Hiring Your First Employee? Get Your Books Ready First
Hiring your first employee? Small business payroll setup, employer taxes, and bookkeeping steps to get right before the first paycheck. Free health check.
Congratulations — hiring your first employee is a real milestone. It means the business is growing, the work is more than you can handle alone, and someone's livelihood is about to depend on you getting the money stuff right. That's exciting. It's also where a lot of new employers step on a rake, because paying an employee is nothing like paying a contractor — and your books need to be ready before the first paycheck.
Here are the things to get in order now, so the celebration doesn't turn into a scramble.
Get your employer paperwork in order
The moment you hire, you're on the hook for things that didn't apply when it was just you. You'll need an employer identification number if you don't have one, and you'll need to register for payroll taxes with your state. Every state has its own timeline and its own forms, and some give you days, not months, to get registered. This is also when workers' compensation insurance and state unemployment insurance enter your life. They're not optional, and "I didn't know" is not a defense that works with a state labor department. If any of this sounds unfamiliar, that's a sign to get a bookkeeper involved before the offer letter goes out.
Set up payroll properly from day one
Your first payroll has to get three things exactly right: what the employee earns, what gets withheld, and where the withholdings go. Federal income tax, Social Security, Medicare, state taxes — each has its own rules, its own deadlines, and its own deposit schedule. Miss a deposit and the penalties start compounding immediately. The IRS treats payroll tax money as belonging to the employee, not to you, and they are not casual about it. Run payroll through a real payroll system or provider from the very first pay period. A spreadsheet and good intentions are not a payroll system, and fixing three months of DIY payroll costs far more than doing it right from the start.
Build the new costs into your budget
An employee costs more than their salary. Add payroll taxes (roughly 7–10% on top of wages for the employer's share), workers' comp, benefits if you're offering them, the payroll service itself, and any equipment or training. A common rule of thumb is that an employee costs 1.25 to 1.4 times their salary. Update your books and your budget to reflect the true cost, and make sure your cash flow can handle it. Hiring should be a growth move, not a gamble — and the difference is knowing your numbers before you commit.
Create the right accounts in your books
Your books need new categories: payroll expenses, payroll taxes, benefits, and contractor payments need to live in separate, clean accounts — not jumbled into "general expenses." When these get mixed together, you can't see what hiring actually costs you, and your tax return becomes a guessing game. This is also the time to make sure your business and personal money are fully separated, if they aren't already. Employee wages flowing through muddled accounts is how small problems become audit problems.
Plan for the ongoing rhythm
Once payroll is running, it never stops. Every pay period has deposits. Every quarter has filings. Every January has W-2s. That's a calendar of non-negotiable deadlines that didn't exist when you were solo. Put every deadline on a calendar now — payroll deposit dates, quarterly filing dates, annual forms. Then decide who's responsible for hitting them. If the answer is "me, between everything else," be honest about whether that's sustainable.
The real takeaway
Hiring your first employee is one of the best signs your business is working. Just don't let the financial side be the thing that makes it harder than it needs to be. The employers who have the smoothest first hires all did the same thing: they got their books and payroll set up before the first day, not after the first mistake.
Making your first hire? Book a free bookkeeping health check with Acctually — we'll make sure your books, payroll setup, and new-hire costs are all in order before the offer letter goes out. Plain language, no jargon, no surprises.
Get My Free Bookkeeping Health Check — acctually.com: https://acctually.com