Hiring your first employee is a major milestone ? and a cascade of compliance obligations you probably didn’t plan for. Federal and state payroll requirements touch multiple agencies, have their own deadlines, and carry real penalties for mistakes. This guide walks you through everything you need to set up small business payroll correctly from the start.
Step 1: Get an Employer Identification Number (EIN)
Before you can hire anyone, you need an EIN ? your business’s federal tax ID number, sometimes called a Federal Employer Identification Number (FEIN). Apply free at IRS.gov; you receive it immediately online. You’ll use your EIN for all payroll tax filings, W-2s, and most business banking.
Step 2: Register with the Florida Department of Revenue
Florida employers must register with the Florida DOR to set up a Reemployment Tax (unemployment insurance) account. Register online at floridarevenue.com. Your Reemployment Tax rate starts at 2.7% on the first $7,000 of each employee’s wages per year. After a few years, your rate adjusts based on your claims history.
Step 3: Have New Employees Complete Required Forms
Before the first paycheck, every employee must complete:
- Form W-4 ? Federal income tax withholding elections. The 2020+ W-4 no longer uses personal allowances. Employees select withholding based on filing status and any adjustments.
- Florida has no state income tax withholding form ? no state W-4 is required for Florida employees.
- Form I-9 ? Employment eligibility verification (required by law within 3 days of hire). Verify original identity documents ? do not accept photocopies.
Step 4: Report New Hires to the State
Florida requires employers to report all new and rehired employees to the Florida New Hire Reporting Center within 20 days of hire. Report online at fl-newhire.com. This is used by the state for child support enforcement and unemployment fraud prevention. Failure to report is a $25 per employee fine ($500 if the failure is intentional).
Step 5: Set Up Your Payroll System
You have two options: DIY payroll software or a managed payroll service.
Payroll Software (You Manage)
QuickBooks Payroll, Gusto, and Square Payroll are popular options. You enter hours and earnings; the software calculates withholdings and generates pay stubs. Most services also handle tax deposits and quarterly filing. Cost: $40?$100/month for small teams.
Managed Payroll Service
A payroll service or bookkeeper runs payroll for you ? calculates withholdings, issues paychecks or direct deposits, files tax deposits, and files quarterly reports. You provide hours and any changes; they handle the compliance. Best option if you want payroll off your plate entirely.
Understanding Payroll Taxes
Taxes Withheld from Employee Pay
- Federal income tax (based on W-4 elections)
- Employee Social Security: 6.2% on wages up to $168,600 (2024)
- Employee Medicare: 1.45% on all wages (plus 0.9% additional on wages over $200,000)
Taxes the Employer Pays
- Employer Social Security: 6.2% (matches employee)
- Employer Medicare: 1.45% (matches employee)
- Federal Unemployment Tax (FUTA): 6% on first $7,000 per employee per year (credit reduces this to 0.6% if FL state unemployment is paid timely)
- Florida Reemployment Tax: 2.7% (new employer rate) on first $7,000 per employee
Payroll Tax Deposits: The Schedule That Trips People Up
Federal payroll taxes (withheld income tax, Social Security, Medicare) must be deposited with the IRS on a schedule ? not held until the quarterly filing. The deposit schedule (monthly or semi-weekly) depends on your total payroll tax liability in a prior “lookback period.”
- New employers: Monthly depositor. Deposit by the 15th of the month following payroll.
- Monthly depositor: Tax liability in any pay period was below $50,000 in the lookback period
- Semi-weekly depositor: Tax liability exceeded $50,000 ? deposits due within 1?3 days of payroll depending on pay date
Failing to deposit on time triggers a penalty of 2?15% of the undeposited amount. This is one of the most common and expensive payroll mistakes small businesses make.
Quarterly Payroll Tax Filings
- IRS Form 941 ? Quarterly federal tax return. Due April 30, July 31, October 31, January 31. Reports wages paid, taxes withheld, and deposits made.
- Florida RT-6 ? Quarterly reemployment tax return. Due April 30, July 31, October 31, January 31.
Annual Payroll Filings
- W-2s ? Sent to employees and filed with SSA by January 31
- W-3 ? Transmittal form summarizing all W-2s, filed with SSA
- IRS Form 940 ? Annual FUTA return, due January 31
Workers’ Compensation
Florida requires most employers to carry workers’ compensation insurance. Construction industry employers must cover all employees from the first hire. Most other industries are required to cover employees once you have four or more employees. Penalties for non-coverage include stop-work orders and significant fines.
Common Payroll Mistakes
- Misclassifying employees as contractors (significant liability if audited)
- Missing payroll tax deposit deadlines
- Not reporting new hires within 20 days
- Failing to keep payroll records for the required 4 years
- Not updating payroll when the Social Security wage base resets each January
If you’re setting up payroll for the first time or inheriting a payroll situation that doesn’t look right, book a free call with Luisa. Getting payroll right from the beginning is far easier than cleaning up years of errors after an audit.
