Payroll for one employee uses the same steps as any business: get an EIN, register for state taxes, then withhold, pay, and file taxes each pay period.
Team size does not change the rules. A business with one employee processes payroll the same way as one with 50. The difference is volume, not process, and once you set the process up correctly, most of it repeats on the same schedule every pay period.
This guide covers the full setup, the recurring payroll cycle, the taxes involved, what it costs, and how to handle payroll when the “one employee” is you.
Employee or contractor? Settle this before you run payroll
Confirm the worker is an employee, not an independent contractor, before you set up anything. The two are paid differently, and misclassifying a worker is a costly mistake.
You put an employee on payroll, withhold taxes from their pay, pay employer taxes on top, and issue a Form W-2 at year-end. A contractor handles their own taxes. You pay the full agreed amount and, for payments made in 2026 or later, issue a Form 1099-NEC only if you paid them $2,000 or more during the year. That reporting threshold rose from $600 under the One Big Beautiful Bill Act (P.L. 119-21) and will be adjusted for inflation starting in 2027. The contractor still owes tax on every dollar earned, whether or not a form is issued.
The distinction comes down to several factors, such as control. For example, i you set the hours and direct how the work gets done, the person is likely an employee. If they run their own business and decide how to do the work, they lean toward a contractor.
This matters because paying someone as a contractor to avoid payroll taxes is worker misclassification. When the IRS, FLSA, or both identify it, you owe the back taxes plus penalties and interest.
What you need before your first payroll
Four tasks come before the first paycheck. Handle them once, and you are set to run payroll going forward.
- Get an EIN. An Employer Identification Number is a free IRS ID that marks your business as an employer. You can apply online in a few minutes and use it on tax forms and returns.
- Register with your state. Most states require you to register for state income tax withholding and unemployment tax accounts before you run payroll. Some cities and counties add their own rules. Check with your state tax agency.
- Report the new hire. Federal law requires you to report a new employee to your state within 20 days of their start date. Many states set a shorter window.
- Set up workers’ compensation. Most states require workers’ comp coverage as soon as you have one employee. Rules vary widely by state, so confirm yours before payday.
Hiring your first employee involves more than payroll, from offer letters to required workplace posters, so take advantage of a complete first-hire checklist alongside these payroll steps.
Employee forms to collect
Your new hire completes a few forms during onboarding. Keep these in your records:
- Form W-4 tells you how much federal income tax to withhold based on filing status and adjustments. If the employee never returns it, withhold at the highest rate: single with no adjustments.
- Form I-9 confirms the person can legally work in the United States. Both of you complete your parts within three business days of the start date.
- State withholding form. Many states have their own version of the W-4. States with no income tax require none.
- Direct deposit authorization. If you pay by direct deposit, collect the employee’s bank routing and account numbers and store them securely.
How to set up and run payroll for one employee
Once setup is done, running payroll for one employee is a repeatable six-step cycle:
- Confirm your EIN and state tax accounts are active.
- Collect the W-4, I-9, and any state forms from your employee.
- Choose a pay schedule and stick to it.
- Calculate gross pay, withhold taxes, and determine net pay.
- Pay your employee by direct deposit or check.
- Deposit the taxes you withheld and file the required returns.
Choose a pay schedule
Your pay schedule sets how often your employee is paid and how often you run payroll. The four common options are weekly, biweekly, semimonthly, and monthly.
Biweekly is the most popular choice for small teams. It pays every two weeks, or 26 paychecks a year, and keeps payday predictable.
State law can limit your options. Some states set a minimum pay frequency, often for hourly workers. Understand pay frequency requirements by state to stay compliant.
Calculate the paycheck
Every pay period, you run the same three steps.
- Find gross pay. For an hourly worker, multiply the hourly rate by hours worked. For a salaried worker, divide the annual salary by the number of pay periods. Add any overtime, bonuses, or commissions.
- Withhold taxes. Hold back federal income tax using the employee’s W-4 and the IRS withholding tables. Withhold 7.65% for Social Security and Medicare, plus any state or local income tax.
- Determine net pay. What remains after taxes and other deductions is net pay, the amount the employee takes home.
Pay your employee and deposit taxes
Pay your employee on the scheduled payday by direct deposit or paper check, and provide a pay stub showing gross pay, each deduction, and net pay. Many states require a pay stub every pay period.
Then, set aside the taxes you withheld and remit them to the government on your assigned schedule. That step matters as much as the paycheck, and it is where many new employers fall behind.
Payroll taxes for one employee
One employee means one set of payroll taxes to track. Here is what each one is and who pays it.
| Tax | Rate | Who Pays | Notes |
|---|---|---|---|
| Federal income tax | Per W-4 and IRS tables | Employee (you withhold) | Held in trust, then deposited to the IRS |
| Social Security (FICA) | 6.2% | Employee and employer each | Applies up to the annual wage base, which is $184,500 in 2026 |
| Medicare (FICA) | 1.45% | Employee and employer each | No wage cap; an extra 0.9% applies to employee wages over $200,000 |
| Federal unemployment (FUTA) | 6.0% on first $7,000 | Employer only | Usually drops to 0.6% unless state is subject to a FUTA credit reduction |
| State unemployment (SUTA) | State-assigned | Employer only (most states) | Rate assigned when you register |
| State and local income tax | Varies | Employee (you withhold) | Only where your state or city taxes income |
Together, the two FICA halves come to 15.3% of wages: 12.4% for Social Security up to the wage base and 2.9% for Medicare with no cap.
You deposit federal income tax and FICA tax on a monthly or semiweekly schedule the IRS assigns you. You report those taxes each quarter on Form 941 and report FUTA once a year on Form 940. Give your employee a W-2 by January 31. Because rates and wage caps shift each year, confirm current figures on IRS.gov before each new tax year.
Paying yourself: owner-only payroll
If the one employee is you, how you pay yourself depends on your business structure.
If you run a sole proprietorship or single-member LLC, you generally do not put yourself on payroll. You take money out as an owner’s draw and pay self-employment tax on your profit. No W-4, no withholding, no W-2 for yourself.
If your business is an S corporation, the rules change. The IRS expects an owner who works in an S Corp to pay themselves a reasonable salary through payroll before taking additional profit as a distribution. That salary runs through payroll like any employee’s pay, with the same withholding and a W-2 at year-end.
A reasonable salary depends on your role and what similar work pays in your area. If you’re unsure how to set the figure or which structure fits, a short conversation with a tax professional is worth the time.
How much does payroll for one employee cost?
The cost of running payroll for one employee depends on how you do it. There are three main options, each trading money for time differently.
| Option | Typical Cost | Time Per Pay Period | Best for |
|---|---|---|---|
| Do it yourself (manual) | Your time only | 30 to 60 minutes, plus tax filing | Owners on a tight budget who are comfortable with tax math |
| Payroll software | About $17 to $60 per month | A few minutes per run | Most one-employee businesses that want accuracy without the busywork |
| Accountant or bookkeeper | $100 to $500+ per month | Little to none | Owners who want to hand off payroll entirely |
Cost ranges above are general 2026 market estimates, not verified benchmarks or Patriot Software pricing. Confirm current figures with each provider.
Doing payroll by hand costs nothing but your time, with a higher chance of error. Payroll software sits in the middle: it handles the tax math, files your forms (full-service payroll), and includes direct deposit for a low monthly fee. An accountant costs the most and takes the whole job off your plate.
For a single employee, software is often the practical middle ground.
Common payroll mistakes to avoid
A few errors commonly trip up new employers. Knowing them ahead of time saves money and stress.
- Missing a tax deposit deadline. Late deposits trigger IRS penalties that grow the longer you wait. Mark deposit and filing dates on a calendar.
- Misclassifying your worker. Calling an employee a contractor to skip payroll taxes is illegal and leads to back taxes and penalties once identified.
- Using the wrong withholding. An outdated W-4 or old tax table throws off every paycheck. Update figures each year.
- Skipping recordkeeping. Keep payroll records for at least three years and employment tax records for at least four. Hold on to W-4s, I-9s, pay stubs, and filed returns.
- Forgetting state rules. State deadlines and pay stub rules differ from federal ones. Confirm yours.
Payroll for one employee: FAQs
Yes, you can pay your one employee in cash, but paying in cash does not change your tax duties. You still withhold taxes, deposit them, file returns, and issue a W-2 at year-end. Paying cash to avoid payroll taxes is illegal and leads to back taxes and penalties.
No, you don’t need payroll software for just one employee, but it saves time and cuts down on errors You can run payroll by hand for one person if you have the time and stay careful with the tax math. Software makes sense when you want the calculations and filings handled so you avoid missed deadlines.
If your employee works in a different state than your business, you generally withhold for the state where the employee actually works. If they work remotely from another state, you may need to register there. Where the two states have a reciprocity agreement, the employee can file a form so you withhold for their home state instead. Cross-state rules get complicated, so check with a tax professional.
The one-time setup (getting an EIN, registering with your state, and collecting employee forms) usually takes a few hours spread over a couple of days. After that, each payroll run takes only minutes with software.
Most first-payroll mistakes are fixable if you catch them quickly. If you underpaid, send a correction payment. If you withheld too much, correct it on your next Form 941. And if you missed a deposit, pay it right away with any penalty. The key is catching the error before it repeats.
The bottom line
Once payroll setup is behind you, paying one employee settles into a routine. Get the EIN and state accounts in place, collect the right forms, pick a schedule, and keep the tax deposits on time. The first run is the hardest; every run after follows the same steps.
If you would rather not track tax tables and deposit deadlines yourself, Patriot’s online payroll software handles the tax math and filings and pays your employee by free direct deposit.
This is not intended as legal advice; for more information, please click here.
