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Law Firms: Payroll Setup Guide (2026)
Setting up law firm payroll means the standard registrations, an EIN, state withholding and unemployment accounts, new hire reporting, plus the law firm specifics: pay codes for billable hours tracking and partner draw vs. salary and a documented classification for attorneys and paralegals. BEG runs law firm payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
Step 1: accounts and registrations
Every law firm 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 attorneys and paralegals before the first check
An employee who holds a valid license to practice law and is actually engaged in that practice is an exempt professional, and the salary requirements of 29 CFR 541 subpart G do not apply. The exemption turns on the license and actual practice, not on how the lawyer is paid.
Step 3: build the law firm pay codes
Billable hours tracking, partner draw vs. salary, attorney bonus structures and IOLTA compliance 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.
Partners are not employees and should not be issued a Form W-2 for distributions or guaranteed payments from the partnership. Those amounts are reported to the partner on Schedule K-1 of Form 1065.
Step 4: set the records up to be kept
Legal Services (NAICS 5411) is on OSHA's partially exempt industry list, so law firms do not have to keep OSHA 300 injury and illness logs unless OSHA or BLS asks in writing. They must still report any work-related fatality, in-patient hospitalization, amputation or loss of an eye.
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.
- An employee who holds a valid license to practice law and is actually engaged in that practice is an exempt professional, and the salary requirements of 29 CFR 541 subpart G do not apply. The exemption turns on the license and actual practice, not on how the lawyer is paid. [29 CFR 541.304]
- Partners are not employees and should not be issued a Form W-2 for distributions or guaranteed payments from the partnership. Those amounts are reported to the partner on Schedule K-1 of Form 1065. [IRS Paying yourself]
- Legal Services (NAICS 5411) is on OSHA's partially exempt industry list, so law firms do not have to keep OSHA 300 injury and illness logs unless OSHA or BLS asks in writing. They must still report any work-related fatality, in-patient hospitalization, amputation or loss of an eye. [OSHA 29 CFR 1904 Subpart B, Appendix A]
Read the full guide to how to set up payroll for a new business, and the rest of the law firm payroll library.
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Frequently Asked Questions
What registrations does a new law firm 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 attorneys and paralegals classified at setup?
An employee who holds a valid license to practice law and is actually engaged in that practice is an exempt professional, and the salary requirements of 29 CFR 541 subpart G do not apply. The exemption turns on the license and actual practice, not on how the lawyer is paid.
What records must a law firm keep from day one?
Legal Services (NAICS 5411) is on OSHA's partially exempt industry list, so law firms do not have to keep OSHA 300 injury and illness logs unless OSHA or BLS asks in writing. They must still report any work-related fatality, in-patient hospitalization, amputation or loss of an eye.
What does managed payroll cost for a law firm?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Billable hours tracking, partner draw vs. salary and attorney bonus structures 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 Law Firms. 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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