How do I set up payroll for my small business?

If you don’t already have a federal Employer Identification Number, that’s step one. Apply through the IRS website and you’ll receive it immediately. You need this before you can register with the state, open a payroll account, or file anything.

Register for Florida reemployment tax (what most states call unemployment tax) through the Florida Department of Revenue. Every employer with employees in Florida must register. You’ll receive a tax rate based on your industry and experience, and you’ll pay quarterly on the first $7,000 of each employee’s wages. New employers get an assigned rate until they build enough history for an experience-based rate.

Florida does not have a state income tax, which simplifies payroll compared to most other states. You won’t withhold state taxes from employee paychecks. But federal requirements still apply in full. You need to withhold federal income tax based on each employee’s W-4, plus Social Security and Medicare taxes (FICA). You also pay the employer portion of FICA and federal unemployment tax (FUTA) on your end.

Collect the right paperwork before your first employee starts. Every employee needs to complete a W-4 for federal withholding and an I-9 for employment eligibility verification. You also need to report new hires to the Florida New Hire Reporting Center within 20 days. This is a requirement that gets overlooked constantly and can result in penalties.

Workers’ compensation insurance is required in Florida for businesses with four or more employees. If you’re in construction, the threshold drops to one employee. Get this in place before anyone starts working. Operating without it when required can result in stop-work orders and significant fines.

Decide how you’ll actually run payroll. You have three realistic options. Payroll software like QuickBooks or Gusto handles the calculations, tax deposits, and filings automatically. Full-service payroll means someone else handles everything and you just approve hours and amounts. Manual processing is technically possible but risky for anyone without payroll experience because one missed deposit or late filing triggers penalties quickly.

Set your pay schedule and stick to it. Florida doesn’t mandate a specific pay frequency, but you need to establish one and communicate it to employees. Biweekly and semimonthly are the most common for small businesses. Whatever you choose, payroll taxes must be deposited on the correct schedule. Federal deposits are typically monthly or semi-weekly depending on your total tax liability, and getting the timing wrong means automatic penalties.

Classify your workers correctly from the start. Misclassifying employees as independent contractors is one of the most expensive payroll mistakes a small business can make. The IRS looks at behavioral control, financial control, and the relationship between the parties. If you control how and when the work gets done, that person is likely an employee regardless of what your agreement says.

The mechanics of payroll setup aren’t overwhelming, but the compliance details add up fast. Missed registrations, late deposits, incorrect withholding, and classification errors all create problems that compound over time. If you’re unsure about any piece of this, getting it set up correctly the first time is far cheaper than fixing mistakes later. A conversation about your overall financial strategy can help you figure out the right approach for your situation and avoid the common pitfalls that trip up most small business owners.