How to Do Payroll for One Employee: Step-by-Step Guide

Your business just hired its first employee. Congratulations, and also welcome to a whole new category of paperwork you didn’t have yesterday.

Running payroll for one employee still requires every core step a large company handles, just at a smaller scale. You need tax IDs, employee paperwork, a pay schedule, accurate withholding, and on-time tax deposits, even if that “team” is a single person.

Here’s the full process, broken down for a one-employee setup.

Step 1: Get an EIN

You need an Employer Identification Number (EIN) from the IRS before you can legally pay wages or file payroll taxes. If your business already has one, you’re set. If not, you can apply directly through the IRS website at no cost.

Step 2: Register with your state

Most states require separate registration for state income tax withholding and unemployment insurance, even for a single employee. Check your state’s department of revenue and labor department to confirm what’s required before your first pay date.

Step 3: Collect employee paperwork

Before that first paycheck goes out, collect:

• Form W-4, so you know how much federal tax to withhold

• Form I-9, verifying work eligibility

You’ll also need to submit a new hire report to your state, typically within 20 days of the employee’s start date, depending on your state’s specific deadline.

Step 4: Decide how much to pay and how often

Set the employee’s gross pay, whether hourly or salaried, and choose a pay frequency (weekly, biweekly, semimonthly, or monthly). Some states set minimum pay frequency rules, so confirm what’s legally required before locking in a schedule.

Note: Even for one employee, most states require pay stubs showing gross pay, deductions, and net pay for every pay period.

Step 5: Calculate withholding correctly

For every paycheck, you’ll withhold:

• Federal income tax, based on the W-4

• FICA taxes: 6.2% for Social Security (up to the 2026 wage base of $184,500) and 1.45% for Medicare, matched by you as the employer

• State and local income tax, if applicable

What remains after these deductions is the employee’s net pay.

Step 6: Pay the employee

Set up direct deposit, which most employees expect, or issue a paper check if your state allows it. Either way, provide a pay stub showing the full breakdown of gross pay, withholding, and net pay.

Step 7: Deposit and file payroll taxes

This step doesn’t disappear just because you only have one employee. You’re still responsible for:

• Depositing withheld taxes through EFTPS on a monthly or semiweekly schedule, based on your total liability

• Filing Form 941 quarterly

• Filing Form 940 annually for federal unemployment tax

• Filing any required state withholding and unemployment reports

The IRS doesn’t scale penalties down for small employers. A missed deposit deadline carries the same percentage-based penalty whether you have one employee or one hundred.

Step 8: Handle year-end filing

At year-end, issue a Form W-2 to your employee by January 31, summarizing their annual wages and withholding.

Quick reference: what you need before day one

Manual payroll vs. payroll software for one employee

With only one employee, it’s tempting to do payroll by hand in a spreadsheet. It’s technically possible, but you’re still responsible for tracking annual rate changes, wage base limits, and filing deadlines correctly every single pay period.

Payroll software automates the calculations and files the forms for you, which matters most in the exact scenario where you have the least room for error: no payroll department, no backup, just you double-checking your own math.

One employee is still a full payroll obligation; PayWow just makes sure you don't carry it alone. From EIN setup to your first W-2, PayWow handles the calculations and filings so a single hire doesn't turn into a part-time compliance job.