When starting a small business, payroll might not be a top priority. Once you do hire your first employee, however, you’ll need a reliable payroll system.
In this piece, you will learn the ins and outs of establishing a payroll system for your company.
- Our Topics Will Include the Following
- Put simply, what is payroll?
- How to Create a Payroll System for Your Company
- Summing Up
- Improved Access to Payroll Information for Companies
Can you explain Payroll to me?
Payroll is the method by which monetary compensation for employees is administered. Information such as employee names, salaries, benefits, when payments will be made, and payroll tax returns are included.
Payroll is essential for any size company because it facilitates timely salary payments, tax filing, and accurate bookkeeping.
- The Basics of Payroll Processing for a Startup
- Learn the Local, State, and Federal Laws That Affect Your Job
- Set Up Your Payroll System
- Plan your payroll system out.
- Obtain an EIN by Filling Out a Form
- Find a Payroll Service for Your Company.
Process Employee Paperwork
1 Familiarize yourself with local, state, and federal employment regulations
To begin processing payroll, a small business must become familiar with the myriad of state and local regulations that may affect it. A thorough understanding of U.S. legislation is necessary before beginning payroll processing. The Family and Medical Leave Act, as well as state minimum wage and employment tax laws, and other regulations, all apply.
The U.S. Department of Labor website is a great starting point. You will find a variety of resources here that can assist you in learning about and complying with federal employment laws. You should also be familiar with the legislation in your state governing businesses’ payroll practices.
Step 2: Set a Payroll Routine
A company’s payroll schedule is a calendar detailing the pay periods for all employees. Some small businesses choose to pay their workers on a weekly or biweekly schedule, while others wait until the middle of the month or the end of the quarter to hand out salaries.
It’s not a good idea to pick a payroll schedule without any prior planning. Check the applicable laws to see if there are any restrictions on how often you can pay your employees. Your company’s cash flow is another factor to think about. It is recommended to set a monthly payroll schedule if the majority of cash inflow occurs at the end of the month.
It is important to select a pay period that will allow you to comply with applicable state and federal income tax laws, as penalties may be imposed for non-payment.
3. Construct a Payroll Policy
You should draft a payroll policy or employee handbook after deciding on a pay cycle for your company. The payroll schedule, employee benefits, and payroll method are all elements of business payroll that should be spelled out in detail in a formal document known as an employee handbook.
One of the crucial steps in this setup is the creation of a payroll policy, which will serve to protect the business from a variety of potential legal issues. Employees should be informed beforehand about the company’s plans for handling payrolls and any potential effects on their benefits. Payroll operations are simplified with the help of a comprehensive employee handbook.
An organization’s payroll policy is not an agreement enforceable in law, and as such, it should not be written in legalese. Before distributing this document to your staff, have it reviewed by an attorney specializing in employment law to make sure everything is in order.
You Should Get an EIN (Employer Identification Number) Number
You don’t need to apply for a Social Security Number to file taxes as a small business owner.
Payroll services cannot be provided without an EIN. The website of the Internal Revenue Service (IRS) of the United States allows businesses to apply for an Employer Identification Number (EIN).
Once you have been issued an EIN, you can use it to identify your business on tax forms as a legitimate entity. An Employer Identification Number is required for various transactions even if payroll isn’t being set up right away.
It’s possible you’ll also need to file state income taxes on behalf of your worker(s), depending on the rules in your state. Creating withholding and unemployment tax accounts with the state is a necessity. Make sure you know if you need a special ID number from your local government to file payroll taxes.
Decide on a Payroll Service for Your Company 5.
Payroll administration is time-consuming and complex; many sole proprietors struggle to balance it with their other duties. You can delegate it to a reliable employee, hire an outside accounting firm, or use payroll software like Gusto.
Consider the benefits and drawbacks of each possibility before making a decision. You can save time and effort, for example, by using an online payroll processing platform. Payroll service providers, on the other hand, are costly but allow small business owners to focus on running their company.
Sixth, Organize the Paperwork for Employees
The final step in setting up payroll is for employers to collect some information from new hires and update the payroll information of existing employees. The following are examples of such data:
A W-4 Form, so you can withhold the appropriate amount of federal income tax from the worker’s paycheck.
A properly filled out Form I-9, used to verify an individual’s eligibility to work in the United States. In this case, you should ask each employee to present a government-issued form of identification and keep copies for your own records.
Mismatches between names and Social Security numbers can be avoided with a thorough Social Security verification. Employers can use the free Social Security Number Verification Service by simply signing up for an account.
New hire paperwork may need to be filed with the appropriate authorities depending on the laws in your state.
Finishing up Payroll may seem difficult at first, but it’s not impossible to do correctly. With the help of this article’s straightforward payroll advice, you’ll have your company’s payroll system up and running in no time.