A payroll set-up checklist for US employers
Reviewed by Mellow Editorial Team, HR & payroll content team
Getting payroll right from day one requires completing a specific sequence of registrations, elections and filings before you pay anyone. Miss a step and you risk penalties, delayed payments or misclassified workers.
Gather your business and employer credentials
Before you can run payroll, you need two foundational identifiers.
Employer Identification Number (EIN). Apply through the IRS at irs.gov. The online application issues your EIN immediately. You need this number to file tax forms, open a payroll bank account and report wages.
State and local registrations. Most states require a separate employer registration — often with both the state revenue or taxation agency and the state workforce or labor agency. The workforce registration sets up your unemployment insurance (UI) account and determines your state unemployment tax (SUTA) rate. Some localities add their own withholding requirements on top. Check every state where an employee will physically work, not just where your company is incorporated.
Classify your workers correctly
This step happens before anyone signs anything. The IRS and the Department of Labor use behavioral control, financial control and the nature of the relationship to distinguish employees from independent contractors. Getting this wrong is expensive — back taxes, interest and penalties can accumulate quickly.
Employees go on payroll. For each one you will withhold federal income tax, the employee share of Social Security (6.2% up to the annual wage base) and Medicare (1.45% with no cap), and remit matching employer contributions for both. You also owe federal unemployment tax (FUTA) and your state's unemployment tax.
Independent contractors do not go on payroll. You pay the gross amount they invoice, collect a Form W-9, and file a Form 1099-NEC if you pay them $600 or more in a calendar year. No withholding, no FICA match.
If a worker's status is genuinely unclear, the IRS Form SS-8 process lets you request a determination.
Set up payroll mechanics
With credentials and classifications in hand, you can build the actual payroll process.
Collect new-hire paperwork. Every employee must complete a Form I-9 (employment eligibility verification) and a Form W-4 (federal withholding elections). The W-4 drives how much federal income tax you withhold; employees can update it at any time, and there is no fixed frequency for re-submission. Collect equivalent state withholding forms where the state has income tax — note that states like Texas, Florida and Washington have no state income tax, so there is no state withholding form needed there.
Choose a pay frequency. Federal law does not dictate how often you pay, but most states set a minimum frequency (weekly, biweekly or semi-monthly are common). Confirm your state's rule before you commit to a schedule.
Open a dedicated payroll bank account. Keeping payroll funds separate from operating funds simplifies reconciliation and makes audits cleaner.
Select a payroll system. Whether you use software, a full-service provider, or run payroll across multiple countries through a single platform, the system must be able to calculate withholding accurately, generate pay stubs, and produce year-end forms automatically.
Understand your deposit and filing schedule
The IRS assigns a federal tax deposit schedule — either monthly or semi-weekly — based on your reported tax liability in a lookback period. New employers generally start on the monthly schedule. Regardless of deposit schedule, you must file Form 941 (Employer's Quarterly Federal Tax Return) four times a year.
At year-end, you must furnish Form W-2 to each employee and file copies with the Social Security Administration by January 31. That deadline applies to both the employee copies and the SSA filing.
For FUTA, you file Form 940 annually and make deposits when your liability exceeds the IRS threshold during the year.
State payroll tax filings run on their own calendars, which often mirror the federal quarterly pattern but not always. Build a compliance calendar that lists every due date across every jurisdiction where you have employees.
Document your policies before issues arise
Payroll intersects with employment law at several points worth noting upfront.
The US has no federal statutory paid vacation or sick leave. Whatever you offer is a company policy, not a legal floor — but once you promise it in writing, employees can generally rely on it, and some states and cities impose their own paid leave mandates.
Employment is at-will in most of the US, meaning either party can end the relationship without cause, but final paycheck timing is state-governed and often strict. Know your state's rule before your first termination.
If you operate in California, be aware that the state prohibits most non-compete clauses, which affects your offer letters and employment agreements as well as your payroll-adjacent HR documents.
Keeping clean payroll records — typically for at least three to four years — protects you during any IRS or Department of Labor inquiry and supports any wage claims that arise.
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