Think about the exciting parts of having a growing business. I bet the idea of setting up a small business payroll system isn’t leaping to mind.
But just because it’s not the most exhilarating part of running a business doesn’t mean it’s not important. For better or worse, when you have employees working for your company, you need to have a payroll system.
It’s part of the essential record keeping and staying on the good side of the IRS.
That’s why we put together this quick and easy guide to setting up and running a small business payroll.
So you can move forward with ease, and focus on the parts of your business that are exciting!
Sound good? Keep reading to find out more.
You Need an EIN
An Employer Identification Number, or EIN, is a step that the IRS makes mandatory. It’s also sometimes referred to as the “Employer Tax ID” and you’ll use it to report your taxes.
So before you start the process of setting up your payroll, you should apply for one.
You can do this online through the IRS’s site.
Collect Employee Data
You’ll be filing tax information on behalf of your company, so you’ll need to gather some vital information from your employees.
For each employee, you need their full name, their employment start (or termination) date, their SSN or EIN, and their date of birth. You also need their address, their specific salary or payment rate, and either an I-9 or W-4 form.
You may already have some of these that you’ve been using with your pay stub creator.
It’s essential that you sort out which of your employees are independent contractors and which are full-timers.
It might seem obvious, but there are actually detailed guidelines for both that the IRS stipulates.
The main reason you need this classification is that you will be withholding income taxes and payroll taxes for full-time employees and not with independent contractors.
This could get you into trouble if you don’t withhold those taxes for someone you think is an independent contractor. If it turns out they are, you’ll end up having to pay back taxes for them, plus potential interest and penalties.
Pick Your Pay Period
How often will you pay your employees? First, see if your state has any restrictions in your state laws.
Then decide which payment schedule works best for your company. If a running payroll will be a tougher burden on your cash flow, that might change the pay period that works best.
Keep your schedule in mind as well. If there’s a period of time that’s more convenient for you, consider that. Timing and execution are vital for startups to thrive!
But also keep your employees in mind, since payroll is about providing them compensation. Ask them if there’s a payment schedule that works well and any that don’t. That kind of management technique won’t go unnoticed.
Choose a System
Research several options to figure out how you’ll run your payroll system. Some people do it old school, with pen a paper. (I wouldn’t recommend that!) and others use an online service.
The most important thing when you are opting to use an online service is to make sure they are reputable. Research them and look for reviews, to make sure you will be in good hands.
Small Business Payroll Made Easy
If you follow these steps, you’ll get your small business payroll up and running in no time.
And once you get up and running, check out this blog on the best ways to grow a startup.