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E-Commerce & DTC Brands: Payroll Setup Guide (2026)
Setting up e-commerce company payroll means the standard registrations, an EIN, state withholding and unemployment accounts, new hire reporting, plus the e-commerce company specifics: pay codes for seasonal workforce spikes and multi-state nexus payroll tax and a documented classification for warehouse staff and customer service reps. BEG: $45 per employee per month inside the payroll software you already use, live in 3 to 5 days.
Step 1: accounts and registrations
Every e-commerce company starts with an EIN, a withholding account in each state where someone works (unless that state has no wage tax), an unemployment insurance account in each of those states, and access to each state's new hire directory. New employers deposit federal employment taxes monthly during the first calendar year because there is no lookback period yet.
Step 2: classify warehouse staff and customer service reps before the first check
Under the FLSA, whether a fulfillment worker is an employee or an independent contractor depends on the economic reality of the relationship, weighed across six factors: opportunity for profit or loss, investments, permanence, control, whether the work is integral to the business, and skill and initiative. Paying a worker on a 1099 or having them sign a contractor agreement does not make them a contractor.
Step 3: build the e-commerce company pay codes
Seasonal workforce spikes, multi-state nexus payroll tax, contractor vs W-2 for fulfillment and inventory labor cost tracking each become a pay code with its own taxability and overtime treatment. Building them before the first run is cheaper than correcting a quarter of 941s afterward.
For tax years beginning after 2025, Form 1099-NEC must be filed for each non-employee paid at least $2,000 for services during the year, up from the prior $600 threshold. The IRS instructions state the threshold may be adjusted for inflation beginning in calendar year 2027.
Step 4: set the records up to be kept
The IRS requires employers to keep all employment tax records for at least four years after filing the fourth quarter return for the year, including amounts and dates of wage payments, employee names, addresses, Social Security numbers and occupations, and copies of Forms W-4.
A completed Form I-9 must be kept for every person on payroll for three years after the date of hire or one year after employment ends, whichever is later. This applies even to seasonal hires who leave shortly after the date of hire.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- Under the FLSA, whether a fulfillment worker is an employee or an independent contractor depends on the economic reality of the relationship, weighed across six factors: opportunity for profit or loss, investments, permanence, control, whether the work is integral to the business, and skill and initiative. Paying a worker on a 1099 or having them sign a contractor agreement does not make them a contractor. [DOL Fact Sheet #13]
- For tax years beginning after 2025, Form 1099-NEC must be filed for each non-employee paid at least $2,000 for services during the year, up from the prior $600 threshold. The IRS instructions state the threshold may be adjusted for inflation beginning in calendar year 2027. [IRS Instructions for Forms 1099-MISC and 1099-NEC (12/2026)]
- The IRS requires employers to keep all employment tax records for at least four years after filing the fourth quarter return for the year, including amounts and dates of wage payments, employee names, addresses, Social Security numbers and occupations, and copies of Forms W-4. [IRS Employment tax recordkeeping]
- A completed Form I-9 must be kept for every person on payroll for three years after the date of hire or one year after employment ends, whichever is later. This applies even to seasonal hires who leave shortly after the date of hire. [USCIS Handbook for Employers M-274, section 10.0]
Read the full guide to how to set up payroll for a new business, and the rest of the e-commerce company payroll library.
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Frequently Asked Questions
What registrations does a new e-commerce company need before running payroll?
An EIN, a state withholding account and a state unemployment account in every state with an employee, and new hire reporting access. State registrations are the slow step and can take weeks, so they start before the first hire date.
How are warehouse staff and customer service reps classified at setup?
Under the FLSA, whether a fulfillment worker is an employee or an independent contractor depends on the economic reality of the relationship, weighed across six factors: opportunity for profit or loss, investments, permanence, control, whether the work is integral to the business, and skill and initiative. Paying a worker on a 1099 or having them sign a contractor agreement does not make them a contractor.
What records must an e-commerce company keep from day one?
The IRS requires employers to keep all employment tax records for at least four years after filing the fourth quarter return for the year, including amounts and dates of wage payments, employee names, addresses, Social Security numbers and occupations, and copies of Forms W-4.
What does managed payroll cost for an e-commerce company?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Seasonal workforce spikes, multi-state nexus payroll tax and contractor vs W-2 for fulfillment are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including E-Commerce & DTC Brands. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: U.S. Department of Labor: Wage and Hour Division
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