The Employer’s Guide to New Hire Payroll Setup

Onboarding a new employee is exciting, but nothing kills the momentum faster than a payroll mishap. Imagine your new hire’s first payday arrives, and their paycheck is delayed or incorrect. Beginning the payroll process from day one isn’t just about getting paid on time. It’s about compliance, accuracy, and keeping employees happy.

Payroll setup doesn’t have to be complicated. You can avoid costly mistakes and ensure every paycheck is processed smoothly with the proper steps. Here’s a step-by-step guide to setting up a payroll account for a new employee.

Step-by-Step Guide to New Hire Payroll Setup

New hire payroll setup might seem daunting, but breaking it down into clear steps makes the process manageable. From gathering key documents to ensuring proper tax deductions, each step helps prevent errors and keeps payroll running smoothly.

1. Gather Required Employee Information

Before putting a new hire on the payroll, you must collect essential details to ensure accurate payments and compliance. Start with personal information, including full name, address, date of birth, and Social Security Number (or equivalent if you’re in another country). Next, the employee must complete tax forms like the W-4 to determine withholding amounts.

If offering direct deposit, request bank account details to streamline payments. Verify employment classification (full-time, part-time, or contractor) to apply the correct tax and benefit deductions. Having all necessary documents upfront prevents payroll errors and avoids compliance issues down the road.

2. Verify Work Eligibility

Before processing payroll, you must confirm that your new hire is legally eligible to work. In the U.S., this means completing Form I-9 and verifying documents like a passport or Social Security card. Employers must ensure the documents are valid and retain copies as required by law. If hiring foreign employees, check visa requirements and work permits to avoid penalties.

Some countries have national employment databases where employers must register new hires. At the same time, specific industries require licenses or certifications, so confirm that employees present the necessary documentation. Failing to verify work eligibility can lead to hefty fines and legal issues, so always complete this step before the first paycheck is due.

3. Educate Employees on Your Benefits Selection

The first few days of a new hire's employment is the ideal time to introduce them to your company's benefits, even if they aren't yet eligible. Many businesses have waiting periods (e.g., 90 days) before employees can enroll in health, dental, vision, and retirement plans. Providing an early overview helps new employees plan ahead.

Explain what pre-tax deductions (such as health insurance and 401(k) contributions) are and what post-tax deductions (specific life insurance policies) are. The more informed employees are, the more confident they’ll feel in making the right choices. If benefits are available immediately, this is also the ideal time to enroll employees and confirm that deductions are applied correctly.

4. Register With Government Agencies and Report New Hires

Once hired, you must report the new employee to the appropriate government agencies to stay compliant. In the U.S., businesses must submit new hire reports to the state’s directory, usually within 20 days, to help with child support enforcement and unemployment tracking. You also ensure that your payroll taxes for the new employee align with the selections of their W-4 form, especially for federal income taxes.

If applicable, enroll employees in state unemployment insurance (SUI) and workers’ compensation programs. Some regions have additional labor laws requiring extra documentation or registration. Failing to report a new hire can result in penalties and fines, so check all local and national regulations to ensure compliance.

5. Provide Payroll Access to Employees

Giving employees access to paystubs, tax documents, and payment details ensures transparency and reduces payroll-related confusion. Employees should know how to review their earnings and deductions and update their direct deposit details. If your company uses a payroll system or an HR portal, you can provide login credentials and walk new hires through the steps to access this information.

You’ll also want to explain how they’ll receive their W-2s (or equivalent tax forms for other countries) for tax filing. If your company issues paper checks, clarify the distribution process. Encouraging employees to review their pay statements regularly helps detect payroll errors early and builds trust in your payroll system.

6. Maintain Compliance and Recordkeeping

After setting up payroll, staying compliant is crucial. U.S. employers must maintain payroll records for three to seven years, depending on federal, state, or local laws. Requirements also vary by agency. For instance, the Internal Revenue Service (IRS) mandates that employment tax records be held for four years, while the Department of Labor requires payroll records be held for at least three years. Essential documents include (but are not limited to) the following:

• Pay stubs

• Tax forms

• Timesheets

• Benefits documentation

Staying current on minimum wage laws, overtime rules, and tax rate changes ensures compliance. Regularly reviewing payroll processes helps detect errors early and prevents costly penalties. Payroll security is another critical aspect. Ensure payroll records are stored securely and only accessible to authorized personnel. A well-organized payroll system helps you remain compliant and build trust with your employees.

How Justworks Removes the Guesswork from Payroll

Setting up new employees on payroll doesn’t have to be a hassle. You can streamline the process with the right payroll platform, ensuring accuracy and compliance. Justworks' payroll solution takes the guesswork out of calculations, so you don’t have to stress about salaries, deductions, and taxes being calculated correctly. Your employee and business data stays secure, with built-in compliance with state laws.

If your payroll is complex or you'd prefer to focus on more impactful initiatives, Justworks' Professional Employer Organization (PEO) provides benefits administration, 24/7 support, and onboarding. So, when a new hire arrives, you can focus on them, not paperwork. Let Justworks handle payroll so you can prioritize what truly matters—your people. Get started with Justworks today.