Congratulations! You started a new business and are ready to hire some employees. But could this be just the beginning of your headache? Many people struggle when setting up payroll for their new business and think the process is too daunting.
However, it doesn’t have to be an impossible task. And the good thing about setting up payroll yourself is that it will cost less, which you will appreciate as you might have already spent a lot of money starting your new business.
This post is an easy and effective step-by-step guide for setting up payroll for a new business in order to avoid mistakes and make this process easier for you. Let’s dive in.
How to Set Up Payroll for a New Business
- Register with relevant authorities
When setting up payroll for a new business, the first step is to obtain a Federal Employer Identification Number (FEIN) from the IRS. After registering with the IRS, your company will be granted a FEIN.
What is the significance of this nine-digit number?
A FEIN is a mandatory field for any federal tax remittances, filings, and your workers’ personal tax payments.
Next, you must register with local state authorities as well. This, however, depends on where your business is situated and where your employees reside in order to make payments and submit taxes with the state. You only must register with the state department or departments if your workers reside and work in the same state.
In general, your state will be concerned with two sorts of taxes: withholding taxes from employees and taxes that employers are required to pay. A single or two agencies may collect these taxes.
Your company will be assigned a unique account number by each agency. You’ll need this number, much like your FEIN, to pay and submit state taxes.
If your firm meets the state unemployment taxes criteria, you’ll also be awarded an SUI rate. SUI stands for “state unemployment insurance,” which is paid for each employee by the company.
- Register in states where your employees live
As a general rule, the amount of state income tax owed by an employee is determined by the state in which the individual resides.
The unemployment tax is determined by the location of your employee’s job. There are several exceptions to the above, as well as “fun” state reciprocity agreements that might lead to payroll confusion.
If you have any queries or require verification of whom you need to register with, contact the state agencies directly. If you have any employees that work from home, this implies they work and live in the same state; thus, you’ll have to register in that state as well.
Gusto is an excellent choice for business owners with workers in different states looking for a way to manage federal tax payments, time tracking, health benefits, and more. Gusto price plans are varied and can accommodate both small and large companies.
- Do the paperwork
It’s a big move to hire your first employee. Not only is your company progressing, but you’re also assisting someone in earning a living.
So congratulate yourself! Now let’s go back to work.
When setting up payroll for each employee of your new business, there is a lot of paperwork to do.
For instance, you need to collect employee information and request them to fill out Form W-4 (W-9 for independent contractors) and Form I-9, which allow you to withhold the correct tax amounts from their paychecks and verify their eligibility to work in the US, respectively.
Submitting this paperwork is mandatory in order to comply with local and federal labor regulations.
- Create a pay schedule
Will you have a single payment plan for all employees, or will you have several pay schedules for different classes of employees (such as salaried vs. hourly)?
When setting up payroll for a new business, you must keep in mind that the frequency with which workers must be paid varies by state. The following are the most popular pay schedules:
- Employees are paid weekly on the same day each week, with 52 paydays in a year.
- Employees are paid on the same day every second week in this plan, which is one of the most common. This method yields 26 paydays each year.
- Employees get paid twice every month under this plan, giving them a total of 24 paydays each year. The 1st and 15th of each month are common paydays.
- Monthly: In this plan, each employee is paid on the same day each month and is often designated for higher incomes or salaried staff who don’t require more frequent checks. Because there are 12 months in a year, your staff will receive 12 paychecks annually.
- Decide the payment mode and method
Don’t put off deciding how you’re going to pay your employees until the first paycheck. You have a lot of options as an employer when it comes to setting up employee payments. Some of these are:
- You can handwrite paychecks or utilize payroll software programs, such as Netchex, to self-print or purchase printed checks, which is a tried and proven old-school technique for handling payroll. Consider the possibility of an employee losing their check, the time it takes for the employee to deposit the check, and the time it takes to prepare the checks themselves.
- Direct deposit: Among the most common means of payment, a direct deposit has a number of advantages. Employees may avoid the inconvenience of posting a check, and you can save time that way by paying them remotely. If you utilize a payroll software solution, inquire about how you might save time & expense by using direct deposit.
- Pay cards: Prepaid debit cards are a simple alternative to direct deposit for employees who do not have bank accounts. Employers may virtually fill the card’s balance with each payment, allowing employees to utilize the cards right away. However, keep in mind the danger of lost or stolen cards, as well as any associated costs for ATM transactions.
- Cash: If nothing else works for you, the good ‘old method of paying salaries by cash is always there!
And there you have it; an easy and effective guide to set up payroll for your new business. As you can see, it is not difficult to do it yourself, especially if you have the right payroll management solutions.
So, if you started a new company or are thinking of starting one and were worried about the processes of paying your employees and remitting taxes, you can use the above steps to set up payroll for your new business.
This is a contributed post.
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