6 Steps to Setting Up Payroll for a Small Business

Are you taking the first steps to get your new business off the ground? Or, maybe you have launched a small business, and you are looking for solutions to grow the company. Regardless of the current size or age of your business, it’s critical that you establish systems to manage the financial details of your company. One of the most important things you can do is to set up a payroll system for a small business.

Payroll is a critical factor that affects employee satisfaction. When you have a reliable system for payroll management, then your employees feel confident knowing that they can always count on their paychecks coming through at the right time. On the other hand, inconsistency with payroll for a small business is one of the fastest ways to lose your staff members.

Setting up payroll for a small business for the first time can be an overwhelming experience – especially if you don’t have a financial background. Even with high-quality accounting software, payroll setup can be confusing and complicated. The best solution is to lean on the support of a reputable bookkeeping and accounting service. This way you don’t have to manage the details of a payroll system without tapping into support from a professional team.

If you are getting to attempt a DIY process for setting up payroll for a small business, make sure to follow these essential steps:

Step #1: Review Federal and State Employment Laws

One of the most challenging parts of payroll management is keeping up with the changing laws. These regulations are set on both a federal and state level, with some cities also implementing payroll rules that need to be followed.

As you are setting up payroll for a small business, you need to have a clear understanding of which rules apply to your business. For example, here is a quick overview of laws that might impact your payroll management:

  • Minimum wage laws
  • Family and Medical Leave Act
  • Overtime rules and limits
  • Employment tax rates
  • Tax payment timelines
  • Benefits administration

The laws vary depending on your location, as well as the size of your business. So, make sure you are thorough in researching the applicable information so you can stay in compliance with the payroll laws that affect your business.

Also, you need to know about the requirements for Federal withholding and reporting of these funds. These calculations are figured into the payroll processing system, so you don’t have to do manual calculations each week.

Step 2: Choose a Payroll Software

Gone are the days when you could pull out a checkbook to manually pay an employee. We live in a digital world, and it makes sense that you should leverage these online tools to support your business efforts.

Cloud-based accounting and bookkeeping software makes it easy to stay current with payroll processing and reports. Plus, you have the benefit of accessing this information from any location – even when you don’t have your computer with you. The simplicity of cloud-based payroll processing can’t be beat, which is why it makes sense for every small business to make this transition as soon as possible.

If you aren’t familiar with available payroll software programs, then your accountant can offer recommendations for the system that will match the needs of your business.

Step 3: Set Company Payroll Policies

Creating an employee handbook is an important step in communicating the right information to your team. This book of guidelines shares information about how payroll and benefits are managed. Not only is employee communication essential for creating a strong business relationship. But this information is also important to keep you protected against certain liabilities.

Be careful that the employee handbook doesn’t have language that indicates a contractual agreement between your business and your employees. Instead, share administrative information, such as the payroll schedule, benefits administration, and more.

Setting a payroll schedule is an important business policy that needs to be in place as soon as possible. For example, you need to decide how often employees will be paid, and how the payments will be administered. It is common for businesses to have bi-weekly, monthly, or bi-monthly payroll schedules. Decide on the frequency that works best for your needs and the needs of your employees as well.

Step 4: Get a Federal Employer Identification Number

Even if you are using your Social Security Number for tax filing purposes, you need to have an Employer Identification Number (EIN) to use on payroll forms and documents. As soon as you start your business, it’s a good idea to set up your EIN right away. This federal number will be used in a variety of ways over the years.

It’s simple to apply for an EIN if you don’t already have on. Just follow the instructions on the IRS website. Then, use this EIN for payroll paperwork and any other associated forms.

Step 5: Assign Responsibility for Payroll Administration

One of the most common reasons that payroll processing and other bookkeeping tasks slip through the cracks is because you don’t have a system in place that assigns the responsibility to a specific person. As the business owner, you will likely find it challenging to keep up with these requirements because you already have a long list of responsibilities you are juggling throughout the week.

Instead of trying to DIY with payroll for a small business, it’s smart to delegate this responsibility to someone you can trust. You might bring on an employee to help with payroll processing, financial tracking, invoicing, and other administrative tasks. Or, consider an outsourced accounting and bookkeeping service.

Outsourcing is usually much more affordable than bringing on an in-house bookkeeper. These costs are worth the investment when you see how much support you will receive from these necessary skills that are needed for your business.

Step 6: Organize Employee Paperwork

Hiring an employee requires a stack of forms and paperwork during the onboarding process. When you find the right candidate, then you need to be sure that you are sticking within the legal guidelines for federal and state employment laws.

Here is an overview of some of the hiring requirements that need to be followed for accurate, legal payroll processing:

  • Completed W4 Form: This form calculates the amount of federal withholding tax you need to take from each paycheck. The employee fills out their personal information, then you need to hold this W4 Form on file in case of an audit. This withholding amount can carry from one year to the next. If the employee puts “exempt” on the form, then you will need to have the employee fill out a new form at the beginning of each year.
  • Identification: Not only do you need to have the correct tax form filled out, but it is also your responsibility to ensure that the new employee is can work in the United States legally. Review Form I-9 and be proactive in following the rules regarding the acceptable forms of identification for employment. When you gather identification from new employees, take a photocopy of these documents and keep them on file.
  • Social Security Verification: You can be proactive to ensure the payroll calculations and reporting are accurate by verifying a person’s Social Security Number as soon as possible. The Social Security Administration offers a free checking service to help you avoid name and SSN mismatches.
  • New Hire Report: Most states have a requirement for a new hire report to be completed and submitted. Check your local state laws to know if this step needs to be included in your new-hire process.

Need Help Setting Up Payroll for a Small Business?

Going through the process of setting up payroll for a small business can be stressful. The good news is that you don’t have to do it all by yourself. Instead, look at the benefits of hiring a bookkeeping and accounting provider so you can outsource these important responsibilities to a professional team.

Once your payroll system is set up, it is a big step: a sign that you are on track to building the business of your dreams. The right payroll system should reduce your responsibilities because you have automated systems and skilled services to help you stay on track each month.

Additionally, outsourced payroll services give you access to a knowledgeable team if you ever have questions about payroll administration. It’s important that you know where to turn when questions come up along the way.

At Easier Accounting, our pro payroll team is here to assist with your business systems. We’ve been serving the industry for years, offering quality systems for setting up payroll for a small business. We invite you to reach out to schedule a consultation if you are interested in learning more about your business will benefit from these services. Not only can we help with payroll processing, but we also offer a range of other financial services, such as tax preparation, reporting, and more. Call us today: (888) 620-0770.

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