Setting up payroll for a first employee is the process of registering with federal and state agencies, establishing withholdings, securing required insurance, and creating the pay practices that employment law demands from day one.

In Colorado, that is a longer list than most founders expect, because hiring employee number one immediately triggers obligations, workers' compensation, FAMLI, HFWA sick leave, wage-statement rules, that many states phase in at higher headcounts. Done in the right order it is a week of setup. Done in the wrong order it is amended filings and penalties. Here is the sequence.

Step 1: Confirm this person is actually an employee

Before anything else: if you are planning to pay this person as a 1099 contractor to skip everything below, stop. Colorado applies a strict test, a worker is an employee unless they are free from your direction and control and customarily engaged in an independent business of their own doing that kind of work.

The person working your hours, with your tools, only for you, is an employee no matter what the contract says. Misclassification is the single most expensive first-hire mistake: back taxes, unpaid workers' comp premiums with penalties, unemployment premiums with interest, and personal liability that pierces the LLC in some cases.

Step 2: Federal registrations

Get an EIN from the IRS (free, online, ten minutes) if you do not have one. Have the employee complete Form W-4 for federal withholding and Form I-9 for work authorization within three days of the start date, the I-9 is kept on file, not filed, and it is the first thing an audit asks for.

Plan for quarterly Form 941 filings for withheld income tax and FICA, and annual FUTA via Form 940.

Step 3: Colorado registrations

Three accounts: wage withholding with the Colorado Department of Revenue, unemployment insurance with the CDLE (2026 premiums run on roughly the first $28,000 of wages at a new-employer rate near 3% for most industries, varying by sector), and a My FAMLI+ Employer account.

FAMLI applies from your first hire: under 10 employees you withhold and remit the employee's 0.44% share, no employer share owed. You must also report the new hire to the State Directory of New Hires within 20 days.

Step 4: Workers' compensation, no exceptions

Colorado requires workers' comp insurance from the first employee, full-time or part-time. Premiums for office roles run a few hundred dollars a year; trades run higher by class code.

Going without is the gamble that ends businesses: penalties accrue per day uninsured, and an uninsured workplace injury becomes a personal check.

Step 5: The pay practices layer

Colorado's COMPS Order and wage laws set the day-to-day rules: at least the state minimum wage ($15.16 in 2026 statewide, higher in Denver and some localities), overtime past 40 hours a week or 12 a day, required rest and meal periods, itemized pay statements, and defined pay periods, monthly at minimum, with pay within ten days of the period's close.

HFWA sick leave accrues from day one at one hour per 30 worked, up to 48 a year. And your job posting for this hire already needed a compensation range under the Equal Pay for Equal Work Act.

Step 6: Pick the machinery

A payroll provider (Gusto, QuickBooks Payroll, ADP, and peers, typically $40 to $80 a month plus a few dollars per employee at this size) automates the withholding math, filings, and remittances above, and at one employee the subscription is cheaper than one corrected quarterly filing.

What software does not do is the judgment layer: classification calls, exempt-versus-nonexempt status, policy setup, and the required notices and posters.

What this means for your business

The registrations are a week of methodical work, and getting them right the first time costs almost nothing but attention. The two decisions worth outside help are classification (Step 1) and exempt status, because both look like paperwork and are actually legal positions you will defend later.

A one-time payroll setup engagement typically runs $750 to $2,000, less than a single misclassification penalty, and it sets the foundation the next nine hires inherit.