The Answer for Most First-Time Employers
For most first-time employers, payroll software is worth it from the first paycheck. As of October 2026, Square Payroll charges $35 a month plus $6 per person paid, and OnPay charges $49 plus $6 per worker. For one employee, that is $41 to $55 a month.
Doing it yourself is legal and can work for one salaried employee in one state. But the IRS charges 2% to 15% on late tax deposits, and the deadlines never stop.
If you enjoy spreadsheets and have a fixed calendar slot every payday, DIY can save around $500 to $660 a year. Everyone else should let software carry the deadlines.
Everything Payroll Asks of You After One Hire
- ● Withhold income tax and FICA every payday
- ● Deposit taxes on a schedule through EFTPS
- ● File quarterly and annual returns
Hiring one person turns you into a tax collector. The paycheck is the easy part; the withholding, deposits and filings are where the work sits.
On every payday you must withhold federal income tax, plus the employee share of Social Security and Medicare. The IRS sets those at 6.2% and 1.45% of wages. You then owe a matching 6.2% and 1.45% as the employer.
Those withheld and matched amounts must be deposited with the Treasury on a schedule. The free EFTPS system handles the payment, but it must be scheduled by 8 p.m. ET the day before the due date.
On top of that come quarterly returns, the annual FUTA return on Form 940, year-end W-2s, and state unemployment and withholding accounts. Each state adds its own forms and deadlines.
What Software Actually Takes Off Your Plate
Full-service payroll software calculates withholding, moves the tax money, and files the returns for you. The key phrase to look for is automated tax filing.
Square says its full-service plan includes automated federal and state tax payments and filings. OnPay says federal, state and local filings, W-2s and 1099s are included in its base price.
What software does not do is decide how to classify a worker or which state to register in. Those choices still sit with you, so a short call with an accountant at setup is money well spent.
Five Ways to Run Payroll Compared
The options below cover the realistic choices for a business with its first employee. Prices were checked on official pages in October 2026.
| Option | Monthly cost for 1 employee | Tax deposits and filings | Best for | Main risk |
|---|---|---|---|---|
| DIY with EFTPS and a spreadsheet | $0 in fees; EFTPS is free | You do all of it | One salaried employee, one state | Missed deadlines and penalties |
| Square Payroll full service | $35 + $6 = $41 | Automated federal and state | Shops already using Square | Fewer HR extras |
| Square Payroll contractor-only | $6 per person paid | Not included | Paying 1099 contractors only | No tax filing at all |
| OnPay Payroll Essentials | $49 + $6 = $55 | Federal, state and local included | Owners who want filings bundled | Slightly higher base fee |
| Accountant or bookkeeper runs it | Quoted per client | Usually handled by the firm | Owners who want a person accountable | Cost varies widely |
The gap between DIY and software is small in dollars. The real difference is who notices when a deadline arrives.
Payroll Costs for a $4,000 Monthly Salary
- ● Employer FICA adds $306 a month
- ● FUTA is about $42 a year with the state credit
- ● Software adds $41 to $55 a month
Assume one employee earning $4,000 a month, or $48,000 a year, in a state where you pay state unemployment tax on time. The math below uses IRS rates and the listed software prices.
| Item | Monthly | Yearly |
|---|---|---|
| Employer Social Security, 6.2% | $248.00 | $2,976 |
| Employer Medicare, 1.45% | $58.00 | $696 |
| FUTA after full state credit, 0.6% of first $7,000 | - | $42 |
| Square Payroll, $35 + $6 | $41.00 | $492 |
| OnPay, $49 + $6 | $55.00 | $660 |
Employer FICA adds $306 a month whether you use software or not. Software adds $492 to $660 a year on top of roughly $3,714 in employer taxes.
FUTA starts at 6.0% on the first $7,000 per employee, per the IRS. The state credit of up to 5.4% brings it to 0.6%, which is where the $42 comes from.
The Filing Calendar for Your First Year
Deposits are only half the job. The returns that report them have their own dates, and missing one is a separate problem from paying late.
Form 940, the annual FUTA return, is due January 31. The IRS gives you until February 10 if every FUTA deposit was made on time. You must file it if you paid $1,500 or more in wages in any calendar quarter, which one full-time hire will pass quickly.
The FUTA rule also catches part-time hires. Having an employee for some part of a day in 20 or more different weeks of the year triggers the filing, even if wages stayed low.
| Task | How often | Who handles it with software |
|---|---|---|
| Withhold income tax and FICA | Every payday | Software calculates it |
| Deposit taxes through EFTPS | On your deposit schedule | Software moves the money |
| Quarterly federal return | Every quarter | Software files it |
| Form 940 for FUTA | Yearly, by January 31 | Software files it |
| W-2 for the employee | Yearly | Software prepares and files it |
| State withholding and unemployment | Varies by state | Full-service plans file it |
Two thresholds matter later rather than now. Social Security tax stops at a 2026 wage base of $184,500, and an extra 0.9% Medicare tax applies to wages above $200,000. Neither touches a $48,000 salary, but both appear once you pay yourself through payroll as an owner-employee.
Mistakes That Trip Up First-Time Employers
Most payroll problems in the first year are not math errors. They are setup and calendar errors that nobody notices until a notice arrives.
The most common is paying someone as a contractor when they work like an employee. If you set the hours, supply the tools and direct the work, treat that person as an employee from day one.
Another is forgetting the employer half of FICA in the budget. A $48,000 salary costs you roughly $51,700 once Social Security, Medicare and FUTA are added, before state taxes or benefits.
The third is starting software mid-year without entering wages already paid. The system then over-withholds or files wrong totals, and the fix means amended returns.
What One Late Deposit Would Cost
Now take the FICA from that same $4,000 paycheck. The employee share and your match together come to $612 a month, before any income tax withheld.
If that $612 lands 6 days late, the IRS penalty is 5%, or $30.60. After 15 days it becomes 10%, or $61.20, and it climbs to 15% if a notice goes unanswered for more than 10 days.
Two late deposits a year would not cost as much as software. The danger is a busy quarter where several slip at once, plus the state penalties that follow the same pattern.
When Doing It Yourself Makes Sense
DIY works best when the payroll is boring. A single salaried employee, paid the same amount on the same day, in the same state as your business, is the simplest case.
It also suits owners who already reconcile their books every week. If you block time for payroll and treat EFTPS deadlines like rent, the risk drops sharply.
The IRS publishes the tax tables and forms you need, and the Social Security and Medicare rates rarely change. Keep a written checklist for each payday and each quarter.
When Software Pays for Itself Quickly
Hourly wages, overtime, tips and commissions all change withholding every pay period. Doing that by hand invites small errors that compound across a year.
Software also helps the moment you hire in a second state. Each state has its own registration, withholding and unemployment rules, and full-service plans file those returns for you.
Finally, consider your own hourly value. If a payroll run takes you an hour and your time is worth more than $55, the subscription has already paid for itself.
Which Setup Fits Your First Hire
- ● One salaried employee and spare time favor DIY
- ● Hourly pay or tips favor software
- ● Multiple states make software close to mandatory
Find the line that sounds most like your business. Each points to a sensible starting setup.
One salaried employee, one state, organized owner: DIY with EFTPS can work. Set calendar reminders for every deposit and filing date.
Retail or restaurant shop already using Square: Square Payroll full service fits neatly at $41 a month for one person.
Owner who wants filings, W-2s and 1099s bundled: OnPay at $55 a month includes federal, state and local filings in the base price.
Paying only freelancers for now: A contractor-only plan, such as Square at $6 per person, covers payments without employee tax filing.
Planning to add benefits and HR soon: Compare a PEO with payroll software before committing, since switching later means moving tax accounts.
Setting Up Either Path the Right Way
Before the first payday, get an EIN, register with your state for withholding and unemployment, and collect a W-4 and I-9 from the employee. These steps are the same with or without software.
If you choose software, enter year-to-date wages accurately when you start mid-year. Errors there carry into every W-2.
If you choose DIY, enroll in EFTPS early, since setup takes time before your first deposit is due. Our comparison of Gusto and ADP covers the larger platforms if you outgrow the basics.
The Bottom Line on Your First Payroll
Payroll software costs about $41 to $55 a month for one employee. Employer taxes cost about $306 a month regardless.
That makes software a small share of the true cost of a hire, and it removes the deadline risk that penalties punish. Do it yourself only if your payroll is simple and you will treat every deposit date as fixed. Confirm current pricing on the official site before you choose.
If everyone you pay is still a freelancer, full payroll may be more than you need yet. Our guide to paying contractors and filing 1099-NEC forms without full payroll covers the free IRS filing route and the $2,000 reporting line.
FAQ
Can a small business legally run payroll without software?
Yes. Nothing in federal law requires payroll software. You can calculate withholding yourself, deposit taxes through the free EFTPS system, and file the quarterly and annual forms. The risk is in the deadlines, because late deposits carry penalties of 2% to 15% of the unpaid amount.
How much does payroll software cost for one employee?
As of October 2026, Square Payroll lists full-service payroll at $35 a month plus $6 per person paid, and OnPay lists $49 a month plus $6 per worker. For one employee, that works out to $41 and $55 a month. Confirm current pricing on each official site before you sign up.
What payroll taxes does an employer pay on top of wages?
The employer pays 6.2% Social Security tax and 1.45% Medicare tax on wages, matching what is withheld from the employee. The employer also pays FUTA, which is 6.0% on the first $7,000 of wages but usually drops to 0.6% after the state credit.
What happens if I make a payroll tax deposit late?
The IRS charges 2% if a deposit is 1 to 5 days late, 5% at 6 to 15 days, and 10% after 15 days. It rises to 15% if the tax is still unpaid more than 10 days after the first notice.
When should I switch from manual payroll to software?
Usually when you add a second employee, start paying in more than one state, or find yourself checking deadlines every week. At that point the monthly fee tends to cost less than the time and penalty risk of doing it by hand.
Sources
- IRS: Topic no. 751, Social Security and Medicare withholding rates — checked 2026-10-07
- IRS: Topic no. 759, Form 940 (FUTA) — checked 2026-10-07
- IRS: Failure to Deposit Penalty — checked 2026-10-07
- EFTPS: Electronic Federal Tax Payment System — checked 2026-10-07
- Square Payroll pricing — checked 2026-10-07
- OnPay payroll pricing — checked 2026-10-07
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How this article was made: it was drafted with AI assistance from the official sources listed above, and its figures were checked against those pages on the dates shown. It is not based on personal hands-on testing.
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