Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Yes. Before a US company pays its first employee, it should have an EIN, a state income tax withholding account and a state unemployment insurance account in the state where the employee works, plus workers' compensation coverage where required. The employee must complete Form W-4 and Form I-9, and the hire must be reported to the state's new-hire registry. Setting these up in advance avoids late deposits on the very first payroll.
Key takeaways
- Payroll registrations follow the state where the employee physically works, not where the company was formed.
- Federal payroll uses the company's EIN; there is no separate federal employer registration, but deposits are made electronically through EFTPS.
- Form I-9 must be completed for every employee, with the employer's document review due within three business days of the start date.
- Federal law requires new hires to be reported to the state directory within 20 days; some states set a shorter deadline.
- State withholding and unemployment account numbers can take days to weeks to issue, so registration should start before the offer letter is signed.
The pre-hire checklist, in the order it usually happens
For a company hiring its first US employee, a workable sequence is:
- Confirm the worker is an employee. If you control how, when and where the work is done and the person works only for you, treat them as an employee, not a contractor.
- Confirm the work state. Note where the person will physically work, including a home office.
- Foreign-qualify in that state if needed. An employee in a state where the company is not registered often triggers that requirement.
- Register for state withholding with the state revenue department, unless the state has no wage income tax.
- Register for state unemployment insurance (SUI) with the state labor or workforce agency and note the assigned rate.
- Arrange workers' compensation insurance and, in states that require it, disability or paid family leave coverage.
- Set up a payroll provider with the federal and state account numbers and EFTPS enrolment.
- Onboard the employee with Form W-4, the state withholding form if any, Form I-9 and the offer letter.
- Report the new hire to the state directory.
Federal pieces that run from the first paycheck
Federally, the company withholds income tax using the employee's Form W-4, withholds and matches Social Security and Medicare taxes, and pays federal unemployment tax (FUTA). Deposits are due on a monthly or semiweekly schedule set by the IRS, and returns follow:
| Filing | Frequency |
|---|---|
| Form 941 (withholding, Social Security and Medicare) | Quarterly |
| Form 940 (FUTA) | Annually |
| Forms W-2 and W-3 to employees and the Social Security Administration | Annually, by January 31 |
The employee needs a Social Security number and US work authorization. The company does not need a US-citizen owner to run payroll, but the person signing payroll filings must be authorized to act for the company.
State registrations that take the longest
State accounts are where first payrolls go wrong. Some states issue withholding numbers online within a day; others take several weeks for unemployment accounts, especially when the responsible officer has no SSN or the company has no prior payroll history. Payroll providers can sometimes run the first payroll with an "applied for" status, but deposits made without the right account number often end up misapplied and need correcting later.
A few state-specific items catch new employers:
- California requires employers to register with the Employment Development Department, which handles both withholding and unemployment.
- New York requires disability and paid family leave coverage in addition to workers' compensation.
- Texas and Florida have no wage income tax, so there is no withholding account, but unemployment registration still applies.
When the founder is the first person on payroll
In a C-Corp, a founder who works for the company in the US and draws a salary is an employee, and the same registrations apply. Non-US founders who live and work abroad raise different questions: compensation for work performed outside the US is generally not subject to US payroll withholding in the same way, and the founder may instead be paid by a home-country entity or as a contractor. This depends on immigration status, where the work is performed and the founder's tax residence, so it should be reviewed before the first salary is paid.
For single-member LLCs, the owner is not an employee of their own disregarded LLC, so owner draws do not go through payroll at all.
What goes wrong when payroll starts before registration
The usual sequence is a missed first deposit, a penalty notice from the IRS, and a state account set up retroactively with interest. Late registration can also leave the company without workers' compensation cover during the first weeks of employment, which is a separate exposure if someone is injured. None of this is difficult to avoid; it just needs registration to begin when the hire is agreed, not when payday arrives.
Common mistakes to avoid
- Paying a new US employee as a contractor to avoid setting up payroll accounts.
- Registering payroll in the company's formation state rather than the state where the employee works.
- Running the first payroll before the state withholding and unemployment accounts exist.
- Completing Form I-9 after the three-business-day window or skipping it for remote employees.
- Forgetting workers' compensation or required state disability coverage before the start date.
- Assuming an LLC owner should be paid through payroll from their own disregarded LLC.
Documents and records to prepare
- Company EIN confirmation letter (CP 575 or 147C)
- Formation documents and foreign qualification for the work state
- Responsible officer's details, including SSN or ITIN if available
- Employee's address, start date, pay rate and work location
- Signed Form W-4, state withholding form and completed Form I-9
- Workers' compensation policy or certificate of coverage
NYBACS 360° support
How NYBACS helps
- Prepares a first-hire plan covering foreign qualification, withholding, unemployment and insurance in the employee's state.
- Coordinates state withholding and unemployment registrations so account numbers are ready before the first payroll.
- Sets up the payroll provider and maps payroll journals into your books from day one.
- Flags founder-compensation questions, including non-US founders working from abroad, for tax adviser review.
- Tracks Form 941, Form 940 and W-2 deadlines on your compliance calendar.
Frequently Asked Questions
Can a company hire a US employee if it has no US office?
Yes. A remote employee working from home is common, but the company then registers for payroll in the employee's state and often has to foreign-qualify there too.
Can I use an employer of record instead?
Yes. An employer of record employs the person on your behalf and handles registrations under its own accounts. It is often a sensible bridge for a first hire, though it costs more per employee than running your own payroll.
Do I need a payroll provider?
It is not legally required, but calculating withholding, depositing taxes and filing quarterly returns manually is error-prone. Most small employers use a provider and keep responsibility for checking its filings.
What if the responsible officer has no SSN?
The company can still obtain an EIN and run payroll, but some state registration portals expect an SSN for the officer. Paper or alternative registration routes may be needed, which adds time.
