As a small business owner there are certain responsibilities you take on when hiring employees. Understanding these responsibilities can help you avoid penalties and ensure you comply with the law. Whether you have one or 50 employees, setting up a payroll system helps you save time and meet your responsibilities. Here are the steps to payroll set-up:
- Obtain an Employer Identification Number. Before hiring employees, you need an employment identification number (EIN), also known as the Employer Tax ID. It is needed to report taxes and other information about your employees. To apply for an EIN go online or contact the IRS directly.
- Obtain State/Local IDs if Applicable. Some state/local governments require businesses to obtain state/local ID numbers in order to process taxes.
- Independent Contractor or Employee? This classification affects how you withhold/pay income taxes, Social Security and Medicare, and unemployment thus, it is important to be clear on the distinction between independent contractors and employees.
- Employee Paperwork.New employees must complete the W-4 form and return it to you so that you can withhold the correct federal income tax from their pay. You must also make sure to verify each employee’s legal status by filling out an I-9 form.
- Set a Pay Period.Pay periods are sometimes determined by state law – most favoring at least semi-monthly
- Carefully Document Your Employee Compensation Terms.As you set up payroll, you’ll also want to determine other business variables such as time off or overtime. Some of these variables are not legally required but are usually offered.
- Choosing a Payroll System.Payroll administration requires accuracy, but rest assured that you do have options ranging from buying payroll software to hiring an accountant to outsourcing to a payroll provider. However, regardless of your decision, you — as the employer — are responsible for making sure reporting and paying of all payroll taxes is complete. Affordable Bookkeeping and Payroll Services provides great payroll options to help you in this area. Contact us at (310) 534-5577, [email protected] or visit our website at affordablebookkeepingandpayroll.com.
- Running Payroll.Once you have compiled all the necessary forms and information, you can start running payroll. If you have chosen to do your own payroll, you’ll now enter the information yourself. Otherwise, you will send it to us via email or fax at (310) 534-5598.
- Record Keeping.Federal and some state laws require that employers keep certain records for specified periods of time. For example, W-4s must be kept on file for all active employees and for three years after an employee is terminated.
- Reporting Payroll Taxes.There are several payroll tax reports you are required to submit to the appropriate authorities on either a quarterly or annual basis. You must make sure to report earnings and withholdings of each employee as well as the total withholding amounts to the appropriate tax agencies. If you need help computing these you may want to consider hiring us to take care of you payroll.
