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Part of keeping employees happy at your new company involves paying them correctly. Here are tips for setting up payroll systems for small businesses.
Each year, more than 627,000 new businesses open in the United States. Many of them go on to become huge successes, providing employment to millions of people around the country.
A huge part of any business is its staff. Whether you’re starting with one employee or a hundred, it’s essential that take care of them to keep them motivated. One way to do so is by guaranteeing that they receive their payment as agreed.
That’s where payroll systems come in. A payroll system ensures that a company is paying employees on time. It also enables you to adhere to your legal and regulatory responsibilities as an employer.
Without a payroll system, you run the risk of incurring hefty penalties from the Internal Revenue Service (IRS). In short, any business owner who plans to hire staff should set up a payroll system.
Of course, the big question is: how do you set up a payroll system? The truth is there are several steps involved that you need to follow. It helps to have an accounting professional to ensure that you’ve gotten everything right.
However, if you’d like to go through the process alone, the following guide can help.
Before we outline the steps you need to follow when setting up a payroll, it’s important to mention that every business is unique. Each company will have its own logistics and requirements when setting up their payroll system. Where unsure, consult a professional who thoroughly understands your business to make sure you’re doing everything right.
The following eight tips will act as an outline of how to go about the process.
The US has specific laws that pertain to businesses in the country. These laws include such things as minimum wage, family and medical leave, overtime, and so on. Visit the US Department of Labor website and go through these rules to make sure you’re compliant.
Next, visit your state’s labor website and familiarize yourself with the local labor requirements. Where the state’s labor website gives information that seems to contradict what you read on the US Department labor website, check with your accountant for clarification.
Many businesses run payroll biweekly, weekly, or semimonthly. Determine a regular payroll schedule, keeping in mind your business’ cash flow. Later, you may consider talking to employees to get their views on whether they’re comfortable with your payroll schedule.
Keep in mind that there are stringent rules for ensuring that you pay your employees on time. Of course, you can still change your payroll schedule, but don’t do it too often. Before altering the schedule, consider whether your state’s laws stipulate the minimum frequency of payroll schedules.
Once you’ve determined your payroll schedule, it’s time to write an employee handbook that you’ll be using. Ensure that the handbook adheres to the laws pertaining to payroll in your state.
There are lots of online resources that can help you craft a proper employee handbook, especially if you don’t enjoy writing. The alternative is to hire a seasoned human resources expert to write the handbook for you.
Once you’ve written your employee handbook, consider asking a lawyer specializing in employment law to review it. The last thing you want is to have a handbook that contravenes labor laws in your state.
A sole proprietor can use their Social Security Number when filing taxes. Any employer, however, must have a federal employer identification number (FEIN). This is the number you’ll use on all your business tax filings and forms.
Fortunately, getting a FEIN is quite easy. Simply apply online at the International Revenue Service (IRS) website right away.
Depending on your local tax laws, you might have to withhold state income taxes and pay into the state’s unemployment insurance fund. To know for sure, check your state’s tax commission and unemployment security commission website. You can also consult with your employment attorney or accountant.
As soon as you have the relevant information regarding the required tax accounts, apply for them. In most states, you can do so online. Other states require you to mail or fax your application.
To ensure that you stick to all the pertinent deadlines, enter your payroll schedule and tax filing dates in your calendar. Remember, the dates for remitting taxes may be different from those of filing information returns. Likewise, state deadlines and federal tax due dates may differ.
Take the time to review your calendar to make sure you’ve entered all the information correctly.
Generally, you have two options. You can decide to administer your payroll inhouse, or you can use a payroll service provider. Both options have pros and cons.
When you choose to handle your payroll in-house, you’ll have greater flexibility on when to process payroll. All you need is a reliable online paystub maker to streamline payroll processing.
A payroll service provider will usually assume the responsibility for filing of tax returns and payments in a timely way. However, they might require lead times of up to five days. Besides, they may charge a rush fee when you fail to submit required payroll information by the agreed deadline.
Now that you have the required tax ID numbers, a payroll schedule, and a payroll system, it’s time to kickstart the hiring process. Once you’ve selected the ideal candidates and hired them, you’ll need to collect the appropriate information from them to feed in your payroll system. This includes:
With this information entered into your payroll system, you’re now set to run your business.
Payroll systems are an integral part of running a business. They ensure that your employees are paid on time and that your business remains compliant with the relevant state and regulatory laws. With some research and professional help, you can set up a payroll system that serves you well for years.
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