The Small Business Payroll Checklist for New Employers

Running payroll for the first time is a milestone — and a responsibility. Miss a tax deposit or misclassify a worker and the penalties add up fast. This checklist keeps you on track.

Before your first payroll run

1. Get an EIN from the IRS — your business's tax ID.
2. Register for state withholding and unemployment accounts.
3. Classify workers correctly as employees (W-2) or contractors (1099).
4. Collect a completed W-4 and I-9 from each employee.
5. Choose a pay schedule (weekly, biweekly, semimonthly, monthly).

Classification is the one to get right

Step 3 carries the most risk. Classification isn't a preference — the IRS looks at how much control you have over how, when, and where the work happens. Misclassifying an employee as a contractor exposes you to back taxes, interest, and penalties. W-2 vs. 1099 covers what actually determines the answer.

Choosing a pay schedule

Biweekly and semimonthly sound interchangeable and aren't: 26 pay periods versus 24, which changes the gross figure on every check. Some states also mandate a minimum pay frequency, so the choice isn't always fully yours. Pay schedules explained compares the four common options.

Confirm the wage you're paying is legal

Before the first run, check the federal, state, and local minimum wage for each work location and pay the highest that applies. Federal vs. state minimum wage covers how the layers stack, including tip credits.

Every pay period

• Calculate gross pay for each employee.
• Withhold federal, state, and FICA taxes.
• Apply benefit deductions (health, retirement).
• Issue a clear pay stub with each payment.
• Keep a record of every run.

Most states require you to provide employees with an itemized pay stub. Even where it's optional, it's good practice.

Getting the withholding right

Federal withholding comes from each employee's W-4; FICA is a fixed 6.2% and 1.45% that you match from the business side. Understanding payroll taxes covers FICA, FUTA, and SUTA and which of them come out of your pocket rather than the employee's.

Don't forget overtime

Non-exempt employees earn overtime past 40 hours in a workweek, and the rate is 1.5× their regular rate — which includes nondiscretionary bonuses, not just base wage. Folding a bonus in incorrectly is one of the most common wage-claim triggers. See how to calculate overtime pay.

Ongoing compliance

Recordkeeping

The FLSA expects payroll records kept for at least three years, and the IRS wants employment tax records for four. A four-year retention policy safely covers the strictest of the common federal rules — see how long to keep pay stubs and payroll records for the full breakdown.

Know your state's stub requirements

There's no federal law requiring pay stubs, but most states have one, and the rules differ on what must appear and how it can be delivered. Check every state where you have employees, not just where the business is registered: are employers required to give pay stubs?

If you offer time off

PTO brings its own rules — several states prohibit use-it-or-lose-it policies or require paying out accrued time at termination. A small business guide to PTO policies covers what to decide before you write it into a handbook.

This is general guidance, not legal or tax advice. Payroll requirements vary by state and change regularly — confirm current rules for your locations.

Make pay stubs the easy part

You don't need expensive software to produce professional pay stubs. OakPaystubs generates accurate, itemized stubs with the correct tax calculations for your state — pay only for the stubs you create.