New Employee Payroll Setup Checklist

Match the name and SSN exactly as printed on the SS card — mismatches cause SSA W-2 rejections at year-end and Form 941 reconciliation headaches. If the employee has changed names (marriage, divorce), require an updated SS card before payroll, not a driver's license.

Use the residential address (not a PO box) — the residence drives state and local income-tax sourcing for remote employees. Capture personal email separately from work email so the W-2 portal invite still reaches them after termination.

Use the current-year W-4. If the employee skips Steps 2-4, default to single / no adjustments per IRS instructions — do not guess. Common gotcha: employees write a flat dollar amount in Step 4(c) intending it as their total withholding rather than additional withholding on top of tables.

For remote employees, work state = where the work is performed, not where the company is headquartered. Confirm whether the state imposes income tax — nine states (FL, TX, WA, NV, SD, WY, AK, TN, NH) do not. If work and resident states differ, check for reciprocity agreements before setting up withholding.

Each state with income tax has its own form — CA DE 4, NY IT-2104, NJ NJ-W4, PA REV-419 (exemption only). Federal W-4 is not a substitute in most states. Register the company with the state department of revenue and the state unemployment agency before the first payroll if this is a new state for the employer.

Section 2 must be completed within three business days of the start date — this is a hard USCIS deadline. Examine original documents in person (or via authorized representative for remote hires); photocopies are not acceptable. Use the current I-9 edition; expired editions trigger penalties on audit.

Federal contractors and employers in mandatory states (FL, TN, NC, GA, MS, AL, AZ, SC, UT) must run E-Verify within three business days of the start date. Tentative non-confirmations require employee notice and an eight-day window to contest before adverse action.

Enter SSN, address, and W-4 elections exactly as on the source documents — payroll-platform typos propagate to W-2s. Set the hire date to the first day of work performed, not the offer-acceptance date, so SUTA wage bases and new-hire reporting calculate correctly.

Apply the FLSA duties test, not just the salary threshold. A salaried employee under the executive, administrative, or professional exemption must clear both the salary basis and the duties test. Misclassification is the most common DOL audit finding for SMBs and triggers two-year (or three-year for willful) back-overtime liability.

Match the company's existing schedule (weekly, biweekly, semimonthly, monthly). State pay-frequency laws set minimums — CA, NY, MA require at least semimonthly for most workers. Confirm the first check date covers a full pay period; partial-period prorations are a frequent source of first-paycheck disputes.

Cross-check the wage against the offer letter. Add Section 125 cafeteria deductions (medical, dental, FSA, HSA, dependent care) before tax calculations run on the first paycheck — adding them after creates retroactive corrections and amended 941s.

Federal OT triggers above 40 hours per workweek. CA, AK, NV add daily overtime above 8 hours; CA also doubles after 12. Set the meal/rest-break attestation in the timekeeping system for CA hires — missed-break premiums are an automatic line item there.

Routing and account numbers from a deposit slip are not the same as those on a check — deposit slips often route to a regional processing center. Require a voided check or an official bank letter. For split deposits, confirm percentages or fixed amounts add up to 100% of net pay.

Most processors run a zero-dollar ACH prenote that takes six business days to settle. If the prenote rejects, the first live payroll defaults to a paper check — set expectations with the employee. Some platforms (Gusto, Rippling) skip prenotes by default; confirm the setting.

Confirm the new-hire enrollment window (typically 30 days from hire) and the plan effective date — first of the month following hire is common, but some plans start day-of-hire. Missed window means waiting for open enrollment or a qualifying life event.

Check eligibility against the plan document — many plans impose a 90-day or one-year wait. SECURE 2.0 long-term part-time rules now require eligibility after two consecutive years of 500+ hours. Auto-enrollment plans default new hires in unless they affirmatively opt out within the notice window.

Push the deferral percentage to the recordkeeper (Fidelity, Empower, Guideline) and confirm it lands in payroll before the first check. DOL requires employee deferrals be remitted as soon as administratively feasible — for small plans, the safe harbor is the seventh business day after the pay date. Late remittances trigger Form 5330 excise tax.

Confirm HSA eligibility — the employee must be covered by an HDHP and not enrolled in any non-HDHP plan, including a spouse's general-purpose FSA. Dependent-care FSA caps at $5,000 household; verify the spouse isn't already maxed at another employer.

Code each deduction correctly: pre-tax (Section 125 medical, HSA, traditional 401(k)), Roth post-tax, and post-tax (group term life over $50K imputed income, after-tax disability). Coding errors flow into W-2 Box 12 and require corrected W-2s if caught after January.

Federal PRWORA requires reporting within 20 days of hire to the state new-hire directory; some states (e.g., NC, MA) shorten this. Most payroll platforms file automatically — confirm the report shows as submitted, not pending. The report supports child-support enforcement and unemployment-fraud detection.

I-9s must be retained for three years after hire or one year after termination, whichever is later. Store separately so an ICE audit doesn't expose unrelated personnel records. Keep copies of supporting documents only if the policy is consistently applied to all employees — selective copying is a discrimination finding.

W-4s, I-9 supporting documents, and direct-deposit forms contain SSNs and bank routing data — store in encrypted document management (SmartVault, ShareFile, TaxDome), never in shared email or unencrypted Dropbox. Required by IRS Pub 4557 / Pub 5708 and the FTC Safeguards Rule for any preparer or firm handling client payroll.

Pull the first three pay stubs and verify gross-to-net, federal and state withholding against the W-4 / state form, benefit deductions tying to enrollment elections, and the YTD totals reconciling to the GL payroll expense. Catching setup errors at 30 days avoids amended 941s and corrected W-2s later.