Hiring Your First Employee? Here’s What You Actually Need to Know About Payroll
Key Takeaways
Hiring an employee means taking on new emotional and operational responsibilities—BBG helps founders manage both.
Payroll setup includes choosing the right platform, registering with tax authorities, and setting clear internal policies.
Gusto is ideal for small teams under 5; Rippling offers more scalability for brands planning to grow.
Founders must understand payroll tax basics and compliance steps, even if software automates most of the process.
Mapping payroll correctly in QuickBooks Online keeps your financials clean and helps avoid missed payments or costly errors.
Hiring your first employee is a major milestone—and a serious shift in founder responsibility. Up until now, it’s been you (and maybe a few freelancers) doing everything from ops to social. But now you're bringing on someone who depends on your business to pay rent, buy groceries, and build a career. That can feel daunting.
At BBG, we help founders navigate these emotional shifts as much as the technical ones. Yes, you need to calculate taxes and keep records. But you also need to keep growing your business so you can make payroll. That’s why we focus on simplifying the back office—so you spend less time buried in forms and more time closing your next deal.
Here’s how to set up payroll the right way from day one.
Step 1: Choose a Payroll Platform (or a Professional)
Unless you want to handwrite checks and calculate tax withholdings yourself (you don’t), your first step is to choose a payroll system.
At BBG, we only recommend two platforms:
Gusto is best for small teams planning to stay under five employees. It’s simple, intuitive, and does everything you need: direct deposit, automatic tax filings, compliance reminders, and onboarding workflows.
Rippling is better if you’re planning to scale to 10–15 employees or add complexity like benefits administration, device management, or IT onboarding. It’s more powerful, but also more expensive.
If you're in the 5–8 employee range, it's a matter of preference and budget. Founders with more complex benefits or multi-state employees often prefer Rippling. Lean teams focused on cost and simplicity stick with Gusto.
In either case, these platforms automate 90% of what first-time employers need. And if you’re still not sure? A fractional finance lead (like the ones at BBG) can help you decide and get it implemented.
Step 2: Register as an Employer at the Federal and State Level
Before you can pay anyone, you need to get your legal ducks in a row.
Federal Registration:
If you don’t already have one, apply for an EIN (Employer Identification Number) with the IRS.
This is your federal tax ID and is required for payroll filings.
State Registration:
Register with your state’s labor or employment department.
Set up accounts for state income tax withholding, if applicable.
Register for state unemployment insurance (SUI).
The specific process varies by state, but the general flow is consistent. Most payroll platforms will guide you through these steps during onboarding, and many will auto-register you with select state agencies.
If you’re operating in multiple states or have remote employees, you’ll need to register in each applicable jurisdiction.
Step 3: Set Your Payroll Policies and Pay Schedules
Employees need to know when and how they’ll be paid. Compliance depends on it, too.
BBG’s Recommended Pay Schedule:
Twice monthly: Pay on the 15th and last day of the month.
This rhythm is easy to budget for and aligns with most accounting periods.
Set These Policies Upfront:
Pay frequency (bi-weekly vs. semi-monthly)
Payment method (direct deposit vs. physical check)
Onboarding process (W-4 collection, I-9 verification, etc.)
Some states have minimum pay frequency rules, so check your local laws. Also, make sure your policies are clearly documented in onboarding materials and employee handbooks.
Pro tip: sync your pay periods with your bookkeeping cadence to avoid reconciliation headaches later.
Step 4: Understand Payroll Taxes, Withholding, and Remittance
Let’s talk taxes. You’re now legally required to withhold and remit taxes on behalf of your employees.
Payroll Tax Breakdown:
Federal Income Tax Withholding: Based on employee W-4.
FICA Taxes: Social Security and Medicare. Split 50/50 between employer and employee.
FUTA & SUTA: Federal and state unemployment taxes, paid by employer.
State Income Tax: Where applicable, withheld from paychecks.
Most payroll software handles this automatically—but you still need to:
Review filings.
Approve disbursements.
Understand your liability.
You’ll also need to file periodic payroll tax forms (like IRS Form 941 quarterly, W-2s annually). Again, your payroll platform can generate and file these, but only if you’ve set up your system correctly from the start.
Step 5: Maintain Records and Stay Compliant
Payroll compliance doesn’t stop after payday. You’re expected to keep detailed, organized records in case of audits, tax notices, or employee disputes.
Retain the Following Documents:
W-4 and I-9 forms
Pay stubs and earnings reports
Payroll tax filings and remittance records
Benefit deduction reports
BBG Bookkeeping Best Practices:
To keep your books clean and auditable, sync your payroll platform with QuickBooks Online (QBO) and follow this setup:
Create a Payroll Clearing Account (listed as a bank account). All payroll-related cash outflows should be routed through this account.
Set Up Liability Accounts for each benefit (e.g., health insurance, dental, 401k). These accounts track what you owe to each vendor.
Create a Combined Payroll Tax Liability Account if using Gusto or Rippling. These platforms reliably remit taxes, so one catch-all liability account keeps things clean without overcomplicating your chart of accounts.
This structure lets you:
Reconcile payroll runs quickly
Track benefit payments (especially if paid outside your payroll platform)
Avoid missed payments and misclassified expenses
Come year-end, you’ll issue W-2s to employees and file summary forms (like W-3) with the IRS. Your payroll provider will usually handle these automatically.
Payroll Isn’t Just Admin—It’s a Sign of Growth
Hiring your first employee means more than just having help. It means your business is real enough that someone else is willing to rely on it for their livelihood. That’s a big deal.
And yes, payroll adds complexity. But it also brings structure. It forces you to clarify your internal processes, think about your financial rhythm, and operate like the business you’re becoming.
If you want help choosing a payroll platform, getting registered, or integrating your systems the right way from day one, we’re here to help.
Talk to BBG about payroll system setup, back-office workflows, and the tools that support real growth without the back-office chaos.
FAQs
When should I hire a payroll service versus a fractional finance lead?
A payroll service automates payments, filings, and compliance. A fractional finance lead looks at the bigger picture. They’ll design your payroll structure, make sure it syncs with your cash flow, and connect it to forecasting and reporting. If you’re hiring your first employee while also managing vendors or scaling production, a fractional lead helps you stay organized and avoid hidden errors.
How do I decide between hiring an employee or keeping a freelancer?
The difference comes down to control, consistency, and cost. Employees provide reliability and long-term accountability but require payroll taxes and compliance. Freelancers cost less to manage but operate independently, so you can’t dictate their process or schedule. Once a role becomes ongoing and central to your operations, bringing it in-house usually creates better stability.
What’s the most common mistake first-time founders make with payroll?
They misjudge timing. Payroll money leaves the account before incoming revenue lands, which can strain cash flow fast. Set pay dates that match your revenue rhythm, keep at least one month of payroll in reserve, and track your burn rate closely. Planning around timing protects both your team’s trust and your business’s momentum.