Payroll processing can often be a hassle. When you aren’t sure how to properly set up payroll processing for your business, though, it is bound to be an even bigger headache. To help you save time and avoid the potential for costly IRS penalties, here are the ten steps you should follow to set up your business’s payroll processing.
1) Obtain an Employer Identification Number from the IRS
You will need an employer identification number (EIN) in order to report payroll taxes and other important documents to the IRS. An EIN can be obtained online or by contacting the IRS.
2) Determine Whether Your Staff Members are Independent Contractors or Employees
There is an important legal distinction between an independent contractor and an employee. Unfortunately, what defines an employee vs a contractor isn’t always a clear-cut distinction. Since this distinction will impact the taxes that you pay, though, it’s essential to determine which category your staff falls under.
3) Develop an Employee Manual Outlining Your Terms and Procedures
Your employee manual will need to outline terms and procedures such as how employees track hours, what qualifies as paid time off, how benefits are compensated and/or deducted, how overtime is tracked, and any other information that your employees need to be aware of.
4) Have Employees Complete the Necessary Paperwork
Any new employee that you hire will need to complete a W-4 form. Other forms that your employees may need to complete will depend on the state and local laws where your company is located.
5) Establish Your Pay Period
Pay periods are often determined by state laws, with the most commonly required pay period being bi-monthly. Check your state laws to see if there is a specific pay period that you are required to implement. If not, choose a pay period that works best for your company and its employees.
6) Choose a Payroll System
In order to manage payroll processing in an efficient and accurate manner, you need to develop the right system. There is a variety of payroll processing software that you may want to consider purchasing in order to streamline the payroll processing process. Working with a payroll processing service provider is another excellent option to consider and one that takes the burden of processing payroll entirely off of your shoulders.
7) Track Government-Mandated Employee Garnishment
In some cases, you may be required to withhold earnings from specific employees under wage garnishment laws. If an employee has outstanding child support, for example, or any other debts that they have been assigned a wage garnishment court order, you will need to withhold a predetermined portion of their earnings each pay period.
8) Run Payroll
With all of the above steps complete, you can now begin running payroll for your company.
9) Record Keeping
Great record keeping is an essential aspect of payroll processing. In fact, you may be required by state or federal laws to keep certain records for a specified period of time.
10) Report and Pay Payroll Taxes
There are a number of payroll tax reports that you will be required to submit on either a quarterly or annual basis. To learn more about the specific reports you are required to submit and payroll taxes that you are required to pay, check out the IRS’s Employer’s Tax Guide.
Employer Payroll Solutions is a full-service PEO company and offers both payroll outsourcing and employee leasing services. Contact us for a free consultation to learn how we can help you save time and money on payroll services.