Hiring Your First Employee in South Carolina: The Payroll Setup

Everything here is for 2026. The wage bases and rates are adjusted annually, so treat the numbers as this year's numbers and check them again in January.

We do not run payroll. We advise on setting it up and on running it correctly, which is a distinction worth making at the start: the list below is what has to be true, not a description of a service.

Before the first paycheck

What comes out of each paycheck in 2026

• Social Security: 6.2% from the employee and 6.2% from the employer, on wages up to $184,500 for 2026.
• Medicare: 1.45% from each side, with no wage cap.
• Additional Medicare: an extra 0.9% withheld from the employee once wages exceed $200,000. There is no employer match on this piece.
• Federal income tax withholding, per the W-4 and the current withholding tables.
• South Carolina income tax withholding, per the SC W-4 and the 2026 state tables, which were updated for the current year.
• FUTA, paid entirely by the employer: 6.0% on the first $7,000 of each employee's wages, generally reduced to 0.6% by the credit for state unemployment tax paid on time.
• South Carolina unemployment tax, paid entirely by the employer, on the first $14,000 of each employee's wages.

On that last one: a newly liable employer that has not acquired another employer's experience starts at the rate applicable to tax rate class 12 for the year, or one percent, whichever is higher. Your own rate then moves with your claims history. Log into SUITS to see the rate assigned to you rather than working from a general figure.

Deposits, and the part that goes wrong

Withheld tax has to be deposited on a schedule, and the schedule is not your choice. You are a monthly or a semiweekly depositor for the whole calendar year based on your tax liability during a lookback period — for most new employers that means monthly, with deposits due by the 15th of the following month.

Two rules override that. If you accumulate $100,000 or more of liability on any day, it is due the next business day, and a monthly depositor who hits that becomes a semiweekly depositor immediately. And employment tax returns are filed quarterly on Form 941, with FUTA reported annually on Form 940 — filing a return is not the same act as making a deposit, and doing one without the other is the most common way a first-year employer generates a notice.

South Carolina withholding is reported on its own quarterly return, with an annual reconciliation, on the SCDOR's schedule rather than the IRS's.

Trust fund money

The amounts withheld from an employee's pay are not the business's money at any point. They are held in trust for the government. When they are not remitted, the Trust Fund Recovery Penalty can reach the people who were responsible for collecting or paying them and who willfully did not — personally, and the liability survives the company.

This is why payroll is the one obligation we tell owners never to stretch when cash is tight. A vendor can be paid late. A payroll tax deposit is a different category of debt, and it follows you home.

Year end

• Form W-2 to each employee and to the Social Security Administration by January 31.
• Form 940 for the year.
• The fourth quarter Form 941.
• South Carolina's annual withholding reconciliation, and W-2 upload to the SCDOR.
• Form 1099-NEC to any contractor paid $600 or more, also by January 31 — a different form and a different set of rules from payroll, but the same deadline.

The decision underneath all of this

Most first employees are hired because the owner has run out of hours, which is the right reason. What surprises people is the cost: employer payroll taxes, unemployment tax, workers' compensation where it applies, and the administrative time all sit on top of the wage, and the wage is the number that got negotiated.

Budget the loaded cost rather than the salary, decide who is running payroll before the first pay date rather than after it, and get the classification question settled in advance. Reclassifying a contractor as an employee after the fact is expensive in a way that is entirely avoidable in advance.