5 Easy Steps to Managing your Payroll
As your business grows, you may find you need to hire your first employees. While this is an exciting step for any business owner, it is important to ensure you take the right steps when setting up and managing employee payroll. Read on for 5 easy steps for managing employee payroll!
Photo by Priscilla Du Preez on Unsplash
1. Consult with payroll professionals and register as an employer
As a business owner, you most likely have an accountant or other business mentor who can advise you when you make business decisions. In fact, the IRS has many resources for business owners to help you understand and manage payroll as well as other record keeping facets. Your accountant or tax preparation specialist can also help you prepare for hiring employees. At Practical Accounting Solutions, we offer stress-free payroll services, contact us today! Your accountant can help you choose an online software if you opt to manage payroll yourself, help you establish or change tax accounts, and explain how to make payroll tax deposits specifically for your state. Practical Accounting Solutions is also offering a 3 week workshop "Finance Fundamentals for Your Small Business" this May where we will cover all these basics! Click HERE to get your tickets.
Be sure to get your Employer ID Number. This is like a Social Security Number unique to your business. You can fill this form out online HERE, but be sure to contact your lawyer or accountant if you have specific questions. You'll also need to register as an employer with your state and with the IRS for Payroll Taxes. The IRS uses the Electronic Federal Tax Payment System (EFTPS for short) to make paying payroll taxes and filing reports easy and convenient. Also look into signing up for Worker's Compensation and Unemployment insurance. Be sure to shop around and find the best insurance that fits your business!
2. collect the correct paperwork
The next step is to make some decisions about your prospective employees and ensure you collect the correct paperwork. Here are common questions to ask yourself:
Will your employees be paid hourly, salaried, or will you have a mixture of hourly and salaried employees?
What type of pay schedule will you keep? Weekly? Biweekly? Monthly?
How and when will you pay for overtime?
How should hourly employees keep track of their hours?
Is there paid time off for employees? While this isn't a legal requirement, many salaried employees have a number of paid time off days for vacation, sickness, or personal days.
Will you offer any fringe benefits or commission?
Depending on what answers you have to the above questions, you will need to ensure your employees fill out the right forms including:
Form W-4 for Federal Income Tax Withholding: This form includes marital status, number of dependents, and additional withholding amounts. All new employees must fill out this form, and you should keep the most recent version of it in your records.
Form 1-9: This form documents the employee's identity and work eligibility in the United States. All new employees must fill out this form, and you should keep this form in your files indefinitely.
Form W-2: This form is for salaried and hourly employees. At the end of the year, you will report the employee's annual earnings.
Form 1099: This form is for contractual employees.
Employment Agreement: This is a contract you have with your employee stating their expected duties and responsibilities, business practices, compensation plan, and benefits plan. This contract also protects you and acts as a reference too should there be questions or conflicts at a later time.
Employee Handbook: If you have several employees, you should create an employee handbook outlining policies and procedures of your business. Every employee should receive a copy of this handbook and ensure they've read and understood it. This is another protective measure for you as the business owner should any conflicts or questions arise.
As an employer, you are now responsible for knowing the legal requirements of hiring employees. Be sure to do your research and understand what is required of you in terms of labor laws and practices. This is also something you can consult with your lawyer or payroll specialist about.
3. setting up your accounts
As a business owner, you know the importance of keeping organized, especially with finances. To set up direct deposit, contact your local bank to see how their system works, as they can vary by bank. Also be sure to get direct deposit information from your employees; specifically, you'll need to know their checking account number and routing number. Some software payroll systems allow you to input their information and it will link your service to the bank.
It is also wise to set up a separate payroll bank account. This account would be utilized entirely for payroll and employee-related taxes. This can help you keep these transactions separate from your general business bank account.
4. Paying Your employees
Once you have employees, you'll need to ensure you pay them correctly. First, calculate gross pay; this is based on the amount you owe your employee based on hours and rate or the total pay period for salaried employees. Next you'll calculate withholding and deductions. This will include federal, state and local withholding as well as FICA taxes. Next, you write paychecks or send paychecks via direct deposit to be distributed to your employers. Lastly, you will need to total all employee gross pay, withholding, taxes and other deductions for your payroll tax deposits and reports.
5. Payroll Tax Deposits
The size of your payroll will determine how often you make payroll tax deposits toe the IRS. These will include the amounts witheld from employee paychecks and federal/state income taxes, amounts deducted from employees for Social Security and Medicare, and the amount you owe for Social Security and Medicare. Today, you can make your payroll tax deposits easily with the IRS Electronic Federal Tax Payment System (EFTPS).
This may seem like a complicated process, but the biggest challenge is ensuring you have the right paperwork and staying on top of your payroll tax deposits. If you have more questions, please contact us at Practical Accounting Solutions! Our affordable payroll services allow you to focus on your business while we handle your employee payroll and more!
We are proud to announce a three-week workshop in may called "finance Fundamentals for your Small Business" presented by Practical Accounting Solutions! Click Here for more information!
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