Payroll for a new dental practice

Payroll is the first system a new practice runs on a hard deadline. Get it wrong and the penalties land on you, not the staff.

This page is general education. Worker classification and state payroll rules turn on your facts, so confirm your setup with a CPA or employment attorney.

W-2 or 1099: staff and associates

The IRS test is about control. The question is whether you have the right to control what the worker does and how they do it. The IRS groups the evidence into three categories:

• Behavioral control: do you direct the work and the methods?
• Financial control: who provides the tools and supplies, who pays expenses, and how is the worker paid?
• Type of relationship: is there a written contract, are there benefits, and is the work a core part of your business?

No single factor decides it. The IRS says there’s no “magic” number of factors that makes someone an employee.

Hygienists and assistants. You set their schedule, provide the operatory and supplies, and book their patients. Their work is the core of the practice. For most offices, that points to W-2 employees.

Associates. This is where practices get creative, and where the risk sits. An associate who works your schedule, sees your patients with your staff and supplies, and follows your protocols looks like an employee under the IRS categories. A 1099 label or a percentage-of-collections pay plan doesn’t change that by itself.

A true independent contractor looks different. Think of a specialist who visits several practices, sets their own days, and brings their own instruments or staff. If you’re unsure, either party can ask the IRS for a ruling on Form SS-8. The IRS says that can take six months or more.

The Labor Department’s test is also in flux. On Feb. 26, 2026, DOL proposed rescinding its 2024 rule, which it says it no longer applies in investigations. The proposal focuses on two core factors: the worker’s control over the work, and their opportunity for profit or loss. It’s a proposal, not a final rule, as of September 2026. States can apply stricter tests of their own.

If you get it wrong, you can owe the payroll taxes you didn’t withhold or pay. The IRS runs a Voluntary Classification Settlement Program that offers partial relief if you reclassify workers going forward.

Payroll taxes and filings

For each W-2 employee, you withhold federal income tax (from their Form W-4) plus their share of Social Security and Medicare. You also pay an employer share.

As of 2026, per the IRS:

• Social Security: 6.2% from the employee and 6.2% from you, on wages up to $184,500.
• Medicare: 1.45% each, with no wage cap. You also withhold an extra 0.9% on an employee’s wages over $200,000.
• Federal unemployment (FUTA): paid by you only, never withheld from staff, reported on Form 940.

The math on one hire. A hygienist paid $90,000 a year costs you about $6,900 in employer Social Security and Medicare (7.65%). Add federal and state unemployment tax and workers’ compensation insurance, which vary by state and carrier.

The calendar:

Filing	When it’s due
Tax deposits	Monthly (by the 15th of the next month) or semiweekly, depending on your past liability
Form 941	Quarterly, by the last day of the month after the quarter ends
Form 940 (FUTA)	Jan. 31
W-2s to employees and the SSA, with W-3	Jan. 31
1099-NEC for contractors	Jan. 31

If you owe $100,000 or more in accumulated employment tax, the IRS requires a deposit by the next day.

State registration

Federal filings are only half of it. Before your first payroll, most practices need state accounts:

• State income tax withholding in states that have an income tax.
• State unemployment insurance with your state workforce agency, which assigns your rate.
• New hire reporting. Federal law requires you to report each new or rehired employee to the state where they work within 20 days of hire. Some states require it sooner.
• Local taxes in cities or counties that levy them.

A payroll service can file with these agencies once you have the accounts. Ask each service who opens the accounts, and whether that costs extra.

What a payroll service does

A full-service payroll service calculates each paycheck, pays staff by direct deposit, deposits the taxes and files the returns. Gusto, for example, says it files Forms 941, 940, W-2 and 1099 plus state and local forms, and reports new hires. It also pays contractors.

What it doesn’t do: decide who’s an employee, set wages, or fix bad data. If you enter a hygienist as a contractor, the service will pay them as one.

Options worth comparing include Gusto, ADP and Paychex. Many accounting packages also sell payroll as an add-on. Compare on these points:

1. Which federal, state and local forms it files, and whether it takes responsibility for penalties caused by its own errors.
2. Whether it handles state registration or you do.
3. Integration with your accounting software and time clock.
4. Benefits administration: health, 401(k), and pre-tax deductions.
5. Price per month and per employee, and what counts as an add-on.

PEO vs payroll service

A professional employer organization (PEO) goes further. It co-employs your staff and typically handles payroll, benefits, workers’ compensation and HR compliance under its own umbrella. The appeal for a small practice is access to group health plans.

The trade-off is cost and control. You use the PEO’s benefit plans and its HR rules, and you pay for them. Get the full price in writing, per employee or as a share of payroll. For a new solo practice with a few staff, a payroll service is usually enough. A PEO is worth quoting when you want to offer health benefits and don’t want to run them yourself. ADP and Paychex both sell PEO services alongside payroll.

What to do next

1. Get your EIN and entity in place. See setting up your dental practice entity.
2. Classify every role using the IRS categories above. Put associate terms in a written agreement your attorney has read.
3. Open state withholding and unemployment accounts before the first payroll.
4. Pick a payroll service and connect it to your books. See bookkeeping software for dental offices.
5. Put the filing calendar in front of your office manager, even if the service files everything. You’re still the one liable.