It seems easy to set up payroll for your small business, but there are a range of steps involved which need to be mindful of which small businesses. Failure to take one of those measures will result in expensive fines and sanctions. This is why we developed this easy-to-follow, nine-step guide on how to set up your small business payroll.
You will consult with your accounting professional while you learn how to set up payroll and make sure you meet all the criteria for your specific situation. An attorney with experience of your state’s labor laws is also a valuable tool during the process of creating a payroll program.
How to set up your small business payroll
As a reminder, setting up your small business payroll is an intricate and precise process. These nine steps on how to set up payroll will serve as a overview of the process, but each small business will have its own specifications and logistics to tackle when it first develops payroll. Be sure to work with an professional who is familiar with the ins and outs of your company, so that you can be sure that your payroll is set up perfectly.
1. Evaluate the U.S. Labor Department website.
There are also laws that apply to most businesses in the U.S. Such laws include the regulations on minimum wage, the Family and Medical Leave Act and the laws on overtime, just to name a few.
Start setting up your Small Business Payroll by reviewing the US Topics portion. Labor Department website. Navigate to the DOL website’s FirstStep Poster Adviser section to decide which posters you need to view in order to comply with federal jobs regulations.
2. Check the state’s Labor website department.
In the U.S. The labor department oversees federal employment law, and every state has its own labor regulations. When you set up payroll for your small company, you must be mindful of both federal and state legislation.
What if the website of your state’s labor department provides contrary details to what you see on the US. Labour department website? Generally speaking, the law benefits the employee and so you can abide by the laws that help the employee most. Federal legislation, for example, requires that overtime will be charged if an employee reaches 40 hours in a workweek. However, some claim that require overtime based on the amount of hours worked in a day.
If in doubt, search about your state with your accountant or a labor lawyer who is versed in the law. Not only does this keep you out of legal trouble, but it will also help ensure that your workers are handled equally, which in turn will lead to a happy work force.
3. Set the payroll plan.
Many businesses run payroll weekly, bi-weekly, or half-monthly. Determine the plan for your payroll you want to use. Keep in mind the cash flow for your company as you decide how much you would like to pay your employees. There are strict laws on paying workers on time, and while you might be able to adjust your payroll schedule, you should not do so too much.
Keep in mind the laws for your state that prescribe the minimum frequency of your payroll schedule so make sure that you review your payroll schedule against the requirements on the labor website of your state department.
4. Write a handbook for the employees.
Now that you know which laws in your state apply to payroll, it’s time to write your employee manual. If you panic at the idea of writing something, don’t worry. A variety of online resources can help you design your employee handbook, or you can hire a professional human resources consultant to write one for you.
When written, I highly advise you to ask your state to check your employee handbook with a lawyer who is skilled in employment law. They should make sure that your handbook includes no terminology that creates a contractual arrangement between you and your employees.
5. Apply for Your Federal Employer Identification Number (FEIN or EIN).
For tax reporting purposes many sole proprietors use their Social Security Number. You must also use a Federal Employer Identification Number, or FEIN or EIN, for employment purposes. When issued, your EIN is the number on all business tax filings and forms that you will be using. That is why many accounting professionals are strongly urging business owners to get an EIN as soon as they start their business.
It’s quick to receive a FEIN if you don’t already have one. The IRS website helps you to apply online and get your EIN immediately.
Download Publication 15 when you are on the IRS website.
6. Apply for your state withholding and unemployment insurance accounts.
You may be allowed to withhold State income taxes and pay into the unemployment compensation system of your state, depending on your state. Many states also have local tax withholding requirements.
On the websites for your state’s tax commission and unemployment insurance commission, you will also find details about your job situation. Such websites are also often frustrating and difficult to navigate. As was the case with Step 2, check with your accountant or jobs lawyer about the laws pertaining to your state.
When you know the tax accounts you need, it is time for those accounts to apply. Many states allow you to apply online for these accounts, although some do demand that you fax or mail in your application. Enable your State to set up your tax accounts and provide you with the numbers for up to four weeks.
7. Write in your calendar the payroll schedule and the due dates for tax filing.
Now that you have set your payroll schedule and are applying for your FEIN, state withholding, and unemployment insurance accounts, you need to make sure that you stick to all the applicable deadlines.
Start by entering dates on your calendar for payroll. Then enter the due dates for filing the payroll tax. Keep in mind that you might have different due dates to submit taxes and return documents. State deadlines may be different from federal due dates, too. Review all the information you got along with the amount of your state withholding and unemployment insurance account, and the Publication 15 you downloaded in Step 4.
8. Decide who will have the payroll handled.
Can you manage payroll in-house or use a payroll service provider? These options have both benefits and inconveniences.
In-house payroll management gives you a bit more flexibility when it comes to managing the payroll. Payroll service providers also allow three-to five-day lead times and charge a rush fee if you do not apply payroll details within their deadlines. Payroll service providers, however, also assume all responsibility for the timely reporting of tax payments and returns and this is appealing to the busy small business owner.
I highly suggest using an online payroll platform such as Intuit Online Payroll or Gusto, if you want to do payroll in-house. This will streamline the administration of the payroll and help ensure that taxes are paid and returns are filed on time.
You may wonder at this stage why you were going through Steps 1-6. A payroll processing company can in many cases apply to you for your tax account numbers. Some payroll software programs remind you when the time is right to run payroll, make tax payments, and file reports of details. So why did you go through those six first steps if you could automate them?
In our experience, small business payroll is most frequently wrongly set up when the business owner has no input in the process. Working closely with a payroll service provider by using payroll software will streamline the ongoing payroll process, but knowing the standards and laws as they pertain to your employees is still crucial.
9. Hire the first employee.
Whew! What! You have all of your required tax ID numbers, you have set your payroll schedule, and your payroll system is now in place. It’s time to hire your first employee.
Once you’ve found and hired a perfect candidate, collect some information from them so that they can be properly set up in your payroll system.