To do payroll for a small business, get an employer ID number, register with your state, and have each new employee fill in Forms W-4 and I-9. Then, every payday, work out gross pay, withhold taxes, pay the net amount and set aside your own share. Deposit the taxes on time and file the returns.
That is the whole cycle. Below it is done once from start to finish, for an invented dog grooming salon in Tampa, Florida, hiring its first employee at $20 an hour. Once the employer’s taxes are added, each hour actually costs $21.64. Every figure is calculated, not estimated.
Before the first payday: set up
These steps happen once, ideally before anyone starts work.
- Get an employer identification number (EIN). Apply online with the IRS. It is free and, if approved, issued immediately. Be wary of sites that charge for it.
- Register with your state. Most states need a withholding account if they have an income tax, and every state needs an unemployment tax account. Florida has no income tax, so the salon only registers for reemployment tax.
- Set up federal deposits. Payroll taxes are paid electronically, through EFTPS, IRS Direct Pay or your IRS business tax account.
- Choose a pay schedule. Weekly, every two weeks, twice a month or monthly. Many states limit how far apart paydays can be; the U.S. Department of Labor keeps a table of state payday rules. Biweekly vs semimonthly compares the two most common.
- Decide how you will calculate pay: a spreadsheet and the IRS tables, a payroll service, or software.
When you hire: the paperwork
On or before the first day, the employee completes Form W-4, which sets their federal withholding, and Section 1 of Form I-9. You finish Section 2 of the I-9 within 3 business days, after checking their identity and work authorization documents.
Federal law also requires you to report each new or rehired employee to your state within 20 days of hire. The report is short: the employee’s name, address, Social Security number and start date, plus your business name, address and EIN. States use it to enforce child support orders.
Make sure the person really is an employee. Someone you control, on your schedule, with your tools, usually is; a contractor runs their own business and invoices you. W-2 vs 1099 explains the difference and what it changes.
Every payday: from gross pay to net pay
Each pay run follows the same order. Here it is for the salon’s first paycheck:
| Line | How it is figured | Amount |
|---|---|---|
| Gross pay | 80 hours x $20.00 | $1,600.00 |
| Federal income tax withheld | From the employee's W-4 (single, nothing else entered) | −$108.15 |
| Social Security withheld | 6.2% of gross | −$99.20 |
| Medicare withheld | 1.45% of gross | −$23.20 |
| State income tax | Florida has none | $0.00 |
| Net pay to the employee | $1,369.45 | |
| Employer Social Security | Matches the employee's share | $99.20 |
| Employer Medicare | Matches the employee's share | $23.20 |
| FUTA | 0.6% after the state credit | $9.60 |
| Florida reemployment tax | 2.7% new employer rate | $43.20 |
| Total cost of this paycheck | Gross pay plus employer taxes | $1,775.20 |
Gross pay is hours times rate, plus any overtime, bonuses or tips. Withholding comes next: federal income tax from the W-4 and the IRS tables, then Social Security and Medicare at fixed rates. Pre-tax deductions such as retirement plans come off before the income tax is figured; after-tax deductions come off last.
What is left is net pay, the amount the employee receives. Give them a pay stub showing each line. Federal law does not require one, but many states do, and it is the simplest way to answer questions later. Our pay stub generator does this calculation and makes the stub.
The bottom half of the table is what the employer owes on top. You match the employee’s Social Security and Medicare dollar for dollar, and pay federal and state unemployment tax on the first part of each person’s yearly wages.
What an employee really costs
Add those employer taxes over a full year and the true cost of a job comes into view. Here is the salon’s employee for twelve months at full time:
| Cost | Rule | For the year | Per hour |
|---|---|---|---|
| Wages | $20 x 2,080 hours | $41,600.00 | $20.00 |
| Employer Social Security | 6.2% of wages | $2,579.20 | $1.24 |
| Employer Medicare | 1.45% of wages | $603.20 | $0.29 |
| FUTA | 0.6% of the first $7,000 | $42.00 | $0.02 |
| Florida reemployment tax | 2.7% of the first $7,000 | $189.00 | $0.09 |
| Total | $45,013.40 | $21.64 |
The two unemployment taxes stop once the employee passes their wage bases early in the year, so most of the extra cost is the matching Social Security and Medicare. Florida’s state wage base, $7,000, is among the lowest; see what is SUTA for how much more it can be elsewhere.
The table also leaves out costs that vary too much to calculate here: workers’ compensation insurance, which most states require, health and retirement benefits, and paid time off. Price those separately before you set a wage.
After payday: deposits and returns
The taxes you withheld belong to the government from the moment you hold them. Deposit them with your own share on the IRS schedule. A new employer is a monthly depositor for its first calendar year, so taxes from one month’s paydays are due by the 15th of the next month.
Here is everything on the salon’s calendar from the first day of work to the year-end forms:
| Task | Date | Rule |
|---|---|---|
| Employee fills in Form W-4 and Section 1 of Form I-9 | Mon, November 2, 2026 | First day of work |
| You finish Section 2 of Form I-9 | Thu, November 5, 2026 | Within 3 business days of the first day |
| First payday | Fri, November 13, 2026 | Every second Friday after that |
| Report the new hire to the state | Sun, November 22, 2026 | Within 20 days of hire |
| Deposit November's withheld and matching taxes | Tue, December 15, 2026 | Monthly depositor: by the 15th of the next month |
| Deposit December's taxes | Fri, January 15, 2027 | Same rule |
| File Form 941 for October to December | Mon, February 1, 2027 | Quarterly return |
| File Form 940 and pay the year's FUTA | Mon, February 1, 2027 | Annual return |
| Give the employee a W-2 and file it with the SSA | Mon, February 1, 2027 | Both on the same date |
The quarterly return, Form 941, reports the wages, withholding and deposits for each quarter. The yearly Form 940 covers federal unemployment tax, and each employee gets a W-2 by February 1, 2027. Your state has its own unemployment wage report, usually quarterly.
Keep the records
Keep a payroll register for every pay run, along with timecards, W-4s, I-9s and copies of every deposit and return. The IRS asks for employment tax records for at least 4 years.
Good records also make the year-end forms easy. When each employee’s yearly totals already sit in your register, filling in their W-2 is copying, not detective work. Our free W-2 generator makes the employee copies from those totals.
Doing it yourself, or paying for help
With one or two employees on fixed hours, running payroll from a spreadsheet is manageable once it is set up. The risk is in the deadlines and the rules that change each year, not in the arithmetic.
Payroll software calculates withholding, files the returns and makes the deposits for a monthly fee, which pays for itself as you add people or states. An accountant or payroll service costs more but takes the deadlines off your hands entirely. Whichever you choose, you remain responsible if a deposit is missed.
Sources: IRS Get an employer identification number and Publication 15 (2026); USCIS, Completing Section 2 of Form I-9; Administration for Children and Families, New Hire Reporting; U.S. Department of Labor, FLSA questions and answers and Significant Provisions of State UI Laws, July 2026. Checked October 24, 2026.
