Your first employee, and payroll

You agreed on $24 an hour with your first employee, and he starts in three weeks. He is on a W-2, not a sub. So two questions matter: what has to exist before the first Friday, and what $24 an hour actually costs once it runs through payroll.

$24 an hour is not $24 an hour

Every line below stacks on the wage you agreed to. The rates move year to year and several depend on your state and your trade, so what helps is knowing each line exists and where the current number lives.

Unemployment taxes apply only to wages up to a wage base, so they cost more early in the year and taper off. Workers' comp swings the widest: the same $24 an hour costs one thing for a shop hand and several times that for someone on a roof. Get the comp quote for the actual code before you settle the wage.

The accounts that have to be open before the first Friday

In this order, because some feed the next:

A federal EIN. If you have been a sole proprietor filing under your Social Security number, you need one now. It is free, the IRS online application issues it immediately during posted hours, and every state form below asks for it.

A state withholding account, opened with your state's department of revenue or taxation. A handful of states have no personal income tax withholding at all, and some cities and school districts levy their own on top, so confirm what applies where the work happens rather than where you live.

A state unemployment insurance account, usually at a separate agency — labor, workforce, or employment security, depending on the state. They assign an account number and a new-employer rate you need before the first payroll runs.

Workers' compensation coverage. Many states require it from the first employee; others set the trigger at three or five, and several of those count construction from the first regardless. Your state's comp agency has the rule for your trade. Texas is the outlier where it is optional for most private employers, though non-subscribers keep the liability and still report their status to the state. Binding coverage takes days, and a general contractor will want the certificate before your crew comes through the gate.

Your state's new-hire reporting registry. Every state runs one. Federal law sets an outer deadline; many states set a shorter one.

What goes in the employee's file on day one

The employee fills in the W-4; you do not advise them on it. Most states with an income tax have their own withholding certificate, and a few accept the federal form instead.

Form I-9 is the one people get wrong. The employee completes their section no later than their first day of work, and you examine their documents and complete your section within three business days of the start date. You keep it — it is not sent anywhere — and some states require E-Verify on top of it. USCIS publishes the current form and the acceptable-document list.

If you take public work, add certified payroll. Prevailing wage on federal — and often state or local — public work is a different rate than your private jobs pay, and it comes with weekly reporting.

Running it yourself, or handing it to someone

By hand, a cycle means calculating gross and overtime, then withholding federal and state income tax plus the employee's FICA. Those withheld amounts get deposited electronically on the schedule the IRS assigns you — monthly or semiweekly, per the lookback rules in Publication 15. On top of that: Form 941 each quarter (or Form 944 once a year, if the IRS writes to put you there), Form 940 for FUTA once a year with quarterly deposits after liability passes the threshold in the instructions, your state's equivalent filings, and W-2s by the end of January.

For one employee that is a few hours a month you cannot bill, and mistakes are expensive. Three ways out:

Full-service payroll software files and deposits for you at a base fee plus a per-employee fee. Ask specifically whether it handles your state's filings, not just federal.

Your bookkeeper or CPA runs it as an add-on. More per run, and worth it if your state has an awkward local tax layer or you have crews in two states.

A PEO becomes a co-employer, so your people sit on its filings, workers' comp and benefits plans. That can get a two-person shop health coverage it could not buy alone. It costs more and is harder to unwind. The IRS certifies some PEOs, and a certified one is solely liable for the federal employment taxes on wages it pays — ask whether the one pitching you is certified.

The withheld money was never yours

The income tax and the employee's FICA you take out of the check are trust fund taxes. You hold that money for the government; you do not bank it. When cash gets tight it looks like a short loan, and borrowing from it is the most damaging mistake a first-time employer makes. The IRS can assess the unpaid amount personally against anyone responsible for collecting and paying it who willfully did not, and an LLC does not wall that off.

Payday does not care whether the customer paid

One helper at 40 hours a week and $24 is $1,920 gross for a two-week cycle before a dollar of employer cost, and that money moves on schedule whether the GC's check cleared or it rained all week.

A workable starting rule: hold two full pay cycles including employer taxes and the comp premium, separate from operating cash, before the first employee starts, and rebuild it any month you dip in. The other half of the fix is on the front end — deposits that cover material, progress billing on anything longer than a pay cycle, and terms short enough that money lands while payroll is going out.

The rate you rebuilt has to reach the customer

Once you know your real loaded cost per hour, your old pricing is out of date, and the gap shows up as thinner margin on every job you win. In DoneQuote the labor rate lives in your catalog and prices the work from there, so the rate you just recalculated is the one the customer sees — not the one you set when your own time was the only labor in the business.

Work backwards from the first payday

Pick the start date and count back. Comp quote and EIN first: the quote can change the wage, and every state form wants the EIN. Withholding and unemployment accounts next, because those numbers take weeks and your payroll provider cannot run without them. Provider setup and the W-4, I-9 and new-hire report in the final week.

If that does not fit before your helper's first Friday, move the start date. A late payroll, or a site you cannot send him to without a comp certificate, costs more than three more weeks of doing the work yourself.