Setting Up Payroll For Your Business
People want to get paid for their work. If you're going to run a business, you need to think about your payroll process. Here's how to set it up in 5 steps.
Nobody works for free, so being able to pay people is kind of important for a business. Before you can pay your employees anything, you need to set up a payroll system. This isn’t just a matter of tracking and scheduling, however; there is a process you need to follow. There’s red tape to everything and paying people is no different. So, before you ever start signing those checks, there are some steps you need to follow. We talked with Stapley Accounting, a financial firm in Cache Valley, to get the details. Here’s what they told us.
The 5 Steps to Setting Up Your Business’s Payroll
1. Employer Identification Number
Before you can even hire employees, you need to get an Employer Identification Number (EIN). This number is used by the IRS to track your business for tax purposes. You will also need to use it for business filings to identify your company. Fortunately, getting a federal EIN is free and easy enough to do. You just need to apply for one with the IRS.
Check with a local accountant or attorney, because you may also need to get a state EIN as well. This will be used to identify you for state taxes. You may also be required to register with the state for withholding and unemployment insurance accounts.
2. Determine the Payroll Schedule
A payment schedule is very important. Just as important as how much people get paid is how regularly they get paid. People aren’t going to want to work for you if they can’t reliably plan around their paycheck. You can pick just about any schedule you like as long as it’s consistent and meets your state’s requirements for minimum payments. You can confirm this with an attorney or your state’s Department of Labor.
Once you’ve confirmed the state requirements, set your schedule as best suits your cash flow. Biweekly is the most common pay schedule, but you can also go weekly, semimonthly or monthly. Whatever schedule you set up, the important thing is sticking to it.
3. Create an Employee Handbook
It’s not just a good idea to provide employees with an explanation of your company’s policies, it’s a legal requirement. The best way to do this is to provide an employee handbook. This handbook will include all the rules your employees have to follow while working for the company so they know what’s expected of them. It should also contain the policies on paid time off, overtime, and any forms of mandatory leave. It must also, by law, contain an explanation of their legal rights.
While what goes into each handbook will be unique to your business, there are plenty of helpful (and free) resources you can look to for advice.
4. Select a Payroll System and Manager
For the business, this is the most important step. Do you handle the payroll yourself, or hire someone to manage it for you? What payroll accounting software will you use? If you hire a manager, will they be hired directly for your company, or will you hire a third party company to manage it? How you go about this will depend on how you wish to run your business and how much you think you can personally handle. It’s tempting to try and save money by overseeing it personally, but if you aren’t good with money, or aren’t able to adapt if your company experiences rapid growth, it’s probably better to hire someone.
Hiring a manager directly has the advantage of a dedicated employee working for your company. You have their undivided attention for the work. On the other hand, you will have to train them, pay them, and handle all the relevant tax work for them as a regular employee. On the other hand, hiring a third party company eliminates a lot of those extra steps, as the company you hire does all of that and you simply pay the company when they ask for it. There are benefits and drawbacks to each of these ways, so make sure you pick the option that best fits your company.
5. Get Your Employees to Fill Out the Paperwork
The final step in the payroll process is having your newly hired employees fill out the paperwork. The two forms every employee must fill are the W-4 and the I-9. The W-4 gives you the information you need to withhold the correct tax amounts. If your employee is an independent contractor, you don’t withhold taxes and instead have them fill out the W-9. The I-4 is used to verify that they are eligible to work in the US. You will also need to verify their name and social security number with the Social Security Administration.
Employees Vs. Independent Contractors
While you may mostly be concerned with getting the work done, who and how makes a difference. Are the people working for you employees or independent contractors? Both have different forms of paperwork to fill out and have different responsibilities to your business. The IRS has a guide to determining which is which. You can also file a form to ask the IRS to classify them for you if you’re unsure.
Managing Payroll for Multiple Businesses.
Sometimes, you end up owning multiple businesses. There are various reasons this might happen. Perhaps you just want to expand. Maybe you need to start an additional business to supplement your first one because no other businesses around do it, but the services or goods aren’t related in a clear and marketable way. A bait and ship repair shop might have a logical connection, but it’s going to be weird to customers.
In this case, one possible way to manage payroll for everyone is to create a payroll company to manage all of your businesses. For this, you’re essentially creating an umbrella company that all your other companies work for.
Especially if your employees will work for multiple companies. This can be very convenient to manage payroll and save some hassle. It’s a bit convoluted to set up at first, but it can be a time-saver. In the end, instead of needing to manage multiple companies separately, you just have one company manage the payroll of all of them.
Get Your People Paid
Getting paid is what it’s all about for most people. Sure, we talk about doing what we love, but we’ll stop loving it if the pay isn’t meeting our needs. Following these basic steps will get you everything you need to start your business and make sure that all your employees get paid. You’ll be clear with the IRS and your employees will have a consistent, reliable schedule for their paychecks.
The rest is up to you, your business sense, the market, and, if all else fails, Lady Luck.