You have started your company, and now you must learn how to set up payroll for small businesses. Fortunately, it is quite straightforward to complete this process. Once you have set up payroll for a small business, you will be able to compensate each employee with ease and efficiency.
If you're wondering, how to set up payroll for my company, you should read further. This article will show you how to start payroll for your business to guarantee that you are both legal and effective.
What is payroll for small businesses?
Payroll is the process of calculating employee pay, bonuses, allowances, and benefits to ensure that each person receives the compensation agreed to in their contract. When setting up payroll for small businesses, you must track hours worked, federal and state taxes, and various tax forms. You must also establish a payroll schedule so that your people know when to expect their wages or salary.
Can you do payroll yourself?
Yes. It is possible to do payroll yourself. No law requires you to hire an accountant to set up payroll for small businesses.
What do you need to start payroll?
There are several forms to gather, clarifications to establish, and decisions to make before you set up payroll for your small business. This includes the following.
1. Obtaining an Employer Identification Number (EIN)
An EIN, also known as an Employer Tax ID or Form SS-4, is necessary for you to report information about your employees to the IRS. It is how the agency recognizes and tracks all tax forms and information related to your company.
2. Knowing the difference between an employee and an independent contractor
You should be clear about which employees are in each category. It will determine how you pay unemployment insurance taxes and withhold income, Social Security, and Medicare taxes.
3. Having your people File W-4s
The people in your company who are employees must fill out a Federal Income Tax Withholding W-4. Each employee must complete the form and return it to you.
4. Deciding your pay period
Some states require bi-monthly payments. You should verify how it works in your state and then determine the dates you will pay your employees. The IRS requires that you withhold federal income tax for each pay period, even if you have employees who do not work during it.
What are the best ways to set up payroll?
If you are not interested in hiring an accountant, these are the two best ways to set up payroll for small businesses:
If you have previous experience setting up payroll for a small business or are savvy on the subject through study and preparation, you can take a DIY approach to pay your employees. You must be certain about your competence to handle such a task. Payroll mistakes can lead to aggrieved employees and high fines.
2. Payroll services provider
Working with a payroll services provider is another option. It is the one that most small business owners choose. Payroll tax software offered by providers such as Teamworks will calculate employee pay and taxes automatically and send your payroll tax filings to the IRS and your state tax department. The software will also help you keep track of hours worked and pay your people by direct deposit.
In discussing how to set up payroll for small businesses, we will explore both of these options.
How to start payroll for your business
Here are the steps to set up a payroll for your small business using the DIY approach:
Step 1: Sign up for an Employer Identification Number. This is like an SSN for your business, and it is used by the IRS to identify your company. You can apply for an EIN on the IRS website.
Step 2: You must have all your employees complete a W-4 Form. This document shows their filing status and tracks their personal allowances.
Step 3: You should then set up a calendar that includes employee pay dates, tax payment due dates, and tax filing deadlines.
Step 4: Determine which federal and state taxes to withhold from your employees by using the IRS Withholding Calculator. You must track employee and employer taxes for each month.
Step 5: You must submit federal, state, and local tax deposits each month. You must also send in your federal, state, and local tax returns each quarter. You will also be responsible for preparing annual filings and W-2s at the end of the year.
If you are using a payroll services provider to set up payroll for small businesses, you will still need to apply for an EIN and have your employees fill out W-4s. You should then do the following:
Step 1: Choose a provider that offers software that will handle your payroll taxes, filings, and new hire reporting.
Step 2: Any software you choose will require you to add your current employees’ year-to-date payroll information. You will need to enter their names, addresses, Social Security numbers, and tax withholding information.
Step 3: You will also need to track the hours worked by each employee and import them to the software.
Step 4: Follow the various prompts that lead you to the processing of payroll and the sending of vital tax information.
Step 5: Even with payroll software, you will still need to keep copies of your tax filings. This can usually be done through the software itself.
Next steps for establishing payroll for your small business
From here, you will need to decide how to best set up a payroll of your small business. You should not risk a DIY approach unless you are completely comfortable with the process. Working with a payroll services provider is usually the best option.
Teamworks offers world-class payroll tax software. Reach out to our team to schedule a free consultation.