Preparing your company payroll is important for many reasons – not the least of which is accurately compensating your employees. But you also have payroll taxes and compliance demands to keep up on.
You can’t rush these duties. They require acute attention to detail. Otherwise, the result can be incorrect paychecks, erroneous payroll taxes, and improper records procedures. If your paychecks are incorrect, you’ll have unhappy employees. Improper record-keeping or incorrect tax amounts, and you’ll see penalties from either the IRS or Department of Labor (DOL) – or both. It’s important to maintain compliance with labor laws.
Partnering with America’s Back Office means you don’t have to worry about miscalculations or penalties. Contact us today.
Establishing a Payroll Process
The payroll process you choose depends on many variables for which you must answer some questions. What will work best for your company? Why? What are your employees’ needs and what legal requirements must you adhere to?
Consider the following:
- What sort of payment schedule will you follow? Weekly? Every two weeks? Monthly?
- Do you have full- or part-time employees? Both? Are any tax-exempt? (Bonus tip: remember – contractors are not employees.
- Will you track work hours or have salaried employees? If work hours are trackable, how will employees report their hours?
- Do you offer benefits? Who pays for them? How will you manage this for payroll deductions?
- When will you need to pay your payroll taxes? Which ones do you have to pay?
- How will you calculate payroll? How will you process it? In Excel, with a calculator, a payroll software program, or a payroll processing service?
- Will you have payroll checks printed or pay employees via direct deposit? Will you offer both?
10 Easy Steps to Set Up Your Payroll Process
It doesn’t matter how many employees you have, it’s imperative that you set up a payroll process that keeps you on top of your responsibilities.
These 10 steps can help:
1) Get your EIN.
You get your EIN, or employer identification number, from the IRS. This number establishes that you’re an employer and that you plan to have employees for which you’ll provide compensation. You’ll need this number when reporting payroll taxes to the IRS or when state agencies request information regarding your employees. You can get this number online or by calling the IRS at 1.800.829.4933.
2) See if you need a state or local employer identification number.
Depending on where you operate your business, you may need a state, city, or municipal tax ID for your business. This helps states and cities assess the correct business tax to your company for business conducted in that state or city.
3) Discern whether you have independent contractors, employees, or a mix of both.
It’s important that you understand the difference between these two types of workers. The line dividing these workers isn’t always clear between different cities and states or types of work performed. But the difference is huge when it comes to things such as income tax withholding and unemployment taxes.
Worried about understanding all the legal ramifications of handling payroll on your own? Contact America’s Back Office for payroll processing services.
4) Get employee paperwork in order.
Anytime you hire a new employee, they must completely and correctly fill out a W-4 form. The information they provide you on this form ensures you’re withholding the right amount of income tax each pay period.
5) Choose a pay period structure.
Speaking of pay periods, if you haven’t yet chosen how often you’ll pay your employees, now’s the time. Depending on where you live, there may be a state law that determines pay periods – many states favor bi-monthly pay periods, such as the 1st and 15th.
6) Document terms of employee compensation.
When you’re setting up payroll, it’s important to also document other items related to employee compensation, such as:
- Paid time off
- Employee hour tracking
- Overtime
- Healthcare insurance premiums
- Retirement contributions
Each of these employee benefits will need to be added or deducted from your employees’ paychecks each pay period and remitted to the appropriate organization.
7) Choose a payroll system.
While you might have had an accounting class in college, your knowledge may not suffice for payroll processing purposes. Payroll requires acute detail. Choosing the system that works best for your company is important. You might opt for an in-house solution or to outsource payroll to a trusted provider. Regardless of your choice, you personally are still responsible for reporting – and making payment – of payroll taxes.
8) Run payroll.
After you have all the forms from employees and all the above in order, you can run your first payroll.
9) Get great at record-keeping.
Federal law requires that you hold onto certain employment- and business-related documents for a certain amount of time. Some state laws also require this. For instance, federally, you must keep on file all W-4s for all employees currently working and retain these records for three years once an employee ceases to work for you. Other documents necessary to retain include:
- W-2s
- Filed tax form copies
- Date and amount of all tax payments
10) Report all payroll taxes.
You must submit various payroll tax reports to the requisite authorities, either quarterly or annually. For federal payroll taxes, visit the IRS website’s Employer Tax Guide. You can find your state-specific information by visiting your state’s tax agency website.
How America’s Back Office Can Help
We know – it’s a lot to take in and a lot to handle. The good news is you don’t have to do it all on your own. While you’ll still be responsible for your payments, America’s Back Office offers payroll processing services to take the bulk of this enormous responsibility off your shoulders. Contact us today to see how we can help your business grow.
