We get this question more than you’d think. And the answer is almost always yes — here’s why.
When you hire your first employee, the excitement of growing your team is real. But so is the overwhelm. Suddenly you’re responsible for someone else’s paycheck — and everything that goes along with it. A lot of small business owners assume that with just one employee, they can handle payroll manually. A quick calculation, a check, and you’re done, right?
Unfortunately, it’s not quite that simple. And the consequences of getting payroll wrong, even for a single employee, can be significant. Let’s walk through what’s actually involved.
Payroll Is More Than Just Writing a Check
When you pay an employee, you’re also responsible for:
- Withholding federal income tax based on their W-4
- Withholding the employee’s share of Social Security and Medicare (FICA taxes)
- Paying the employer’s share of FICA taxes — which is on top of their wages
- Withholding state and local income taxes if applicable in your area
- Remitting all of those withholdings to the IRS and state agencies on a deposit schedule
- Filing quarterly payroll returns (Form 941)
- Filing annual forms (W-2 for your employee, W-3 to the IRS)
That’s a lot of moving pieces for one person. And each one has its own deadline, form, and consequences for missing it.
The Cost of Getting It Wrong
The IRS does not go easy on payroll errors, even for small businesses. Payroll tax penalties are some of the strictest in the tax code. If you miss a deposit deadline, the penalty starts at 2% and can climb to 15% depending on how late you are. If you fail to file returns, there are additional penalties on top of that.
Beyond federal penalties, most states have their own payroll requirements and their own penalties. And if there’s ever a dispute with an employee about their pay, having clean payroll records is what protects you.
The IRS collected over $7 billion in employment tax penalties in recent years. Don’t become a statistic.
What a Payroll System Actually Does for You
A good payroll system — whether it’s software like Gusto, ADP, or QuickBooks Payroll, or a service managed by a firm like ours — handles the calculations, the deposits, and the filings automatically. It keeps a record of every paycheck, every withholding, and every tax payment. When W-2 time comes around, everything is already there.
The cost of payroll software or payroll services is almost always less than the cost of one IRS penalty notice. And the time it saves you is worth even more than that.
What We Usually Recommend for First-Time Employers
If you’ve just hired your first employee — or you’re about to — here’s what we suggest. First, make sure you have an EIN (Employer Identification Number) if you don’t already. Second, have your employee complete their W-4 before their first paycheck. Third, decide whether you’re going to use payroll software yourself or outsource it to someone like us.
We work with small business owners at every stage, and we’re happy to help you get set up correctly from the very beginning. It’s a lot easier to build a clean system from day one than to untangle a mess six months later.
Ready to Get This Off Your Plate?
At Basc Expertise, we handle payroll setup, tax deposits, and compliance so you can focus on running your business. Reach out to us at www.bascexpertise.com — we’d love to chat.