Setting up payroll for a new US company
Reviewed by Mellow Editorial Team, HR & payroll content team
Setting up payroll for a new US company requires completing a sequence of federal and state registrations before you can legally pay a single employee. Get the steps in the right order and the process is straightforward; skip one and you will face penalties or delays on your first pay run.
Get your tax identification numbers first
Before anything else, you need an Employer Identification Number (EIN) from the IRS. This is the federal tax ID your business uses on every payroll filing. Apply through the IRS website — it is free, and approval is typically instant when you apply online.
Once you have your EIN, register with your state's tax agency to get a state employer account number. This is what you will use to remit state income tax withholding (where applicable) and state unemployment insurance (SUI) contributions. The registration process varies by state, but most have an online portal. Do this before your first payroll date — some states take a week or more to process.
If your business operates in a state with no state income tax — Texas, Florida and Washington are common examples — you still need to register for state unemployment insurance. There is no escaping that obligation.
Classify your workers correctly
Every worker needs a classification before you set up payroll: employee or independent contractor. This is not a choice you make freely based on convenience. The IRS and state agencies apply specific tests — primarily around behavioral control, financial control and the nature of the relationship.
Employees go through payroll. Contractors do not have tax withheld; instead, you report payments of $600 or more on Form 1099-NEC by January 31.
Misclassification is one of the most common and costly payroll mistakes a new employer makes. If an audit reclassifies your contractors as employees, you become liable for back taxes, penalties and interest.
Set up your payroll mechanics
Once your registrations are in place, you need to decide how payroll will actually run. The core mechanics are the same regardless of whether you handle this manually, use software, or work with a payroll provider.
Federal income tax withholding. Each employee completes Form W-4. The information on that form tells you how much federal income tax to withhold per pay period, based on the progressive rate structure that runs from 10% to 37%.
FICA taxes. You withhold Social Security at 6.2% of each employee's wages, up to the annual wage base. You also withhold Medicare at 1.45% with no cap. For high earners, an additional 0.9% Medicare surcharge applies to wages above the threshold — though note that employers do not match the 0.9% surcharge, only the base 1.45%. As the employer, you match both the Social Security and base Medicare contributions out of your own funds.
State and local taxes. Withhold state income tax according to each state's tables and any applicable local taxes. Remit these on the schedule your state requires — some states want monthly deposits, others quarterly.
Payroll frequency. Choose a pay schedule — weekly, biweekly, semimonthly or monthly — and apply it consistently. Some states mandate a minimum pay frequency, so check local rules before you decide.
Open a dedicated payroll bank account
Running payroll through your general operating account creates accounting headaches and audit risk. Open a separate account used only for payroll. Fund it ahead of each pay date with the gross payroll amount plus employer-side taxes. This makes reconciliation straightforward and reduces the chance of a shortfall on payday.
Understand your filing and deposit obligations
New employers typically deposit withheld federal taxes and FICA on either a monthly or semiweekly schedule, determined by your lookback period. In your first year, you will generally be a monthly depositor. Missing a deposit deadline triggers penalties that start at 2% and escalate quickly, so calendar every deadline before you run your first payroll.
Key recurring filings to build into your schedule:
- Form 941 — filed quarterly, reporting wages paid, federal income tax withheld and FICA taxes
- Form W-2 — sent to employees and the Social Security Administration by January 31 each year
- Form 940 — filed annually for federal unemployment tax (FUTA)
- State equivalents — most states have their own quarterly wage reports and annual reconciliation filings
If you are managing payroll across multiple states or jurisdictions, the filing matrix gets complex fast. How Mellow runs payroll across six countries on one platform gives a sense of what that coordination looks like at scale.
Keep records and review regularly
Federal law requires you to retain payroll records — including Forms W-4, pay stubs and tax filings — for at least four years. State requirements sometimes run longer.
Payroll is not a set-and-forget system. Wage bases, deposit schedules and state tax rates change. Build a review into your calendar at the start of each new tax year so your calculations stay accurate and your filings stay clean.
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