Best Payroll Setup for Solo Entrepreneurs and Small Teams
When you're running a small business, handling payroll might not be your favorite task—but it's one of the most important. Whether you're flying solo or building a small team, setting up payroll correctly can save you time, money, and major headaches.
Let’s break down what you need to know about payroll for small business, the difference between W-2 employees and 1099 contractors, and how to pay yourself as the owner.
🔹 Payroll Basics for Small Businesses
Setting up payroll starts with choosing the right payroll software. Platforms like Gusto, QuickBooks Payroll, and Patriot offer user-friendly solutions that automate tax calculations, filings, and direct deposits. As a solo entrepreneur, you may not need all the bells and whistles—but automation is key to staying compliant.
You’ll also need to:
Register for an EIN (Employer Identification Number)
File the appropriate state and federal tax forms
Set a regular pay schedule (weekly, biweekly, or monthly)
If you're paying yourself, your setup depends on your business structure. Sole proprietors and single-member LLCs typically pay themselves through owner’s draws, while S-Corps should run a formal W-2 payroll to pay the owner a “reasonable salary.”
🔹 W-2 vs. 1099: What’s the Difference?
Understanding the difference between W-2 employees and 1099 contractors is critical for compliance and budgeting:
W-2 Employees: You withhold taxes, pay employer payroll taxes, and follow labor laws. They’re part of your team and work under your control.
1099 Contractors: They handle their own taxes and typically work independently on a project basis. You simply issue a 1099-NEC form if you pay them over $600/year.
Misclassifying workers can lead to IRS penalties, so be clear about how much control you have over someone’s work and schedule.
🔹 Why It Matters
Payroll isn’t just about getting people paid. It’s about running your business with integrity, building trust, and staying on the right side of the law. Plus, a well-structured payroll system makes it easier to manage cash flow, plan for taxes, and grow with confidence.
✅ FAQ: Payroll for Small Business Owners
What’s the best payroll software for small business?
Gusto, QuickBooks Payroll, and Patriot are great choices for ease, automation, and compliance.
Can I pay myself through payroll?
Yes, if you're an S-Corp. Otherwise, use owner draws.
What’s the difference between a W-2 and 1099?
W-2 employees are on payroll with taxes withheld. 1099 contractors are independent and responsible for their own taxes.
Need help setting up your payroll system? Let’s connect! Dr. Bryan Raya at DBR Bookkeeping can guide you every step of the way.
Schedule a FREE call here: https://calendly.com/dbr_bookkeeping/30-minute-zoom-consultation-call
Let’s start Doing Business Right!