As a small business owner, you already have more than enough on your plate. Handling all the moving parts to get your business off the ground is already more than a full time job. But if you let certain things slip through the cracks, you could pay a steep price for it later. Payroll is one of those important functions that can not be overlooked as you get started.
Establishing a payroll system on your own can be confusing, but the basic steps are laid out below. Every small business is different, and so each business’s payroll needs will be slightly different. Be sure to consult with a professional who is familiar with the details of your company to ensure you are properly set up. This will save you many headaches later down the line.
The first place to look is the US Department of Labor website. Make sure you are viewing the laws implemented in your specific state. There are a variety of local and state laws that come into play that must be followed to avoid fines and penalties. These include:
- Minimum Wages and Hours
- Workplace Safety and Health
- Equal Opportunity
- Employee Benefit Security
- Family and Medical Leave
The next step is to set up your payroll schedule. Many businesses have weekly, biweekly, or semi-monthly payroll procedures. For your payroll, decide what schedule works best for your company, keeping in mind that some states impose a minimum payroll schedule frequency. When deciding how much you want to pay your workers, keep cash-flow in mind–beyond the money you must pay your workers, you will also need money to run the business. There are strict laws on paying workers on time, and while the payroll schedule can be adjusted, you should not do it too often. Constantly changing payroll schedules can disrupt your cash flow.
Once you have established your payroll schedule, the next step is to establish policies for your employees. The easiest way to do this is with an employee handbook. This will ensure that everything between you and your employees is as clear as possible. You should have an attorney who specializes in employment law in your state to review or write your handbook. If you are struggling with where to begin there are a number of resources available online that can help you assemble an employee handbook.
The next step is to to Apply for Your Federal Employer Identification Number (FEIN or EIN)
For tax reporting purposes, many sole proprietors use their Social Security number. However, it is best to use a federal employer identification number, or FEIN or EIN, for employment purposes, this is also known as your tax ID number. Your EIN is the number you will use on all business tax filings and forms once obtained. For this reason, as soon as they start their companies, many accounting professionals strongly urge business owners to get an EIN. If you don’t already have one, it’s easy to obtain an EIN. Simply go to the IRS website, and you can apply online and get your EIN immediately.
Before you leave the IRS website you should download Publication 15, it contains all the information you will need to know in order to comply with federal withholding and reporting requirements. These laws on withholding and unemployment insurance accounts can vary from state to state, so make sure you are viewing your state laws. There are many websites where you can find information pertaining to your employment situation for your tax commissions and unemployment security commission. However, these websites can be difficult to navigate, so it is best to consult with your accountant or employment lawyer regarding the laws pertaining to your state.
Next you would like to enter your payroll schedule and tax filing due dates into your work calendar. When organizing your calendar, keep in mind that state deadlines might differ from federal due dates, make sure you inserted all the important deadlines correctly into your calendar, and that you applied for your FEIN, state withholding, and unemployment insurance accounts.
Following you will decide on who will administer your payroll. Some businesses choose to handle their payroll in house while others use a service provider. There are advantages and disadvantages to both choices.
In house payroll gives you a little more leeway when it comes to processing your payroll. When working with a payroll service provider they typically demand lead time of three to five days, if payroll information is not submitted by its deadline a rush fee will be charged. Payroll service providers also take full responsibility for the timely reporting of tax payments and returns, this typically appeals to busy owners of small businesses.
In choosing to proceed with a payroll service you may be thinking “well that was a waste of time”, most payroll software programs ensure that all these steps get done and go smoothly. However, in our experience, where the company owner has no input in the process, payroll for small companies, is at times set up incorrectly. Working closely with a payroll service provider by using payroll software will streamline the ongoing payroll process, but knowing the standards and laws as they pertain to your employees is still crucial for you.
At PMF we work with ADP (Automatic Data Processing) to help provide you with best payroll software that will help enhance the efficiency in your business payroll system.
And finally, now that you have your payroll set up in place it is time to hire your first employee. After hiring the perfectly suited candidate for your business, collect their information in order to have them properly set up in your system.
It is a big move for your small company to set up a payroll for your first workers. This achievement means that your company is one step closer to operating independently. Employees enable small business owners and their businesses to grow, rather than relying on themselves to do all the work. This allows the business owner to really build the company, and focus on the growth of his business. The payroll system of a small business can do the same: take busy work off the hands of a small business owner so that they can strategize and expand their organization.
Once you’ve completed this thorough payroll setup you can move forward with growing your business with full confidence that your payroll will be properly taken care of.