Timely payment is what attracts the workers and sounds professional in a company. And also maintenance of a record of each employee in the company is a must. For which, setting up a payroll system is a necessity that not only streamlines your ability to stay on top of your legal and regulatory responsibilities of the company and employer, but it can also save you time and help protect you from incurring costly Internal Revenue Service (IRS) penalties.
Below is the step by step process of setting up a payroll system for your company:
Obtain an Employer Identification Number (EIN)
Every employer must have an identification number which is necessary for reporting taxed and other documents to the IRD. It is also equally important while reporting any information about your employees to state agencies. So make sure, before hiring any employees in your company, get an employer identification number (EIN) from the IRS. Also, check if you need to obtain ID numbers in order to process taxes.
Employee Paperwork
Making sure your employee fill the paperwork is a very important step. There are many procedures and one among which is filing Federal Income Tax Withholding Form W-4. Your employee must complete the form and return it to you so that you can withhold the correct federal income tax from their pay.
Pay Period
A company should maintain a constant pay period among all employees. Setting up a pay period whether monthly or bi-monthly should be well informed to the employees. The IRS also expects the company to withhold income tax for that time period even if your employee does not work the full period.
Documenting Employee Compensation Terms
Every company will have set the number of working hours. Based on the number of hours worked, the pay will be provided. Some company also value employee overtime and other business variables which help them to pay accordingly. Don’t forget to mention the paid leaves that can be taken in a month and how much will be deducted if one exceeds that.
Choosing a Payroll System
One of the most important tasks that need proper research on before opting one. Do consult fellow business owners and get an of which method they use. Usually, payroll is managed using in-house or outsourced options. Anyway, you can also try a new payroll system if you find it appropriate for your company and the employees. You can start running payroll once you have all your forms and information collated.
Get Record Keeping Savvy
Federal and some state laws require that employers keep certain records for specified periods of time. The tax form filled by all employees in the company must be safely maintained for all the current employees and also after three years of an employee getting terminated.
Report Payroll Taxes
Submitting a report on payroll tax is a must to appropriate authorities either on a quarterly or annual basis. Clear guidelines are provided by IRS Employer’s Tax on all federal tax filing requirements. Visit your state tax agency for specific tax filing requirements for employers.
Finding it difficult to follow all the steps? You can approach Payroll services which remove the burden of running company payroll in-house altogether. It is a service that simplifies the process for you and calculates payroll, pays employees, files payroll taxes and keeps up with IRS changes.
