How to Set Up Payroll: A Quick Guide for Small Business Owners
Congratulations on starting a small business! Did you think the difficult process was over?
Now you need to learn how to set up payroll so you can make the correct deductions and pay your employees.
You wouldn’t want the IRS hunting you down would you? I didn’t think so. You also have to follow federal labor laws when you make decisions about payment methods and employment statutes.
Overwhelmed? Don’t be. This quick guide on how to set up your payroll will help you put everything in order so you can run your business smoothly.
1. Get Your Employees Information
The first thing you want to do is collect your employee’s tax and work authorization. Whether you’re hiring W-2 employees or independent contract workers make sure you know what data you need from each one. Sometimes the difference between positions isn’t very clear and it can affect how you withhold income taxes.
Independent contract workers, for example, are under what’s called a 1099 form instead of a W2. When you hire a 1099 contractor, you don’t need to pay payroll taxes or worker’s compensation.
Despite this flexible filing process, this employment has become more regulated. Make sure you’re up to date with government guidelines.
Back to Those Documents
Let’s say you’re hiring W-2 employees.
You will need to retrieve data from their W-4 which helps you determine what tax rate to use for the employee. The second most important document you need is a signed I-9 Form for work eligibility verification. You’ll have to collect this form within three days of the employee’s start date.
2. Calculate Employee Hours and Wages
Once you’ve gathered the information you need from your employees you need to determine their employee wages and pay frequency.
Questions to ask yourself include: Will your employee be exempt? Will you pay an employee a salary or hourly wages? Will they earn other wages, like tips or commissions?
A pay stub generator, for example, can facilitate calculation processes with no hidden fees. And lastly, pick a pay frequency that determines how often you will pay your employees.
3. Know Your Employee’s Gross Pay
After you collect an employee’s worksheet you’re ready to calculate gross pay. You have to multiply the hours worked by the employee’s hourly pay rate. If there was overtime add up the extra hours in the pay period and apply the overtime pay rate to those hours.
Overtime is always calculated at 1.5 times the regular rate of pay.
4. Don’t Forget About Deductions
Before sitting back and doing payroll remember to identify potential deductions you’ll have to make for each employee.
Some deductions include Social Security and Medicare, Tax Deductions based on employee tips and benefits you might offer. Calculating deductions can be taxing but once you complete them you can save time by uploading all paychecks and subtractions to online paystub platforms.
Not only do you save time, but it will be helpful for your employees to keep track of their earning. They’ll surely thank you for it!
5. Store Your Payroll Records
Setting up paystubs is easy. It’s one of the benefits that many of its digital platforms have. Additionally, go ahead and digitalize all your small business payroll documents too. These include pay stubs, time cards, or late payment information.
Make sure you find software that is secure. Payroll documents have confidential information like Social Security numbers. You don’t want those just laying around…
Know How To Set Up Payroll Now?
Here’s the bottom line. How to set up your payroll, juggling W2 forms, wage increases and time off is a lot, but once you organize yourself having the correct paperwork for each time you need it becomes habitual.
Have any more questions about getting your small business running? Clear your head and visit Small-bizsense.com