How to do payroll, start to finish

1. Before your first payday

Do these once. After that, payday takes a couple of minutes.

1. 1Apply for a federal EIN at irs.gov (free, takes about ten minutes online). You cannot pay anyone legally without one.
2. 2Register with your state for withholding and unemployment tax — search your state's name plus "employer registration".
3. 3Have each worker fill out Form W-4 (employees) or Form W-9 (contractors), plus Form I-9. All three are on the Payroll page under the IRS forms tab.
4. 4Open the Payroll tab and click New worker. Enter the name, how they are paid (hourly, salary, day rate or contract), and the rate.
5. 5Open the Tax rates tab and check the Social Security, Medicare, unemployment rates and wage bases. The defaults are the current federal figures; add your state rate.

Contractors are not employees. If you hire a contractor you do not withhold tax — you issue a 1099-NEC in January instead.

2. Running a payday

1. 1On the Payroll tab click Run pay.
2. 2Pick the worker. Their pay type and rate fill in automatically.
3. 3Enter the pay period dates and the hours, days or units worked. The gross pay calculates itself.
4. 4Check the withholding boxes — federal, state, Social Security and Medicare are filled from your rates. Change any of them if you need to.
5. 5Choose how you are paying: check, cash, direct deposit or transfer.
6. 6Click Save. The payment is recorded and shows in your Pay records list.

3. Paying the worker

1. 1Paying by check: click the check icon on the pay record, then Print. The check number comes from your checkbook automatically.
2. 2Paying by direct deposit: enter the worker's bank details once using the bank icon on the Workers tab, then click Bank file to create the ACH file your bank uploads.
3. 3Paying cash: nothing more to do — the record is your proof.
4. 4Click the printer icon on any pay record to print that worker's pay stub. Hand or email it to them.

4. Paying the tax you withheld

The money you withheld is not yours — it belongs to the IRS and your state. Set it aside every payday.

1. 1Open the Payroll taxes tab. The quarter table shows exactly what you owe and when.
2. 2Deposit federal tax (income tax withheld plus both halves of Social Security and Medicare) at EFTPS.gov. Most small employers deposit monthly, by the 15th of the following month.
3. 3File Form 941 each quarter — the IRS forms tab shows the numbers laid out line by line, ready to copy.
4. 4Pay your state withholding and unemployment on your state's website, using the same figures.
5. 5In January, file Form 940 (federal unemployment) and give every employee a W-2 — the W-2s tab has each one filled in.

Missing a federal deposit deadline is the single most expensive payroll mistake. Diary the 15th of every month.