How to Set Up a Payroll Account: 8 Steps for Success

Setting up payroll for the first time can feel like a maze of tax forms, regulations, and software decisions—especially when you just want to pay your team correctly and stay focused on your business.

You’re not alone. Many small business owners feel overwhelmed when it's time to learn how to set up employee payroll. The good news? With the right steps, you can get payroll up and running easily and avoid headaches down the road.

Whether you’re hiring your first employee or moving away from spreadsheets and manual calculations, setting up payroll properly is critical. It helps ensure compliance with employment and tax laws, builds trust with your team, and gives you visibility into what might be one of your biggest expenses: labor.

Need help with payroll? SurePayroll® By Paychex can help small business owners set up and pay their teams quickly and easily. See how simple payroll can be.

Let’s break it down step by step.

Set Up Payroll in 8 Steps

Here's an overview of how to set up payroll for a small business.  

Step 1: Get an EIN (Employer Identification Number)

First, you need to legally establish your business and apply for an Employer Identification Number (EIN). This nine-digit number is issued by the IRS and acts like a Social Security number for your business.

You’ll need an EIN to:

• Hire employees

• Open a business bank account

• File payroll taxes

• Apply for business licenses and permits

You can apply for an EIN online through the IRS — it’s fast and free.

Already have your EIN? We’re ready to help you get started with fast, simple payroll built for small businesses. Get started today.

If you're a sole proprietor with no employees, you may not need an EIN — but it's still helpful for separating business from personal finances.

You’ll also need to register for state tax accounts if your state collects income tax or unemployment insurance. This step is required for withholding and remitting taxes on behalf of your employees.  

Don’t forget to check for local business licenses or permits that may apply to your industry or city.

Step 2: Classify Your Workers Correctly

Are they employees or independent contractors? This matters a lot.

Misclassifying workers can lead to penalties, back taxes, and legal complications. According to the U.S. Department of Labor, misclassification often happens when a worker is treated as a contractor but should legally be an employee.

Here’s a quick comparison:

• Employees: Paid wages, receive benefits, follow company work rules. You must withhold and pay employment taxes.

• Independent contractors: Set their own hours, use their own tools, and invoice you for services. You don’t withhold taxes.

Learn more about the difference between W-2 and 1099 workers.

You’ll also need to determine whether your employees are exempt or non-exempt under the Fair Labor Standards Act (FLSA), which affects overtime eligibility.

Step 3: Collect Employee Documentation

Once you’ve hired someone, there’s paperwork — and it’s important.

At a minimum, collect and securely store the following:

• Form W-4, Employee’s Withholding Certificate: Employees fill this out to set their federal income tax withholding.

• Form I-9, Employment Eligibility Verification: Verifies eligibility to work in the U.S

• Direct deposit information: A voided check or bank routing/account number.

• State-specific tax or onboarding forms: Where applicable.

Storing these documents digitally (and securely) can help streamline onboarding and protect sensitive data.

Step 4: Set Up Employee Benefits (if Offered)

If you're offering benefits—like health insurance, retirement plans, or voluntary perks—now’s the time to coordinate enrollment.

• Host open enrollment if applicable.

• Ensure benefit deductions (pre- or post-tax) are set up correctly in your payroll system.

• Keep signed enrollment forms and benefit elections on file.

Even if you don’t offer benefits right away, you can take this time to plan ahead. Many small businesses consider adding benefits later as they grow.

Employers may also be responsible for additional payments and deductions, such as workers' compensation insurance.

Step 5: Decide on a Payroll Schedule

How often will you pay employees?

There’s no one-size-fits-all answer. But there are pros and cons:

• Weekly: Offers employees steady cash flow but requires more frequent processing (52 times/year).

• Biweekly: Pay every two weeks (26 or 27 times/year). Popular and predictable, but may complicate budgeting.

• Semimonthly: Pay on two specific dates each month (e.g., 1st and 15th). Works well for salaried staff, less so for hourly.

• Monthly: Least frequent but can be harder for employees to manage.

Your schedule should align with your cash flow, employee preferences, and state requirements. Learn more about pay schedule types and comparisons.

Step 6: Choose a Payroll Solution

There are two main options for processing small business payroll:

• Manual payroll: Time-consuming and error-prone, but low-cost. Best for owners with very few employees and strong tax knowledge.

• Payroll software: Automates paydays, tax calculations, pay stubs, and filings. Easier than manual but requires initial setup.

Want help choosing? Here’s how to find the best payroll service for your business.

If you’re ready for easy payroll, you’re ready to learn more about SurePayroll. Simple, fast payroll built for the everyday small business owner. See how easy it is now.  

Step 7: Run Payroll and Pay Your Team

Once setup is complete, you’re ready to pay your employees.

A typical payroll run usually includes:

• Enter hours worked or confirm salaries

• Calculate gross pay and deductions (federal, state, benefits, etc.)

• Confirm net pay and issue payments

• Provide pay stubs for transparency

Consider running a test or mock payroll when using new software to catch any setup issues before your first real pay cycle. Learn more about how to do payroll.

Step 8: Maintain Payroll Records and File Taxes

Payroll doesn’t stop once you pay your team. You also have to track payroll records and file payroll taxes accurately and on time.

Be sure to maintain:

• Pay stubs

• Tax filings and deposit records

• Benefit deductions and hours worked

• Copies of W-2, Wage and Tax Statements and/or 1099s issued

You’ll also need to file federal payroll taxes (e.g., Forms 940, 941, or 944) and deposit payments using the IRS EFTPS system. State requirements vary, so check your state’s tax agency site.

What Information Do Employers Need to Set Up Payroll?

Here’s a quick breakdown of what you’ll need on hand:

Business Information

• Legal business name and address

• Employer Identification Number (EIN)

• State and local tax ID numbers

• Business bank account info

• Legal entity documentation

Employee & Worker Information

• Full name, Social Security number, date of birth

• Job title and classification

• Compensation details (e.g., hourly or salaried)

• Forms such as: Form W-4, Employee’s Withholding Certificate, Form W-9, Request for Taxpayer Identification, or Form I-9, Employment Eligibility Form,  

• Benefit selections, if applicable

• Payment method details

Payroll Details

• Pay schedule and policies

• Overtime and PTO eligibility

• Bonus, commission, or garnishment arrangements

Payroll Setup Documents Checklist

Here’s a helpful list to guide your documentation process:

Business & Tax IDs

• IRS EIN

• State/local tax ID numbers

• Business license or registration

Payroll Forms

• Form W-4, Employee’s Withholding Certificate  

• Form I-9, Employment Eligibility  

• W-9, Request for Taxpayer Identification (for contractors)

• Payment method form (e.g., direct deposit consent)

• Signed employment offer letter

Benefits Enrollment Docs

• Health, dental, and vision forms

• Retirement plan documentation

• Voluntary benefits (life insurance, etc.)

Payroll Setup Info

• Pay schedule and structure

• PTO and overtime eligibility

• Deduction/garnishment info

• Workers’ compensation

Company Banking & Accounting

• Business checking account details

• Accounting software integration

• Tax filing preferences

Conclusion
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Setting up payroll for small business doesn’t have to be difficult—but it does require planning. With the right foundation, you can maintain compliance, build trust with your team, and save time for what matters most: running your business.

Not sure where to begin? Use the checklist above and take it one step at a time. And when you're ready to simplify the process, SurePayroll® By Paychex is here to help.

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