This article is general guidance, not legal or tax advice. Employment law and payroll tax requirements involve real legal consequences — confirm specifics with your CPA, attorney, or payroll provider.
Before the first day: what to set up
1. Confirm it's actually an employee
The single most important question. Is this person really an employee, or could they be a 1099 contractor? The IRS test looks at behavioral control, financial control, and the nature of the relationship.
If the person will work set hours you determine, with tools you provide, doing work integral to your business, on a continuing basis — they're an employee. Period. Trying to classify them as 1099 to avoid payroll setup is the most common compliance mistake new employers make. See our 1099 vs. W-2 guide.
2. Get your EIN
If you don't already have an Employer Identification Number (EIN) from the IRS, get one. Free, online at IRS.gov, takes about 15 minutes. You can't run payroll without one.
3. Register with state agencies
In Florida:
- Florida Department of Revenue — for reemployment tax (Florida's name for state unemployment tax)
- Workers' Compensation — Florida requires workers' comp insurance for most businesses with 4+ employees (lower threshold for construction). Coverage often makes sense earlier even when not required
- New Hire Reporting — Florida requires new hire reporting within 20 days of hire date
Each state's requirements vary; the above is Florida-specific. Confirm current rules.
4. Choose a payroll provider
You can technically run payroll manually, but for almost every small business, a payroll provider is the right answer. Options:
- Gusto — user-friendly, popular with small businesses
- QuickBooks Payroll — integrated with QuickBooks if you use it
- ADP, Paychex — larger established providers, more features and more cost
- Onpay, Patriot — budget-friendly options
The right choice depends on your budget, your accounting software, and the complexity of your payroll. For a first hire, simpler is usually better.
5. Set up workers' comp
Even when not legally required (under Florida's threshold), workers' comp coverage is often a good idea. The cost of an uncovered workplace injury can be catastrophic for a small business. Premiums are based on payroll and job classification.
6. Get an employer policies foundation in place
Not strictly bookkeeping but important: have a basic employee handbook, an offer letter template, an I-9 form ready, and a W-4 form ready. Pre-employment paperwork matters.
What changes in your bookkeeping
Adding an employee adds new accounts and processes to your books.
New accounts on the chart of accounts
Expenses:
- Wages — Employees
- Payroll Tax Expense (employer's share of FICA, FUTA, state)
- Workers' Comp Expense
- Health Insurance (if you provide it)
- Other Benefits (if applicable)
Liabilities:
- Wages Payable (between earned and paid)
- Federal Withholding Payable
- FICA Withheld Payable (employee's share)
- FICA Match Payable (employer's share)
- FUTA Payable
- Florida Reemployment Tax Payable
- Workers' Comp Payable (depending on coverage structure)
- Other Withholdings (401(k), garnishments, health insurance)
Payroll workflow
Each pay period:
- Collect time data (if hourly) or confirm salary
- Run payroll through your provider
- Provider calculates gross wages, deductions, employer taxes
- Provider creates direct deposits or paychecks
- Provider files payroll taxes (federal, state)
- Your bookkeeping records the payroll entries
If your payroll provider integrates with your accounting software, the entries import automatically. If not, you (or your bookkeeper) post the summary journal entry manually.
The cost of an employee — beyond gross wages
A common new-employer surprise: an employee actually costs significantly more than their stated wage.
On top of gross wages, the employer pays:
- Employer FICA — 7.65% (6.2% Social Security + 1.45% Medicare)
- FUTA — federal unemployment, capped at the FUTA wage base
- Florida reemployment tax — varies by employer rate, capped at the state wage base
- Workers' comp — varies widely by industry and rate, typically 0.5% to 10%+ of payroll depending on classification
- Health insurance (if provided)
- Retirement contributions (if matched)
- Other benefits (paid time off, training, equipment)
The "loaded cost" of an employee is typically 1.15x to 1.30x their gross wage for basic coverage, and 1.40x+ with full benefits. A $60,000-per-year hire might cost the business $72,000–$84,000 in total. Budget accordingly.
Payroll tax deposit obligations
The IRS expects employers to deposit federal payroll taxes on a schedule:
- Monthly depositor — most new small employers; payroll taxes due by the 15th of the following month
- Semi-weekly depositor — larger employers; tighter deadlines
- Quarterly Form 941 — quarterly summary of payroll taxes
Your payroll provider handles this automatically if you use one. But the obligation is still yours — late deposits incur penalties that the provider doesn't absorb. Confirm deposits are happening each period.
Year-end and W-2s
At year-end you'll need to:
- Issue W-2s to each employee by January 31
- File W-2s and W-3 with the Social Security Administration by January 31
- File the annual Form 940 (FUTA) by January 31
- Reconcile total payroll on quarterly 941s to total payroll for the year
Modern payroll providers handle most of this. Your job is to confirm everything matches and address any discrepancies before filing.
Common mistakes
1. Misclassifying the worker as 1099
Top mistake. Saves payroll tax setup short-term, creates audit exposure long-term.
2. Not setting aside payroll tax money
Employee withholdings (their share of FICA, federal income tax, etc.) belong to the IRS, not you. Spending them while waiting for the deposit deadline creates real problems.
3. Skipping workers' comp
Florida has size thresholds, but even when not required, the cost of one uncovered injury can wipe out a small business. Get coverage early.
4. Trying to run payroll manually
Possible but error-prone. The cost of a payroll service is small compared to the cost of one mistake.
5. Paying cash to avoid payroll taxes
"Under the table" pay is illegal employment, and the consequences when discovered are severe — back payroll taxes, penalties, potential criminal exposure. Don't go there.
6. Not tracking PTO or paid leave
Once you have an employee, accrued vacation and sick leave are real liabilities. Track them.
7. Treating bonuses as expense reimbursements
Bonuses are wages, fully subject to payroll taxes. Calling them something else doesn't change the tax treatment.
Bookkeeping setup checklist
Before the first payroll runs:
- ☐ EIN obtained
- ☐ State agencies registered (Florida DOR, workers' comp)
- ☐ Payroll provider selected and configured
- ☐ Workers' comp policy in place
- ☐ Chart of accounts updated with payroll accounts
- ☐ Direct deposit info collected from employee
- ☐ W-4 and I-9 completed and on file
- ☐ New hire reporting submitted to the state
- ☐ Pay schedule established (weekly, bi-weekly, semi-monthly)
- ☐ First payroll test run completed before going live
The bookkeeping pattern after the first hire
Once payroll is running, the monthly bookkeeping rhythm includes:
- Payroll runs (per pay period) recorded in the books
- Payroll tax deposits matched to liabilities
- Workers' comp premium reconciliation (especially if you're audited annually)
- PTO accrual updates
- Benefit cost allocations
- Quarterly 941 review
- Year-end W-2 and W-3 review
This is one of the points where DIY bookkeeping often hits its limit. Payroll is intricate enough that many owners hire out bookkeeping (and payroll management) once they have employees, even if they did the books themselves before.
Frequently asked questions
For most small employers, no. The Affordable Care Act employer mandate applies to businesses with 50+ full-time equivalents. Small employers can offer benefits voluntarily.
One W-2 employee, hourly or salary, paid bi-weekly, with no benefits, through a payroll provider like Gusto. Workers' comp through a small business policy. That's the minimum viable setup.
QuickBooks Payroll integrates closely and can be self-administered. Whether to use it depends on whether you want to be in the payroll software regularly or you want a separate tool. Gusto, Onpay, and others offer cleaner standalone interfaces.
Their preference doesn't matter — classification is determined by the IRS based on the work relationship. If they're functionally an employee, they're an employee regardless of what either of you want.
How we help
SoFlo360 supports Florida small businesses through the first-hire transition — payroll setup coordination, chart of accounts updates, and ongoing bookkeeping that handles the payroll reality. For payroll itself, we work with the payroll provider you choose. Spanish-friendly support available.