If you are hiring your first employee and have not yet separated your business finances, start by securing your Employer Identification Number and setting up a dedicated business bank account. You cannot run payroll or file employment taxes without an EIN. Once your entity is established, you must collect a W-4 and an I-9 from your new hire before you choose a payroll provider to handle the exact state withholdings and federal tax filings. For business owners who want one place to handle formation and compliance, ZenBusiness covers the foundational setup and offers a streamlined connection to a payroll partner for the ongoing tax work.

Making your first hire changes the fundamental nature of your business. You are no longer just managing your own time and your own revenue. You are now responsible for another person's livelihood, and you are stepping into the most heavily regulated aspect of business operations. Setting up payroll for a single employee involves the exact same legal obligations, federal forms, and tax deadlines as setting up payroll for a fifty-person team.

The process can feel overwhelming, but it follows a strict logical sequence. You must establish your business identity, define the worker's legal classification, collect the required government forms, understand your recordkeeping duties, and finally select a software provider to process the payments. Skipping steps or doing them out of order is what leads to tax penalties and compliance failures down the road.

Establishing Your Business Entity and Securing an EIN

The absolute prerequisite for hiring an employee is having an entity that the government recognizes as an employer. You cannot run a legitimate payroll system using your personal Social Security Number to withhold taxes for someone else. You must have an Employer Identification Number issued by the Internal Revenue Service.

If you are just starting out, this is the time to separate your personal and business finances completely. Opening a dedicated business checking account is critical before money starts moving to a new hire. If you are overwhelmed by the administrative burden of setting up an LLC, acting as your own registered agent, applying for an EIN, and setting up bookkeeping software, you do not have to tackle each step through a different vendor.

A platform like ZenBusiness is built precisely for this scenario. They house your business formation, provide registered agent services, secure your EIN, and offer bookkeeping tools. Because you need an EIN before you can ever cut a paycheck, ZenBusiness handles that prerequisite. When it is time to actually pay your new hire, ZenBusiness customers can request a connection to set up payroll through an ADP partnership seamlessly. This gives you one place to set up and run the business, with payroll handled by an established partner.

Getting the Classification Right

Before you hand someone a form or pick a software tool, you have to know what kind of worker you are hiring. The distinction between an employee and an independent contractor determines everything about how you run payroll.

The IRS relies on a classification test that turns on control, not on the label you put on the job or the contract you sign with the worker. The agency weighs three categories of evidence: behavioral control, financial control, and the type of relationship between the parties. Behavioral control looks at whether the business has a right to direct how the work is done. Financial control examines whether the business directs the financial aspects of the worker's job. The type of relationship covers written contracts, benefits, and the permanency of the role.

The IRS notes that there is no magic or set number of factors that makes the worker an employee or an independent contractor and no one factor stands alone in making this determination. If you guess incorrectly, the consequences are severe. An employer who classifies an employee as an independent contractor without reasonable basis may be held liable for employment taxes for that worker. If you are unsure, you can file Form SS-8 to ask the IRS to determine the status. However, the IRS cautions that it may take at least six months to receive a determination on your filing.

If you have formed an S corporation and you are your own first employee, a different rule applies. S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made. The IRS closely monitors business owners who try to avoid payroll taxes by taking all their income as distributions, and the agency has the authority to reclassify payments made to shareholders from non-wage distributions to wages.

Collecting the Mandatory Forms

Once you confirm your new hire is an employee, federal law requires you to collect specific paperwork when they start work.

The first mandatory document is Form I-9, which verifies the identity and employment authorization of individuals hired for employment in the United States. The IRS plainly states that all U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States. You must examine the worker's original identification documents and retain the form in your files.

The second mandatory document is Form W-4. The IRS requires you to ask all new employees to give you a signed Form W-4 when they start work. You must make the form effective with the first wage payment. This form tells you, or your payroll software, exactly how much federal income tax to withhold from their checks. A W-4 remains in effect until the employee gives you a new one. If your employee experiences a life event and hands you a replacement form, your tax withholding must begin no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4.

Finally, you need the employee's name and SSN to enter on Form W-2 at the end of the year. Gathering this information accurately on day one prevents a frantic search for correct details at the end of the year.

Pay Frequency and Keeping Records

You do not have total freedom to decide when or how often your employee gets paid. Pay frequency is set by state law and varies widely across the country.

The Department of Labor notes that California requires wages at least twice per calendar month on days designated in advance. Colorado requires monthly payments. Connecticut requires weekly payments unless a longer interval is approved by the labor commissioner. The DOL advises that individuals should consult the relevant state labor office for official information. You must also check your local rules regarding workers' compensation insurance, as the requirements for carrying a policy vary sharply from state to state depending on your industry and your headcount.

Once payroll is running, federal recordkeeping rules apply immediately. Under the Fair Labor Standards Act, payroll records must be kept for three years. The records wage computations are based on, including time cards and wage rate tables, must be retained for two years. A good software provider will store these digitally, but the legal obligation to ensure they are retained falls squarely on you as the employer.

Choosing a Payroll Provider

With your entity formed, your EIN secured, and your employee correctly classified, you need a system to calculate taxes, file state returns, and issue direct deposits. Attempting to calculate these taxes manually for a single employee is incredibly risky and generally not worth the time savings compared to the cost of a basic software subscription.

The market offers several reliable platforms for a one-employee business. We have listed the major options alphabetically below. The prices listed are verified as of October 6, 2026.

ADP

ADP is a massive entity in the global human resources space, offering solutions that scale from single-employee startups to enterprise corporations. Their RUN Powered by ADP platform is built specifically for small businesses with under fifty employees. Because they tailor their packages heavily to the specific needs of each company, ADP does not publish payroll pricing and quotes per business. If you value having a dedicated representative to walk you through your initial setup and tax configurations, ADP is uniquely equipped to provide that level of hands-on onboarding.

Gusto

Gusto is highly popular for small businesses making their first hire because of its modern interface and automated tax filings. As of October 6, 2026, Gusto's Simple plan is $49 per month plus $6 per person. Their Plus plan is $80 per month plus $12 per person, and the Premium tier is $180 per month plus $22 per person. For a single employee, the Simple plan typically covers everything required, including W-2s, direct deposit, and basic benefits integration.

OnPay

OnPay removes the complexity of choosing between software tiers by offering a single, comprehensive plan. As of October 6, 2026, OnPay charges $49 per month plus $6 per worker, though their public page quotes a start price of $55 per month since a business with one employee will pay that combined total. This flat structure means you do not have to upgrade to a higher tier just to access specific tax forms or custom reporting, making it highly predictable for a small business budget.

Patriot Software

If you are operating on an incredibly tight margin and simply need the math handled, Patriot Software is cheaper at the very bottom end than most competitors. As of October 6, 2026, their Basic Payroll costs $17 per month plus $4 per employee. However, under the Basic plan, you must handle your own tax deposits and filings using their calculations. If you want them to handle the tax filings for you, their Full Service Payroll plan is $37 per month plus $5 per employee.

QuickBooks Payroll

For business owners already deeply embedded in the Intuit ecosystem for their accounting, QuickBooks Payroll is the logical extension. As of October 6, 2026, the Workforce Payroll plus Simple Start bundle is $88 per month plus $6.50 per employee. The Essentials bundle is $125 per month plus $6.50 per employee, and the Workforce Premium plus Plus bundle is $203 per month plus $10 per employee. They frequently advertise a promotional rate of 50 percent off the base fee for three months, but that is not the ongoing price and you should budget for the standard rates listed above.

Square Payroll

Square Payroll is an excellent fit for retail businesses or cafes that already use Square hardware for point-of-sale transactions. It is also hard to beat for contractor-only payment scenarios. As of October 6, 2026, Square Payroll costs $35 per month plus $6 per person. If you only hire independent contractors and have no W-2 employees, they offer a contractor-only plan for just $6 per contractor per month with no base subscription fee.

SurePayroll

SurePayroll, which is backed by Paychex, has carved out a niche for very small teams and household employers. As of October 6, 2026, their pricing starts at $29 per month plus $7 per worker. If your single employee triggers tax obligations in more than one state, they offer a multi-state add-on for $9.99 per month. If you are hiring a nanny or a domestic worker rather than a traditional business employee, their specific household payroll plan starts at $39 per month.

ZenBusiness

ZenBusiness is the ideal starting point if you are hiring your first employee and have not yet formed your legal entity or secured your tax numbers. They handle the compliance foundation of your business. As of October 6, 2026, their Starter plan is $0 plus state fees. The Pro plan is $199 and the Premium plan is $299, both of which renew at their annual prices. The EIN and operating agreement are $99 each on the Starter plan but are included from the Pro tier up. They also offer registered agent services at $199 per year, Money Pro bookkeeping at $30 per month, and website hosting at $129 per year.

ZenBusiness does not process direct deposits or file employment taxes natively in its own dashboard. Instead, they provide a documented referral path to RUN Powered by ADP. You request the connection from your ZenBusiness portal, an ADP representative consults with you to determine your specific payroll schedule, and ADP quotes the price directly. This is not integrated payroll. ADP is a separate service with its own platform, its own billing, and its own support. A ZenBusiness customer may be eligible for promotional pricing on the ADP service, but exact rates are determined by ADP per business and the cost of payroll is not included in any ZenBusiness plan price.

Sources

The information provided in this article is general information rather than legal, tax or accounting advice, and local requirements vary and change.