Hiring Your First Employee in Virginia: Payroll, Taxes and Paperwork Step by Step

Hiring your first employee is a milestone, and it also turns you into a tax collector for two governments. This guide covers hiring your first employee in Virginia from start to finish: the registrations to finish before day one, the paperwork your new hire fills out, Virginia's 2026 minimum wage and pay rules, the payroll tax deadlines you can't miss, and what a $50,000 employee really costs. It's written for small businesses in Fredericksburg, Spotsylvania, Stafford and the surrounding area.

Employee or contractor? Decide this first

Before you set up payroll, make sure the person really is an employee. Calling a worker a "1099 contractor" doesn't make it so. The IRS looks at three kinds of evidence:

• Behavioral control: do you control what the worker does and how they do it (hours, methods, training)?
• Financial control: who provides tools, who bears expenses, can the worker profit or lose, and do they offer services to others?
• Type of relationship: is there a contract, are there benefits, is the work ongoing, and is it a key part of your business?

Virginia is stricter still. Under Virginia Code § 58.1-1900, a person you pay for services is presumed to be an employee unless you can show they're an independent contractor under IRS guidelines. Misclassification can bring back payroll taxes, penalties and state enforcement. If you can't tell, the IRS will issue a formal determination on Form SS-8, though it typically takes six months or more.

Step by step: hiring your first employee in Virginia

Here's the order of operations, from registrations to year-end filings.

1. Get an EIN. If you don't already have one, apply online at irs.gov. It's free and issued immediately. Never pay a website for an EIN.
2. Register for Virginia withholding. Register online with Virginia Tax (or on Form R-1). Virginia assigns a filing frequency based on how much you withhold.
3. Register with the VEC for unemployment insurance. You're liable once you pay $1,500 or more in wages in a quarter or have an employee in 20 different weeks of a year, and you can register through Virginia Tax's online business registration. New employers start at a 2.5% base rate plus add-ons on the first $8,000 of each employee's wages.
4. Arrange workers' compensation if you'll have more than two employees (see below), or decide whether to buy coverage voluntarily.
5. Choose a payroll system. Decide on pay frequency, set up direct deposit, and connect payroll to your books.
6. Collect new-hire forms. Form W-4 (federal withholding), Form VA-4 (Virginia withholding) and Form I-9 (employment eligibility). Section 1 of the I-9 is due by the first day of work; you complete Section 2 within 3 business days.
7. Report the new hire to the Virginia New Hire Reporting Center within 20 days, with the employee's name, address, Social Security number and hire date, plus your business name, address and EIN.

Virginia minimum wage and pay rules for 2026

Virginia's minimum wage is $12.77 per hour as of January 1, 2026. In April 2026, the Governor signed HB 1 and SB 1, which set the next steps:

Virginia's wage payment law adds a few rules every employer must follow:

• Pay hourly employees at least every two weeks (or twice a month) and salaried employees at least monthly.
• Give a paystub or online statement each payday showing your business name, hours worked for hourly employees, rate of pay, gross wages, and the amount and purpose of each deduction.
• When someone leaves, pay final wages no later than the next regular payday.
• Under federal law, pay non-exempt employees overtime at 1.5 times their regular rate for hours over 40 in a workweek.

New for 2026 wages: employees can deduct some qualified overtime pay on their federal returns under OBBBA, and employers must report those amounts separately. Make sure your payroll system tracks the overtime premium. Our overview of 2026 tax law changes explains the employee side.

What a $50,000 employee really costs

The salary is only part of the cost. As the employer, you pay your own share of Social Security and Medicare plus federal and state unemployment taxes. Here's the 2026 math for one employee earning $50,000.

The FUTA figure assumes Virginia isn't a "credit reduction" state for the year; it wasn't for 2025. Workers' compensation premiums depend on your industry and job classifications, so get a quote from an insurer. Health insurance, retirement contributions and paid time off add more. The employee's own 7.65% Social Security and Medicare, plus their federal and Virginia income tax, come out of their paycheck. You hold that money in trust and send it in.

Payroll tax deposits and filings

Once payroll starts, the calendar runs on autopilot, and missing it is expensive. Payroll taxes you withhold from employees are "trust fund" taxes, and the IRS can hold owners personally responsible when they aren't paid.

For 2026 wages, January 31, 2027 falls on a Sunday, so the federal January deadlines move to Monday, February 1, 2027. Virginia returns must be filed even when no tax is due.

Workers' compensation in Virginia

Virginia requires workers' compensation coverage for any business with more than two employees regularly in service in Virginia, so three or more. The Virginia Workers' Compensation Commission is clear that there are no waivers or exceptions once you're required to carry it, and that "employee" is read broadly:

• Part-time, seasonal and temporary workers count
• Minors, trainees and working family members count
• Contractors who hire subcontractors must count the subcontractors' employees too

Employers below the threshold can buy coverage voluntarily, and many do, because one workplace injury can cost far more than a year of premiums. Talk to an insurance agent about your job classifications before your first hire starts.

Using a payroll service

You can run payroll by hand, but most small businesses shouldn't. A payroll service calculates withholding from each W-4 and VA-4, makes federal and Virginia deposits, files Forms 941, 940, VA-5 and VA-6, handles W-2s, and often submits new-hire reports. That said, the business remains legally responsible if a deposit is missed, so check your payroll reports every quarter.

What to have ready when you set up payroll

• Your EIN, Virginia withholding account number and VEC account number
• Your VEC tax rate notice and your Virginia withholding filing frequency
• Each employee's completed W-4, VA-4, start date, pay rate and pay schedule
• Direct deposit details and any deductions (retirement, health premiums)
• A bank account for payroll and tax debits, ideally separate from operating cash

Timeless Tax runs payroll for small businesses through ADP, and our bookkeeping team records payroll in QuickBooks so your books, payroll reports and tax returns all agree. Keep payroll and employment tax records for at least four years.

Common first-hire mistakes

1. Paying before registering. Running payroll without Virginia withholding and VEC accounts leads to late-filing notices from day one.
2. Treating an employee as a contractor. Virginia presumes employee status. When in doubt, put them on payroll.
3. Forgetting the I-9. It's required for every employee, including family members, and has a 3-business-day deadline.
4. Missing the 20-day new-hire report. It's quick, and a payroll service can file it for you.
5. Using withheld taxes as cash flow. Deposit withheld taxes on time, every time. Trust fund penalties can follow you personally.
6. Ignoring the owner's own pay. If you're an S corp owner, you're an employee too. See our LLC vs. S corp guide for how reasonable salary works.

Written by the Timeless Tax & Accounting teamTimeless Tax & Accounting was founded in 2020 by Nagham Alobaidi and serves clients across Virginia and in other states, in English and Arabic. Reviewed for accuracy against IRS and Virginia Tax guidance as of October 2, 2026.

This page is general information, not tax, legal or financial advice for your specific situation. Tax rules change often — talk with a professional before acting.