

Most small businesses with 1–10 employees run payroll biweekly (every two weeks) or semi-monthly (twice a month). Some states mandate a minimum pay frequency — check your state's labor department before you set a schedule. Biweekly is the most common setup in the US.

Do I need payroll software to run payroll for the first time?

No — you can do it manually with IRS withholding tables and a spreadsheet. For 1–5 employees, a manual process is genuinely manageable. The real risk with manual payroll isn't the math — it's forgetting a deposit deadline or miscalculating a deduction.

What payroll taxes do I withhold when I run payroll for the first time?

You must withhold federal income tax (based on the employee's W-4), Social Security tax (6.2%), and Medicare tax (1.45%). As the employer, you also match the Social Security and Medicare amounts dollar-for-dollar. State income tax withholding applies in most states — confirm your state's requirements before the first pay run.

What happens if I miss a payroll tax deposit deadline?

The IRS assesses a tiered penalty under IRS Publication 15: 2% for deposits 1–5 days late, 5% for 6–15 days late, and 10% beyond that. Set up EFTPS.gov before your first payroll run and calendar every deposit due date — a missed deadline is almost always an oversight, not a math error.

The Bottom Line

Running payroll correctly the first time sets the tone for your entire relationship with the IRS. Get your EFTPS account set up before you run your first payroll, collect a completed W-4 from every employee, and never let a deposit deadline slip past you. The penalty structure is unforgiving — but the process itself is straightforward once you've done it once.