Why this matters
Payroll mistakes cost real money fast. The IRS charges a failure-to-deposit penalty of 2% to 15% on late payroll tax deposits, and withheld taxes are trust-fund money the IRS can pursue owners for personally. A modest monthly service substantially reduces filing and calculation risk when configured correctly.
What "done" looks like
- A full-service payroll provider is live, connected to your EIN and state tax accounts
- Your employee's W-4, pay rate, and direct deposit are entered
- Federal and state payroll taxes are calculated, deposited, and filed automatically
- A pay schedule is set per your state's rules
How to do it
- Choose a full-service provider. Gusto, QuickBooks Online Payroll, and ADP Run all file and pay federal and state payroll taxes automatically.
- Register your state accounts. You need state withholding and unemployment account numbers in addition to your EIN, before the first payday.
- Enter the employee using the W-4 and bank details from your onboarding paperwork.
- Set the pay schedule and check your state's minimum pay-frequency law.
- Run the first payroll early, verify the stub math, and confirm the provider files quarterly Form 941s and year-end W-2s.
Common mistakes
- Getting an EIN but never registering state withholding and unemployment accounts, the provider cannot file without them
- Calling the hire a 1099 contractor to skip payroll; misclassification triggers back taxes and penalties
- Assuming every plan files local taxes, some tiers only calculate them
Real-world examples
- The IRS failure-to-deposit penalty tiers are 2% (1 to 5 days late), 5% (6 to 15 days), 10% (over 15 days), and 15% after a demand notice
- Under the Trust Fund Recovery Penalty, the IRS can assess unpaid withheld payroll taxes against responsible owners personally
From a founder's point of view
Payroll is a solved problem, and there is no prize for solving it again yourself. Those hours belong to customers, and one missed deposit can cost more than a year of software.
Rule of thumb
If you are calculating withholdings in a spreadsheet, you are not done, done means taxes file themselves and you just approve each run.
