Bringing on your first employee is exciting, but it also means payroll becomes a legal obligation, not just a spreadsheet task. Getting it right from day one saves you from penalties, back taxes, and unhappy employees down the road. Here’s what actually has to happen.
Step 1: Get an EIN (If You Don’t Already Have One)
Before you can run payroll, your business needs an Employer Identification Number from the IRS. If you’ve filed business tax returns before, you likely already have one. If not, this is the first box to check as you can’t legally pay employees without it.
Step 2: Register with Florida’s Department of Revenue
Florida doesn’t have a state income tax, which simplifies things compared to many states, but you’ll still need to register for a state unemployment tax (Reemployment Tax) account through the Florida Department of Revenue. This determines your unemployment insurance rate and reporting obligations.
Step 3: Classify Workers Correctly
One of the most common, and costly, payroll mistakes is misclassifying an employee as an independent contractor. The IRS and Department of Labor look at how much control you have over the work (schedule, tools, methods) to determine classification, not just what you call the arrangement. Getting this wrong can trigger back taxes, penalties, and interest.
Step 4: Collect the Right Paperwork Before the First Paycheck
Before anyone works their first shift, you need:
- A completed Form W-4 (federal withholding)
- A completed Form I-9 (employment eligibility verification)
- Direct deposit authorization, if offered
- State new-hire reporting, which Florida requires within 20 days of hire
Step 5: Choose a Pay Schedule and Payroll Method
Decide whether you’ll pay weekly, biweekly, semi-monthly, or monthly. Florida law doesn’t mandate a specific frequency for most private employers, but consistency matters for both compliance and employee trust. Then decide how you’ll actually run payroll: manually (not recommended once you have several employees), through payroll software, or through an outsourced payroll service.
Step 6: Withhold and Remit Payroll Taxes on Time
This is where most of the real risk lives. Every pay period, you’re responsible for withholding and remitting:
- Federal income tax withholding
- Social Security and Medicare (FICA) — both the employee and employer portions
- Federal unemployment tax (FUTA)
- Florida Reemployment Tax
These deposits have strict deadlines, and the IRS treats late or missing payroll tax deposits far more seriously than most other tax issues. Penalties accrue quickly and personal liability can apply to business owners in certain situations.
Step 7: File Quarterly and Annual Payroll Reports
Beyond depositing taxes, you’re required to file recurring reports, including:
- Form 941 (quarterly federal tax return)
- Form 940 (annual federal unemployment return)
- W-2s for employees and 1099s for contractors, issued by January 31 each year
- Florida quarterly Reemployment Tax reports
Missing these deadlines can still trigger penalties even if the taxes themselves were paid.
Step 8: Keep Detailed Payroll Records
The IRS generally requires payroll records to be kept for at least four years, including hours worked, wages paid, tax deposits, and any benefits withheld. Good records also protect you if an employee dispute or audit ever arises.
Why Many Small Business Owners Outsource Payroll
Payroll looks simple on paper, but the compliance requirements — federal, state, and sometimes local — change frequently, and mistakes are expensive. Between correct classification, on-time deposits, and quarterly filings, many owners find that outsourcing payroll costs less in time and risk than handling it in-house.
First Coast Accounting provides small business payroll services throughout St. Augustine and the First Coast. From setting up a brand-new payroll system for your first hire to managing ongoing payroll for an established team, we keep you compliant and make sure your payroll information is accurate and on time, every time.
Getting ready to hire your first employee, or want a second opinion on your current payroll setup? Contact First Coast Accounting or call (904) 217-4462.
