HOW TO SETUP A PAYROLL FOR YOUR BUSINESS AND HOW TO DO IT
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Setting a payroll for your business is not a fun task. It is quite involving, and if you have other things to handle, you will want to use the easiest way possible and also know how to setup a payroll as fast as you can.
Every business, even if you have five employees only, needs to have a well-managed payroll. Without it, you might end up getting slapped with a fine from the IRS or lose your employees over a late paycheck. You definitely do not want this to be you.
What Is a Payroll?
Payroll is the amount of wages a company pays its employees. While expanding your business and adding new staff to your team shows growth, it also adds some complexity to your old self-employed income.
To start running payroll, there are several things that you need to do, and this also includes getting the right forms. Taxes and bookkeeping are the worst part of having a business. If not done right, there is a high chance of experiencing some significant losses.
How to Set up a Payroll
Setting up a payroll system will streamline your payment system and your ability to stay on the right side with the law as an employer. It will also save you a lot of time and protect you from incurring costly penalties with the Internal Revenue Service (IRS).
Want to know how to set up a payroll? Here are some steps that you can follow:
- Get an Employer Tax ID or EIN
Before you hire any employee, it is a requirement that you get the Employer Identification Number (EIN). Also known as Employer Tax ID or Form SS-4. This number is what you will use to report tax and other relevant documents to the IRS.
The EIN number is also necessary should you need to report information about any of your employees to state agencies. To get the EIN number, you can contact the IRS directly or apply for one online.
- Give Your Employees New Hire Forms
Every employer is required to file the IRS payroll tax information within 20 days of hiring any new employee. Collect the Form W-4 for your hourly workers or Form 1-9 for independent contractors, if your business pays them a total of $600 annually or more. There is a clear difference.
These forms are available from the Bureau of Labor Statistics website, and you’re also required to keep them in your records for four years. Once collected, you should remember to submit a completed copy.
Make sure that all your employees correctly complete the Federal Income Tax Withholding Form W-4 and give it back to you, so you are able to withhold the right federal income tax from their pay.
- Set a Pay Period
Whether or not you already have a pay period, setting up one, be it monthly or bi-monthly, can be decided by state laws. IRS also asks employers to withhold all income tax for the set pay period. This is regardless of whether the employee worked or did not work for that period.
The pay period is all about how often you pay your employees. This can also depend on your industry. Make sure you check with your state or local labor agency concerning which pay period you can use.
- Document Your Employees Terms of Compensation
When setting up your payroll, you should also know how you will handle other payments like overtime. Though not required by the law, several businesses pay their employees as an incentive. You should know how to track the hours your employees work and how to pay them overtime.
Employee compensations and deductibles like retirement contributions and health insurance premiums should be withheld from your employee’s paychecks, and such deductions should be submitted to the relevant organizations. It would be best if you did not forget to cater to these too.
- Choose the Right System
Payroll requires critical attention. You should also be very accurate, and this means you need to do enough research and understand the options that are available to you. You can ask other business owners about the methods they are using and if they have guidelines that they can share.
Irrespective of the system you choose, know that as the owner of the business, it is your full responsibility to report and pay payroll taxes. Therefore, select a system that you can easily understand and handle.
- Running Payroll
After you have collected all the information you need, the forms, and have chosen a system, you’re now ready to proceed running payroll. Depending on the method that you chose, you can either enter the information on it or task your accountant with it. That is if you have an accountant.
- Keep Your Records
Government-related forms like the W-4 forms and other records should be well kept for a specific time as required by state laws. Try to have active files for all your current employees, and should you terminate an employee, keep their records for at least three years. Keep all W-2s and the amount of all the tax deposits and copies of filed tax forms.
- Report Taxes
Employers should submit various tax reports to relevant authorities. This should be done quarterly or on an annual basis. To get more information on payroll taxes, you can check out the Employer Tax Guide. It will provide you with complete guidance on federal tax filing requirements.
Knowing How to Setup a Payroll Will Help You Manage Your Employees Payments
Once you know how to set up a payroll, you will always have your employee’s paycheck ready on time and with no errors. This will help create a good working relationship with your employees because they will trust your word as far as their pay is concerned.
If you want to know more about managing your business and your accounts, visit our website and read more.