Oct 18, 2026

Hiring Your First Employee: Payroll Setup for Owner-Operators Who Used to Work Alone

You went from “just me and my truck” to “I need a helper.” That is a big step.

The work part is easy. The payroll part is where most small owners get burned. Miss one setup step, pay someone “under the table” a few times, and suddenly you are dealing with back taxes, penalties, and a bookkeeper who is not impressed.

Here is how to set up payroll for your first employee in a way that is clean, legal, and not a giant time suck.

Step 1: Decide if this person is really an employee (not a 1099)

A lot of owners try to dodge payroll at the start by calling the first hire a “1099 guy.” Usually a bad idea.

You almost certainly have an employee if:

You tell them where to be and when
You provide tools, truck, or materials
You supervise their work and can fire them
They only work for you, not a bunch of other clients

If that sounds like your setup, they are a W2 employee in the eyes of the IRS and your state, no matter what you call them.

Why this matters:

Employees mean payroll taxes, workers comp, and overtime rules
Contractors mean no payroll taxes, but they must truly be independent

If you are still on the fence, read through how to handle both W2 employees and 1099 contractors in one business here:
https://payrollforcrews.com/blog/w2-and-1099-payroll/

For the rest of this guide, we will assume they are a W2 employee.

Step 2: Get your basic registrations in place

You cannot run legal payroll without a few boring but critical IDs. Do these once and they are done.

Federal: EIN

You need an Employer Identification Number (EIN) from the IRS.

If you already have one for your business, you are good
If you have been using your Social Security number as a sole prop, get an EIN now

You can apply online at IRS.gov. It is free and usually instant.

State: employer and withholding accounts

Every state has its own setup, but usually you need:

State employer account for unemployment insurance
State income tax withholding account (if your state has income tax)

Look up “[your state] employer unemployment registration” and “[your state] withholding registration.” It is usually an online form that takes 20 to 30 minutes.

Do not skip this and hope your payroll provider “handles it.” Most providers expect you to bring these IDs with you.

Workers comp policy

If someone is swinging a hammer, climbing a ladder, or riding in your truck, you want workers comp. In many states you are required to have it once you hire even one employee.

Call your insurance agent and say:

“I am hiring my first field employee. I need a workers comp policy for [trade] with estimated payroll of $X this year.”

They will set up a policy and bill you either monthly or through your payroll.

Step 3: Pick a simple payroll setup that fits a tiny crew

You do not need a fancy enterprise system for one or two employees. You do need something that:

Calculates taxes correctly
Files and pays those taxes on time
Keeps basic records in case you are audited

Three realistic options for a first hire

Option A: Full-service online payroll (what I recommend for most)
You enter hours, they calculate everything, pull money from your account, pay the employee, and file/pay taxes.

Good if:

You hate paperwork
You do not want to learn tax rules
You might grow to 3 to 10 people in the next couple of years

Bad if:

You will stay at 1 helper forever and truly need to pinch every penny

Option B: Accountant or bookkeeper runs payroll
You send hours to your accountant, they run payroll through their system.

Good if:

You already have an accountant you trust
You want a human to call when something looks weird

Bad if:

They are slow or not used to field crews
You pay “rush” fees every time you forget to send hours

Option C: DIY payroll using spreadsheets and tax portals
You calculate taxes yourself and pay them through IRS and state portals.

I only recommend this if:

You are very comfortable with numbers
You are willing to read IRS and state instructions
You understand you are personally on the hook if you mess up

For almost every small crew, a basic full-service online payroll is worth the monthly fee. If you later outgrow it or hate the interface, you can follow our guide to switching payroll providers mid-year without losing your mind:
https://payrollforcrews.com/blog/switching-payroll-mid-year/

Step 4: Decide how you will track time (before day one)

The fastest way to screw up your first payroll is sloppy time tracking.

For one employee, you might be tempted to “just remember” or text hours back and forth. That works for about two weeks. Then you hit your first overtime week, or a rain day, or a holiday, and it becomes a mess.

Pick one simple method and commit

For a single helper, keep it simple but written.

Option A: Paper timesheet on a clipboard

One sheet per week
Columns for: date, start time, end time, lunch, total hours, job name
You sign off at the end of the week

This is fine if you are always on site with them and you are disciplined.

Option B: Simple time clock app

If your helper is sometimes on a different site, or you know you are forgetful, use an app. Even with one employee, a basic app that tracks clock in / clock out and job codes saves arguments.

If you want something that can grow with you into scheduling and crew communication, an all-in-one app like Connecteam can work well once you have more than one or two people. Here is how to get off paper timesheets.

Whatever you pick, write down your rules. You can steal ideas from these simple time tracking rules for foremen:
https://payrollforcrews.com/blog/time-tracking-rules-for-foremen/

Step 5: Set up your payroll “profile” correctly the first time

When you set up your payroll system, it will ask a bunch of questions. These matter. Sloppy answers here cause problems later.

Pay schedule

Pick a schedule and stick to it.

For small crews, the most common are:

Weekly (every Friday, for hours through Sunday or last Sunday)
Biweekly (every other Friday)

Weekly is cleaner for field crews because overtime is weekly. You see problems faster and employees like the steady cash flow.

Biweekly saves a bit of admin time but can make overtime calculations and cash flow feel lumpier.

If you are just starting and cash flow is tight, I still lean weekly. It keeps you honest about whether you can really afford this helper.

Pay type: hourly vs salary

For your first field employee, make them hourly.

Salary for field workers usually backfires for small crews because:

You still owe overtime in most cases
Employees think salary means “same pay no matter what”
It is harder to explain when hours jump around

Hourly is simple:

They work 38 hours, you pay 38 hours
They work 45 hours, you pay 40 regular + 5 overtime

Step 6: Collect the right forms from your new hire

Before they swing a hammer for you, get the paperwork done. Do not chase it later.

You need:

W-4
Federal tax withholding form. They fill it out, you keep it on file.
State withholding form (if your state has one)
Similar to W-4 but for state tax.
I-9
Verifies they are allowed to work in the US. You must see their documents (passport, or driver’s license + Social Security card, etc.) and keep a copy of the form.
Direct deposit info
Voided check or bank routing and account number.
Emergency contact
Name and phone number. If they get hurt, you will be glad you have it.

Make a simple “new hire packet” so you are not reinventing this every time.

Step 7: Understand overtime and basic wage rules from day one

You do not need to be a lawyer, but you do need to know the basics.

Overtime

In most states, overtime is:

Over 40 hours in a workweek at 1.5 times the regular rate

Some states have daily overtime rules too (for example, over 8 hours in a day). Check your state.

Key point: You must define your “workweek” in your payroll system. It can be any 7 day period, but once you set it, keep it consistent.

If your workweek is Monday to Sunday and your helper works:

Mon: 10 hours
Tue: 10 hours
Wed: 10 hours
Thu: 10 hours
Fri: 5 hours

That is 45 hours. You owe 40 regular + 5 overtime, even if you “make up for it” by sending them home early the next week.

For more detail and common traps, see the most common overtime mistakes small crew-based businesses make:
https://payrollforcrews.com/blog/overtime-mistakes-small-crews/

Minimum wage and travel time

Two rules small owners often miss:

You must pay at least minimum wage for all hours worked, even if they are “learning” or “riding along”
If they are required to meet at your shop and ride with you to the job, that drive time is usually paid time

If a wage increase is coming, our payroll cost calculator shows what it adds to your labor cost.

Do not get cute with this. One angry ex-employee plus a state labor agency can cost you more than years of doing it right.

Step 8: Run your first payroll step by step

Here is what your first pay period should look like in practice.

1. Close the time period

Pick the end of your workweek (say Sunday). On Monday morning:

Collect the paper timesheet or confirm hours in the app
Review for obvious issues (missing lunch, impossible times, etc.)
Fix any mistakes with the employee before you run payroll

2. Enter hours into payroll

In your payroll system:

Select the pay period dates
Enter regular hours and overtime hours separately
Double check the hourly rate

If you are job costing, also tag the hours to the right job. That lets you see labor cost by job later, which is huge even with a small crew. If you want to get serious about that, here is how to see your labor cost by job when you only have a small crew:
https://payrollforcrews.com/blog/job-costing-labor-small-crews/

3. Review the preview

Before you hit “approve”:

Check the gross pay amount (hours × rate)
Check that overtime is calculated at 1.5 times the regular rate
Check the pay date is what you promised

If something looks off, stop and fix it. Do not “fix it next time.” That is how you train employees not to trust your payroll.

4. Approve payroll and fund it

Once it looks right:

Approve the payroll
Make sure there is enough money in the account payroll pulls from
Note the withdrawal dates for taxes and net pay

If cash is tight, you need to know this before you approve, not after.

Step 9: Build a simple payroll routine so it never becomes chaos

Payroll only gets painful when it is last minute and disorganized. With one employee, you can build good habits now.

Here is a minimal weekly checklist:

Every workday

Make sure you and your helper are following the time tracking method you picked
Fix obvious time entry mistakes the same day

Every week on the same day

Collect and review hours
Confirm overtime if any
Run payroll
Save or print the payroll summary for your records

Every month

Glance at your payroll reports
Check that tax payments are going out
Compare labor cost to what you are billing

If you want a more detailed routine once you add more people, use this payroll checklist for every pay period when you run field crews:
https://payrollforcrews.com/blog/payroll-checklist-pay-period/

Simple checklist for hiring your first crew employee

If you like to see the whole thing in one place, here is a quick checklist you can literally print and keep in the truck.

Before you make an offer

Decide if they are truly an employee, not a 1099
Price out your fully loaded labor cost (wage, taxes, workers comp, payroll fees)
Make sure you have steady work to cover at least 3 months of their pay

Before their first day

Get your EIN (if you do not have one)
Register for state unemployment and withholding accounts
Set up or update your workers comp policy
Choose a payroll method (online service, accountant, or DIY)
Choose a pay schedule (weekly or biweekly) and pay method (usually direct deposit)
Decide how you will track time and get the timesheets or app ready

On or before day one

Have them complete W-4, state withholding form, and I-9
Collect direct deposit details and emergency contact
Explain how and when they get paid, and how to track time
Walk through your basic jobsite rules and safety expectations

Every pay period

Collect and review hours
Enter hours into payroll and double check overtime
Approve payroll and confirm cash in the account
Save payroll reports and any notes about corrections

If you follow this, you are doing what most “real” construction companies do, just on a smaller scale.

What payroll records you need to keep for your first employee

Even with one helper, you are expected to keep certain records. Think of it as your “cover your back” file in case the state, the IRS, or a lawyer ever asks questions.

Keep these for at least 3 to 4 years, and longer if your state requires it:

Basic employee info: name, address, Social Security number, hire date, termination date
Signed W-4 and state withholding forms
Completed I-9 and copies of the ID you reviewed
Pay rate and any changes to it, with effective dates
Time records for every day worked (paper or digital)
Payroll registers or summaries for each pay period
Records of tax payments and filings (federal, state, local)
Workers comp audits and payroll reports you sent to your carrier

A simple way to handle this is one folder per employee, plus a “Payroll” folder for each year. Your future self, and any accountant you hire later, will thank you.

Step 10: Common “first employee” mistakes to avoid

You will make some mistakes. Just avoid the expensive, ugly ones.

Mistake 1: Paying cash “for now” and planning to fix it later

You pay them cash for a couple of weeks “until the paperwork is set up.” Then a couple of weeks turns into months. Now you owe back payroll taxes on all of it.

If they are working for you, get payroll going from week one. If you are not ready to run payroll, you are not ready to hire.

Mistake 2: Promising a rate without thinking about your burden

You tell them “20 bucks an hour” because that sounds fair. Then you realize your true cost is closer to 25 to 27 once you add:

Employer payroll taxes
Workers comp
Paid holidays or PTO if you offer it
Payroll service fees

Before you quote a rate, run the math on your fully loaded labor cost. If you underbid jobs based on bare hourly pay, you will feel broke even when you are busy.

Mistake 3: Changing pay days or pay methods randomly

“Can I get paid early this week?”
“Can you just Venmo me?”
“Can I get cash this time?”

If you say yes to all of this, your payroll will be chaos and your bank account will always feel empty.

Set clear rules:

Pay schedule: for example, every Friday
Pay method: for example, direct deposit only
Cutoff for hours: for example, hours through Sunday, turned in by Monday noon

Then stick to it. You are not being mean. You are running a business.

Common questions from owners

What forms do I need from my first employee to run payroll?

At a minimum, collect:

Federal W-4
State withholding form, if your state has one
Form I-9 with supporting ID
Direct deposit details
Emergency contact

If you have any company policies, like a basic handbook or safety rules, have them sign that too and keep it with their file.

Can I pay my first worker as a 1099 contractor instead of putting them on payroll?

Only if they are truly independent. If you control where they work, when they work, what tools they use, and they only work for you, they are almost certainly an employee in the eyes of the law.

Calling them a contractor does not protect you. If the state or IRS decides they are an employee, you can owe back taxes, penalties, and possibly unpaid overtime. If you are unsure, lean toward treating them as an employee or talk to a local accountant.

How much does it cost to run payroll for just one or two employees?

For one or two employees, expect:

Payroll service fees: often in the range of $30 to $60 per month plus a small fee per employee
Employer payroll taxes: roughly 7 to 10 percent of wages for Social Security, Medicare, and unemployment, depending on your state
Workers comp: depends heavily on your trade and claims history, but it is a percentage of payroll

So if you pay a helper $20 per hour for 40 hours, your true weekly cost might be closer to $900 to $950 once you add taxes, workers comp, and payroll fees. Run the numbers before you promise a rate.

What payroll records do I need to keep for my first employee?

Keep:

All hiring forms (W-4, state form, I-9)
Copies of any offer letters or pay rate agreements
Time sheets or time clock records
Payroll reports for each pay period
Year end forms like W-2 and any corrections

Store them in a safe place, paper or digital, where you can find them quickly if someone asks.

What are the steps to run payroll myself for my first crew employee?

If you are doing it yourself without a service:

Collect accurate hours for the pay period
Calculate gross pay (regular and overtime)
Calculate federal and state tax withholding, plus employee Social Security and Medicare
Calculate your share of payroll taxes
Cut the check or send the direct deposit for net pay
Deposit the withheld taxes and your share with the IRS and state by their deadlines
File any required quarterly and annual payroll tax forms

This is why many owners decide a basic payroll service is worth it. It handles steps 3 through 7 so you can focus on jobsites.

When you grow past one helper

Once you are at 3 to 5 people in the field, some of these decisions will need to be revisited:

You might need more structured time tracking and scheduling
Job costing becomes more important
Multi-state rules kick in if you start crossing state lines

When that time comes, look at a more complete setup like the best payroll and time tracking setup for 10 to 50 person construction crews:
https://payrollforcrews.com/blog/construction-payroll-setup/

For now, get the basics right for this first employee. Clean setup, simple rules, consistent routine. That is what keeps you out of trouble and lets you focus on the work, not the paperwork.