Want to set up a payroll system but aren’t sure where to start? The Small Business Association offers some advice in the form of 10 steps to set up a payroll system. Check out an abbreviated summary of the recommended steps below or read the full article on the SBA website.
- Obtain an Employer Identification Number (if you don’t already have one). You’ll need to use this number on tax forms and when reporting information about employees to the IRS.
- Obtain any required state/local IDs. Some, but not all, states require ID numbers to process taxes.
- Know the difference between employees and independent contractors. How you withhold and pay taxes will differ depending on which category your workers belong to.
- Be sure all employees fill out a W-4. This form will tell you how much federal income tax to withhold.
- Establish the length of your pay periods. Some states have requirements concerning this so be sure to review relevant state law.
- Carefully document employee compensation terms. You’ll want to consider how you’ll handle all aspects of compensation, including paid time off, overtime, and other deductions such as health plan premiums and retirement contributions.
- Choose a payroll system. Whether you keep the actual administration of your payroll in house or you hire someone to provide payroll services, remember that you, as the employer, are responsible for ensuring that all payroll taxes are accurately paid and reported.
- Now you are ready to process your payroll!
- Keep good records. Once you have your payroll system in place, make sure that you are keeping all required tax records, including W-4s for all current employees and for terminated employees for three years, as well as W-2s, copies of filed tax forms, and records of all tax deposits.
- Submit required payroll tax reports. Keep yourself informed about which reports need to be submitted and on what time frame.
Because payroll administration requires ongoing oversight and familiarity with current law, many small businesses choose to delegate this function of their business. If you are interested in finding out about how a payroll provider can handle the details for you, call Teresa Ray from The Payroll Department at (317) 852-2568.
-Jennifer of The Payroll Department Blog Team