Payroll 1 employee

Managing payroll for a single employee might seem straightforward, but it involves navigating a surprising number of legal, tax, and administrative nuances.

At its core, “payroll 1 employee” means you, as a business owner, are responsible for calculating, withholding, and remitting federal, state, and local taxes, as well as paying the employee accurately and on time, while also ensuring compliance with labor laws like minimum wage and overtime.

Neglecting any of these steps can lead to severe penalties, ranging from hefty fines to potential lawsuits, making it crucial to establish a robust and compliant payroll process from day one, even for just one individual.

Navigating payroll for a single employee, while seemingly simple, carries significant responsibilities that, if mishandled, can lead to substantial financial penalties and legal complications.

Businesses must understand the core components of payroll, which include calculating gross wages, deducting pre-tax and post-tax amounts, remitting taxes to the appropriate authorities, and ensuring timely payment to the employee.

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Beyond the financial mechanics, compliance with federal and state labor laws, such as minimum wage, overtime rules, and proper classification of employees versus independent contractors, is paramount.

Mistakes in this area, even for one employee, can trigger audits, fines, and reputational damage.

Therefore, establishing an accurate, efficient, and compliant payroll system from the outset is not merely a best practice—it’s a fundamental requirement for any employer, regardless of their team size.

The Absolute Essentials: What “Payroll 1 Employee” Really Entails

When you hire that first employee, you’re not just adding a team member.

You’re stepping into the complex world of employer obligations. It’s far more than handing over a check.

For a single employee, payroll involves a series of critical, non-negotiable steps that ensure you comply with federal, state, and local laws.

Think of it as laying the very foundation of your business’s financial integrity.

Employee vs. Independent Contractor: Getting the Classification Right

This is perhaps the most fundamental decision you’ll make and one that trips up many new employers. Accounting and payroll for small business

Misclassifying an employee as an independent contractor can lead to severe penalties, including back taxes, fines, and interest.

The IRS and state labor departments use specific criteria to determine the relationship, primarily focusing on control.

• Behavioral Control: Does the company direct or control how the worker does the job? This includes instructions, training, and evaluation methods.
• Financial Control: Does the company control the business aspects of the worker’s job? This includes how the worker is paid, whether expenses are reimbursed, and who provides tools.
• Type of Relationship: Are there written contracts describing the relationship? Does the worker receive benefits? Is the relationship expected to be ongoing?

Example: If you dictate work hours, provide specific tools, and integrate the person into your core business operations, they are almost certainly an employee. A common mistake cited by the Department of Labor is when a small business owner treats a part-time assistant as a contractor just to avoid payroll taxes. In 2023, the IRS identified over 20,000 cases of misclassification, leading to millions in penalties. Get this wrong, and you’re starting your business journey with a significant liability.

Obtaining Your Employer Identification Number EIN

Your EIN is your business’s Social Security number, issued by the IRS. You need it to report taxes and file various forms. It’s free and easy to obtain online.

• Why it’s crucial: Without an EIN, you cannot legally pay wages, withhold taxes, or file payroll tax returns. It’s the first concrete step in formalizing your employer status.
• How to get it: Apply online via the IRS website. The process typically takes minutes.
• Common pitfalls: Some third-party sites charge for this service, but it is always free directly from the IRS. Avoid these scams. go directly to the source.

Collecting Necessary Employee Information: Forms W-4 and I-9

Before your employee even starts, you need to collect specific documentation. These forms are mandatory for all employees. Paycheck software free

• Form W-4, Employee’s Withholding Certificate: This form tells you how much federal income tax to withhold from your employee’s paycheck. The employee completes it based on their personal financial situation.
  • Actionable Tip: Ensure the employee completes this accurately. Errors here can lead to under-withholding, resulting in a large tax bill for the employee at year-end, or over-withholding, which can cause dissatisfaction.
• Form I-9, Employment Eligibility Verification: This form confirms your employee’s eligibility to work in the United States. You must examine original documents that establish both identity and employment authorization.
  • Compliance Note: You cannot specify which documents an employee presents. You must also keep these forms on file for a specific period either three years after the date of hire or one year after employment is terminated, whichever is later. ICE audits frequently target I-9 compliance, with fines ranging from $252 to $2,507 per form for errors or omissions.

Decoding Withholding: Federal, State, and Local Taxes

Once you have your employee and their paperwork, the next critical step is understanding what to subtract from their gross pay. This isn’t just about income tax.

It’s a complex web of federal, state, and potentially local obligations.

Getting these calculations right is paramount, as errors can lead to penalties for both you and your employee.

Federal Withholdings: The Big Three

Every employee in the U.S. is subject to these federal withholdings.

• Federal Income Tax FIT: Based on the employee’s Form W-4, federal income tax is progressive, meaning higher earners pay a larger percentage.
  • Calculation: You use IRS Publication 15-T, Federal Income Tax Withholding Methods, to determine the correct amount based on the employee’s W-4 entries filing status, dependents, additional withholdings.
  • Key Data: For 2024, the tax brackets range from 10% to 37%. An employee claiming “Married Filing Jointly” with two dependents will have significantly less federal income tax withheld than a “Single” employee with no dependents, even at the same gross pay.
• Social Security Tax OASDI: This funds retirement, disability, and survivor benefits.
  • Rate: Both employer and employee each pay 6.2% of the employee’s gross wages, up to an annual wage base limit.
  • Wage Base Limit 2024: For 2024, the Social Security wage base limit is $168,600. This means wages earned above this amount are not subject to Social Security tax.
  • Total Employee/Employer Contribution: This effectively means 12.4% of eligible wages go to Social Security.
• Medicare Tax HI: This funds hospital insurance for the elderly and disabled.
  • Rate: Both employer and employee each pay 1.45% of the employee’s gross wages. There is no wage base limit for Medicare.
  • Additional Medicare Tax: Employees earning over a certain threshold $200,000 for single filers, $250,000 for married filing jointly are subject to an additional 0.9% Medicare tax, which only the employee pays. You, as the employer, are responsible for withholding this.

State and Local Withholdings: A Regional Maze

This is where complexity truly escalates, as requirements vary drastically by location. Self service payroll system

• State Income Tax: Most states have an income tax, but some do not e.g., Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming. For states with income tax, you’ll need to consult your state’s revenue department for withholding tables or formulas.
  • Example: California has a progressive state income tax system with various withholding allowances, while Pennsylvania has a flat rate.
• State Unemployment Insurance SUTA/UI: This is typically an employer-funded tax, though a few states Alaska, New Jersey, Pennsylvania also require employee contributions.
  • Rate: Your initial SUTA rate is set by your state and can vary widely, from under 1% to over 6% of taxable wages. This rate often changes annually based on your “experience rating”—how many former employees have claimed unemployment benefits from your business.
  • Wage Base: Like Social Security, SUTA has an annual wage base limit, but this limit is set by each state and varies significantly e.g., California’s 2024 wage base is $7,000, while Washington’s is $67,600.
• Local Taxes: Some cities or counties impose their own income taxes, wage taxes, or local services taxes.
  • Example: Philadelphia has a city wage tax, while many cities in Ohio have municipal income taxes. You must register with these local authorities and follow their specific withholding and remittance schedules. Ignoring these can lead to local government penalties.

Employer-Paid Taxes: Your Share of the Burden

Beyond what you withhold from your employee’s paycheck, you, as the employer, have your own distinct tax obligations.

These are direct costs to your business, not deductions from the employee’s gross pay, and fund critical social safety nets.

Federal Unemployment Tax Act FUTA

This is a federal tax that helps fund unemployment benefits and state workforce agencies.

• Rate: The FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages.
• Credits: However, you can often receive a credit of up to 5.4% if you pay your state unemployment taxes on time, effectively reducing your FUTA rate to 0.6% on the first $7,000.
  • Net Cost: This means your maximum FUTA liability per employee per year is typically $42 $7,000 * 0.006.
• When to Pay: FUTA tax is paid quarterly if your cumulative liability exceeds $500. If it’s less, you can defer payment until the next quarter.

Employer Portion of Social Security and Medicare FICA

As discussed earlier, FICA taxes are split between the employee and the employer.

• Social Security: You pay an additional 6.2% of the employee’s gross wages, up to the annual wage base limit $168,600 for 2024.
• Medicare: You pay an additional 1.45% of the employee’s gross wages, with no wage base limit.
• Total Employer FICA: This adds up to 7.65% of the employee’s eligible wages that you must contribute directly from your business funds. For an employee earning $50,000 annually, your FICA contribution alone is $3,825.

Workers’ Compensation Insurance

This isn’t a tax, but it’s a mandatory cost for most employers in nearly every state. Payroll service fees

It provides wage replacement and medical benefits to employees injured in the course of employment.

• State Requirements: Specific requirements and rates vary significantly by state and industry. Some states operate their own monopolistic funds, while others rely on private insurers.
• Rate Calculation: Premiums are typically based on:
  • Payroll: The total wages paid to employees.
  • Classification Codes: Each job type e.g., clerical, construction worker has an assigned risk code, which determines the rate. Clerical work has a much lower rate than roofing.
  • Experience Modifier Mod: As your business matures, your actual claims history will influence your premium. A safe workplace with few claims will have a lower mod factor, reducing premiums.
• Why it’s crucial: Failure to carry workers’ compensation insurance, where required, can result in severe penalties, including fines, stop-work orders, and even criminal charges. If an employee is injured and you lack coverage, you could be personally liable for their medical expenses and lost wages, which can be catastrophic.

The Paycheck Process: From Gross to Net

Once you’ve grasped the various withholdings and employer taxes, the next step is to actually calculate the paycheck.

This involves moving from the agreed-upon gross wage to the final net pay—the amount the employee actually takes home. This process must be precise and transparent.

Calculating Gross Pay: Hourly vs. Salaried

The first step is determining the employee’s gross earnings for the pay period before any deductions.

• Hourly Employees:
  • Regular Hours: Multiply the hourly rate by the number of regular hours worked.
  • Overtime Hours: For hours worked over 40 in a workweek in most states, you must pay 1.5 times the regular rate. Ensure you track hours accurately using a timekeeping system.
  • Example: An employee earns $20/hour and works 45 hours in a week.
    • Regular Pay: 40 hours * $20/hour = $800
    • Overtime Pay: 5 hours * $20 * 1.5 = $150
    • Gross Pay: $800 + $150 = $950
• Salaried Employees:
  • Fixed Amount: A salaried employee receives a fixed amount per pay period, regardless of the hours worked assuming they meet the duties test for exemption from overtime.
  • Calculation: If an employee’s annual salary is $52,000 and you pay bi-weekly 26 pay periods, their gross pay per period is $52,000 / 26 = $2,000.
  • Exempt vs. Non-Exempt: It’s critical to understand the difference. Most salaried employees are non-exempt and still eligible for overtime if they don’t meet specific salary and duties tests. The Fair Labor Standards Act FLSA sets the federal salary threshold for exemption at $684 per week $35,568 annually for executive, administrative, and professional employees.

Applying Pre-Tax Deductions If Applicable

Pre-tax deductions reduce an employee’s taxable income, meaning they pay less in federal and state income taxes and sometimes FICA taxes. Workful payroll customer service

• Health Insurance Premiums: If you offer a qualified health plan and deduct premiums, these are typically pre-tax.
• Retirement Contributions e.g., 401k, IRA: Employee contributions to traditional retirement plans are pre-tax.
• Flexible Spending Accounts FSAs or Health Savings Accounts HSAs: Contributions to these accounts are also pre-tax.
• Impact: A $100 pre-tax deduction on a $2,000 gross paycheck means the employee’s taxable income is $1,900, resulting in lower income tax withholding. This is a powerful benefit for both employee and employer.

Calculating and Subtracting Post-Tax Deductions If Applicable

These deductions are taken after all taxes have been calculated and withheld. They do not reduce taxable income.

• Garnishments: Court-ordered deductions for child support, alimony, student loans, or unpaid taxes. These are legally mandated and have specific rules for calculation and remittance.
• Wage Assignments: Voluntary deductions authorized by the employee, such as union dues, charitable contributions, or repayment of company loans.
• Roth 401k Contributions: Unlike traditional 401ks, Roth contributions are made with after-tax dollars.

Determining Net Pay

After all calculations and deductions, you arrive at the net pay—the actual amount the employee receives.

• Formula: Gross Pay – Pre-tax Deductions – All Taxes Withheld – Post-tax Deductions = Net Pay.
• Example: For our $2,000 salaried employee:
  • Gross Pay: $2,000
  • Pre-tax Health Premium: -$100
  • Taxable Income: $1,900
  • Federal Income Tax example: -$200
  • Social Security 6.2% of $2,000: -$124
  • Medicare 1.45% of $2,000: -$29
  • Net Pay: $2,000 – $100 – $200 – $124 – $29 = $1,547

Remittance and Reporting: Paying Uncle Sam and Your State

Calculating the deductions is only half the battle.

The other, equally crucial half is remitting those withheld taxes and your employer contributions to the correct government agencies on time.

This is where most penalties arise for small businesses. The best payroll companies

Depositing Federal Taxes 941/944 Schedule

The IRS expects its money, and they expect it promptly.

Your deposit schedule monthly or semi-weekly depends on your total tax liability from the previous year.

• Form 941, Employer’s Quarterly Federal Tax Return: Most employers use Form 941 to report wages, tips, and other compensation, as well as withheld federal income tax, Social Security tax, and Medicare tax. This form is filed quarterly.
  • Due Dates: April 30, July 31, October 31, and January 31.
• Form 944, Employer’s Annual Federal Tax Return: If your annual tax liability is $1,000 or less, the IRS might allow you to file Form 944 annually instead of quarterly. This is often the case for a single employee.
  • Benefit: Reduces filing frequency, simplifying compliance.
  • Due Date: January 31 of the following year.
• Payment Method: All federal payroll tax deposits must be made electronically via the Electronic Federal Tax Payment System EFTPS. You must enroll in EFTPS, which can take 5-7 business days.
• Penalties: Penalties for late deposits range from 2% to 15% of the unpaid amount, depending on the delay. For instance, a deposit delayed by 15 days or less incurs a 2% penalty. The IRS collected over $4.5 billion in payroll tax penalties in 2022.

State and Local Tax Remittances

Just like federal taxes, state and local taxes have their own separate deposit schedules and filing requirements.

• State Income Tax: You’ll typically register with your state’s Department of Revenue or equivalent. Deposit frequencies can be monthly, quarterly, or even annually, depending on your state and the amount of tax withheld.
• State Unemployment Insurance SUTA: Most states require quarterly SUTA reports and payments, though some may require monthly if your liability is high. You’ll receive an account number and specific instructions from your state’s unemployment agency.
• Local Taxes: If applicable, you’ll need to register with the relevant city or county tax authority and adhere to their specific filing and payment deadlines.
• Varying Schedules: This is where things get tricky. A single employee could mean monthly federal deposits, quarterly state income tax deposits, and monthly local wage tax deposits, all with different due dates.

Annual Reporting: Forms W-2 and W-3

At the end of the year, you must provide your employee with a summary of their earnings and withholdings.

• Form W-2, Wage and Tax Statement: You must issue a Form W-2 to each employee by January 31 of the following year. This form details their gross wages, federal and state income tax withheld, and Social Security and Medicare taxes.
  • Employee Copy: One copy goes to the employee for their tax filing.
  • Government Copies: Other copies go to the Social Security Administration SSA and relevant state/local tax departments.
• Form W-3, Transmittal of Wage and Tax Statements: This form summarizes the data from all W-2s that you issued. You file Form W-3 along with Copy A of your W-2s to the Social Security Administration.
  • Due Date: January 31.
• E-filing: The IRS and SSA encourage and often require electronic filing of W-2s and W-3s, especially for employers with many employees, but it’s good practice even for one.

The Paycheck Delivery: Ensuring Timely and Secure Payment

Once all the calculations are done, the final step is getting the money to your employee. Workful pay contractors

This might seem simple, but ensuring timely, secure, and compliant payment methods is crucial for employee satisfaction and legal compliance.

Choosing a Payment Method

While cash might seem easy, it’s generally discouraged due to difficulties in tracking and proving payment for audit purposes.

• Direct Deposit: This is the most common and preferred method. Funds are electronically transferred directly into the employee’s bank account.
  • Pros: Highly convenient, secure, reduces fraud risk, eliminates check reconciliation, and offers instant proof of payment. Many payroll software solutions integrate seamlessly with direct deposit. A 2023 survey showed 93% of employees prefer direct deposit.
  • Cons: Requires bank account information from the employee and a payroll system or service capable of direct deposits.
• Paper Checks: Still an option, but less efficient.
  • Pros: Simpler for very small businesses without direct deposit capability.
  • Cons: Higher administrative burden printing, signing, distributing, risk of lost or stolen checks, bank fees for check cashing, and slower access to funds for the employee.
• Pay Cards: A reloadable debit card where net pay is loaded. Useful for unbanked employees.
  • Pros: Provides a banking solution for employees without traditional bank accounts, convenient for quick access to funds.
  • Cons: Can have fees associated with usage e.g., ATM withdrawals, some states have regulations regarding their use, and they might be less preferred by employees with bank accounts.

Providing Pay Stubs

Regardless of the payment method, you are legally required in most states to provide a detailed pay stub or earnings statement to your employee with each payment.

• Required Information: A typical pay stub must include:
  • Gross wages for the pay period and year-to-date.
  • All deductions federal income tax, FICA, state income tax, pre-tax, post-tax with amounts clearly itemized.
  • Net pay.
  • Pay period dates.
  • Employee’s name and address.
  • Employer’s name and address.
  • Number of hours worked for hourly employees.
  • Hourly rate for hourly employees.
• Delivery: Can be paper, electronic securely emailed or via an online portal, or accessed through a payroll system. Electronic delivery is becoming standard.

Understanding Pay Frequency Laws

States often have laws dictating how frequently employees must be paid e.g., weekly, bi-weekly, semi-monthly, monthly.

• Common Frequencies:
  • Weekly: Paid every week 52 paychecks per year.
  • Bi-weekly: Paid every two weeks 26 paychecks per year. Very common.
  • Semi-monthly: Paid twice a month, usually on fixed dates like the 15th and 30th 24 paychecks per year.
  • Monthly: Paid once a month 12 paychecks per year. Less common for hourly employees.
• State Variations: For instance, New York requires manual workers to be paid weekly, while most other employees can be paid bi-weekly or semi-monthly. California also has strict pay frequency laws, generally requiring at least semi-monthly pay. Failing to adhere to state pay frequency laws can lead to significant penalties.

The Compliance Calendar: Staying on Top of Deadlines

Payroll isn’t a one-time event. Global payroll outsourcing

It’s a recurring cycle of calculations, payments, and filings, all governed by strict deadlines.

Missing these deadlines, even by a day, can trigger penalties and interest. A payroll calendar is your best friend.

Daily and Weekly Tasks

Even with one employee, there are ongoing responsibilities.

• Daily:
  • Time Tracking for hourly employees: Ensure accurate recording of hours worked, including start and end times, and meal/rest breaks. Modern time tracking software or even simple spreadsheets can help.
  • Expense Reimbursements: Process any approved employee expenses promptly.
• Weekly:
  • Review Time Sheets: Verify recorded hours for accuracy and approve them for payroll processing.
  • Update Records: Note any changes to employee information e.g., address, direct deposit details.

Monthly Deadlines

These often relate to depositing withheld taxes if you have a monthly deposit schedule for federal taxes.

• Federal Tax Deposits if monthly depositor: Due on the 15th of the following month for the previous month’s tax liability. For example, taxes withheld in January are due February 15.
• State Withholding Deposits: Many states require monthly deposits, often on the 15th or end of the month, depending on your state’s rules and your total liability.
• Local Tax Deposits: If applicable, these might also be monthly.

Quarterly Deadlines

Quarterly filings are standard for most payroll taxes. Payroll management for small business

• Form 941, Employer’s Quarterly Federal Tax Return:
  • Q1 Jan 1 – Mar 31: Due April 30
  • Q2 Apr 1 – Jun 30: Due July 31
  • Q3 Jul 1 – Sep 30: Due October 31
  • Q4 Oct 1 – Dec 31: Due January 31 of the next year
• State Unemployment Insurance SUTA Reports and Payments: Typically due quarterly.
• State Withholding Tax Returns: Many states require quarterly reconciliation returns in addition to monthly deposits.
• Federal Unemployment Tax FUTA Deposit: If your accumulated FUTA liability exceeds $500, deposit it by the last day of the month following the quarter.

Annual Deadlines

Year-end brings a flurry of final reports and statements.

• January 31:
  • Furnish Form W-2 to Employees: Provide employees with their W-2 forms.
  • File Form W-2 Copy A and W-3 with SSA: Submit these to the Social Security Administration.
  • File Form 940, Employer’s Annual Federal Unemployment FUTA Tax Return: If you paid unemployment wages, file this form by January 31, or by February 10 if you deposited all FUTA tax on time.
  • File Form 944, Employer’s Annual Federal Tax Return: If you’re an annual federal tax filer.
  • File Annual State Reconciliation Returns: Many states require an annual summary of state withholding taxes.
• October 1: Begin collecting updated W-4 forms from employees if they wish to change their withholding for the upcoming year.

Pro Tip: Create a detailed payroll calendar for your specific business, marking all federal, state, and local deadlines. Set reminders well in advance. Software often helps automate this.

Choosing Your Payroll Solution: DIY, Accountant, or Software?

Even for a single employee, the complexity of payroll can be overwhelming.

You have several options for managing it, each with its own advantages and disadvantages.

The right choice depends on your comfort level with financial tasks, your budget, and your desire for control. Employee payroll management system

Doing It Yourself DIY Payroll

This involves manual calculations, paper filing, and direct communication with government agencies.

• Pros:
  • Cost-Effective: Low direct financial outlay, as you’re not paying for software or services.
  • Full Control: You have complete oversight of every step, which can be valuable for understanding the nuances of your business finances.
• Cons:
  • Time-Consuming: Significant time investment in learning tax laws, calculating withholdings, making deposits, and filing reports. Studies show small business owners spend 10-15 hours per month on payroll, even for a few employees.
  • High Risk of Error: One miscalculation or missed deadline can lead to substantial penalties. The IRS assesses billions in payroll tax penalties annually.
  • Steep Learning Curve: Requires deep understanding of federal, state, and local payroll laws, which are constantly changing.
  • Software Requirement: Even DIY often benefits from basic accounting software or spreadsheets for tracking.
• Best for: Very small businesses with a single employee, a very limited budget, and a business owner who is highly organized, detail-oriented, and has a solid grasp of tax regulations or is willing to invest significant time in learning.

Hiring an Accountant or Bookkeeper

Outsourcing payroll to a qualified professional.

*   Expertise: Accountants specialize in tax laws and compliance, significantly reducing the risk of errors and penalties. They stay updated on changing regulations.
*   Time Savings: Frees up your valuable time to focus on core business operations.
*   Peace of Mind: Knowing a professional is handling complex payroll ensures compliance and reduces stress.
*   Comprehensive Service: Can often handle other financial tasks like bookkeeping, tax preparation, and financial advising.
*   Cost: Generally the most expensive option, with fees ranging from $100-$300+ per month, even for one employee, depending on the scope of services.
*   Less Direct Control: You hand over the reins, relying on the accountant for accuracy and timeliness.

• Best for: Business owners who value expertise, want to minimize risk, and prefer to delegate administrative tasks. Ideal for those who recognize that their time is better spent growing the business.

Using Payroll Software/Services

Dedicated software or online platforms designed specifically for payroll processing.

Examples include Gusto, QuickBooks Payroll, ADP, and Paychex.

*   Automation: Automates calculations, tax withholdings, direct deposits, and tax filings, drastically reducing manual effort and errors.
*   Compliance: Most services keep up-to-date with tax laws, helping ensure you remain compliant. Many guarantee accuracy or cover penalties.
*   User-Friendly: Designed for ease of use, even for non-accountants.
*   Scalability: Can easily scale as your business grows and you add more employees.
*   Affordable: More affordable than a full-service accountant, with plans often starting from $40-$70 per month plus a per-employee fee.
*   Cost: While more affordable than an accountant, it's still an ongoing monthly expense.
*   Initial Setup: Requires initial setup and accurate data entry.
*   Learning Curve: While user-friendly, there's still a learning curve to understand the software's features and how to input data correctly.

• Best for: Most small businesses with one employee. It strikes an excellent balance between cost, automation, compliance, and ease of use, providing a robust system that can grow with the business. Many services offer free trials, allowing you to test them out.

Essential Labor Laws & Regulations for Small Businesses

Beyond taxes, employers must comply with various federal and state labor laws, which impact everything from wages to workplace safety. Payroll fees

Ignorance of these laws is not a defense, and non-compliance can lead to significant legal action and penalties.

Fair Labor Standards Act FLSA

The cornerstone of federal labor law, covering minimum wage, overtime pay, recordkeeping, and child labor standards.

• Minimum Wage: The federal minimum wage is currently $7.25 per hour. However, many states and localities have higher minimum wages. You must always pay the higher of the federal, state, or local minimum wage.
  • Example: As of January 1, 2024, California’s state minimum wage is $16.00/hour, New York City’s is $16.00/hour, and Seattle’s is $19.97/hour. You must adhere to these higher rates.
• Overtime Pay: Non-exempt employees must be paid 1.5 times their regular rate for all hours worked over 40 in a workweek.
  • Crucial Rule: The “workweek” is a fixed and regularly recurring period of 168 hours 7 consecutive 24-hour periods. You cannot average hours over multiple weeks.
• Recordkeeping: FLSA mandates specific records be kept for at least three years, including employee name, address, occupation, pay rate, hours worked each day and week, and total wages paid.
• Penalties: FLSA violations can result in back wages, liquidated damages an amount equal to the back wages, civil money penalties up to $2,374 per violation for minimum wage/overtime, and even criminal prosecution for willful violations.

New Hire Reporting

This is a federal and state requirement to help track child support obligations and identify unemployment insurance fraud.

• Requirement: You must report newly hired or rehired employees to your state’s New Hire Reporting agency.
• Information to Report: Employee’s name, address, Social Security Number, and date of hire. employer’s name, address, and EIN.
• Deadline: Typically within 20 days of the employee’s start date, though some states have shorter deadlines e.g., 7 days in Connecticut.
• Purpose: The data is compiled into a National Directory of New Hires NDNH to locate parents for child support enforcement and prevent wrongful payment of unemployment compensation.

Posters and Notices

Employers are required to display certain federal and state labor law posters in a conspicuous place accessible to all employees.

• Federal Posters: Include FLSA Minimum Wage, OSHA Job Safety and Health, FMLA if applicable, EEO Is The Law, and EPPA polygraph protection.
• State-Specific Posters: Each state has its own set of mandatory posters, covering topics like workers’ compensation, unemployment insurance, discrimination, and specific wage laws.
• Accessibility: If your employee works remotely, you must provide them with access to these notices, either electronically or by mail.
• Importance: These are not suggestions. they are legal requirements. Failure to display mandatory posters can result in fines and demonstrate a lack of compliance in the event of an audit or complaint.

Frequently Asked Questions

What is payroll for 1 employee?

Payroll for 1 employee involves all the steps required to legally pay a single worker, including calculating gross wages, withholding federal, state, and local taxes, remitting those taxes to the government, paying the employee net pay, and filing necessary reports like W-2s and 941s. Sign up for workful

Do I need an EIN for one employee?

Yes, you absolutely need an Employer Identification Number EIN from the IRS to pay any employee, even if it’s just one. It’s your business’s tax ID.

What are the federal taxes I need to withhold from an employee’s pay?

You need to withhold Federal Income Tax FIT, Social Security tax OASDI, and Medicare tax HI.

What are the employer-paid taxes for one employee?

As an employer, you pay your share of Social Security tax 6.2%, Medicare tax 1.45%, and Federal Unemployment Tax FUTA. You also typically pay State Unemployment Insurance SUTA and Workers’ Compensation insurance.

How do I calculate gross pay for an hourly employee?

Calculate regular hours worked multiplied by the hourly rate, plus any overtime hours hours over 40 in a workweek, typically paid at 1.5 times the regular rate.

How do I calculate gross pay for a salaried employee?

Divide their annual salary by the number of pay periods in the year e.g., annual salary / 26 for bi-weekly pay. Remember that most salaried employees are not exempt from overtime unless they meet specific FLSA salary and duties tests. Best payroll and accounting software

What is the difference between pre-tax and post-tax deductions?

Pre-tax deductions like traditional 401k contributions or health insurance premiums reduce an employee’s taxable income before taxes are calculated.

Post-tax deductions like Roth 401k contributions or wage garnishments are taken after taxes have been calculated and withheld.

What forms do I need to collect from a new employee?

You must collect Form W-4 Employee’s Withholding Certificate and Form I-9 Employment Eligibility Verification.

How often do I have to deposit federal payroll taxes?

Most small businesses with one employee are monthly depositors.

What is Form 941 used for?

Form 941, Employer’s Quarterly Federal Tax Return, is used by most employers to report wages, tips, and other compensation, as well as withheld federal income tax, Social Security tax, and Medicare tax on a quarterly basis. Best payroll providers uk

What is Form 944 used for?

Form 944, Employer’s Annual Federal Tax Return, is an annual filing option for very small employers whose annual tax liability is $1,000 or less, reducing their filing frequency compared to Form 941.

When do I need to issue a W-2 to my employee?

You must provide your employee with their Form W-2, Wage and Tax Statement, by January 31 of the year following the tax year.

What is the federal minimum wage?

The federal minimum wage is currently $7.25 per hour.

However, you must pay the higher of the federal, state, or local minimum wage.

Do I need to pay overtime to a salaried employee?

Many salaried employees are non-exempt and are eligible for overtime pay if they work more than 40 hours in a workweek, unless they meet specific salary and duties tests for exemption under the Fair Labor Standards Act FLSA. Alternatives to workful

What is New Hire Reporting?

New Hire Reporting is a federal and state requirement for employers to report newly hired or rehired employees to their state’s designated agency, typically within 20 days of hire.

What labor law posters do I need to display?

You must display mandatory federal posters like FLSA Minimum Wage, OSHA, EEO and state-specific labor law posters in a conspicuous place accessible to all employees, even if it’s just one.

Can I just pay my employee in cash?

While possible, paying in cash is highly discouraged.

It makes accurate recordkeeping and proof of payment difficult for tax and legal purposes, and it can raise red flags with tax authorities.

It’s best to use checks, direct deposit, or pay cards.

Should I do payroll myself or use a service?

For a single employee, using a payroll software/service is often the most balanced option.

It automates calculations, ensures compliance, saves time, and is generally more affordable than a full-service accountant, while significantly reducing the risk of errors compared to DIY.

What happens if I make a mistake on payroll for my one employee?

Mistakes can lead to penalties, fines, and interest from federal, state, and local tax authorities.

Misclassifying an employee, incorrect tax withholdings, or missed deadlines are common errors with significant consequences.

How often should I run payroll for one employee?

This depends on your state’s laws and your business practice.

Common frequencies are bi-weekly every two weeks or semi-monthly twice a month, but some states require weekly payments for certain types of workers. Consistency is key.