You launched a company and are ready to hire and set up payroll. Wow!

Growing is exciting but brings new obstacles. Terms like “company structure” and “EIN number” are entering your lexicon, and you may be experiencing some perplexing feelings that are the reverse of your joy. But don’t worry.

This blog breaks down the process of payroll set up into simple steps to help ease the worry. Let’s begin!

Steps to set up Payroll for a New Business

The steps below show how to set up payroll for a small business. You can’t make your first paycheck until all these steps are done. Although some of them take longer, most of the time, these tasks only need to be done once.

Remember: You will make mistakes, but making mistakes is one of the best ways to learn.

Step 1. Get an IRS EIN

The IRS and other regulatory authorities recognize your firm using its EIN. Due to income taxation, sole proprietorships and single-member LLCs don’t need EINs.

An EIN is a nine-digit number the IRS uses to trace a corporation for tax reasons, similar to a Social Security number for your business.

The good thing is that obtaining an EIN is completely free. You may apply for EIN number online or fill out Form SS-4 and mail or fax it to the IRS.

Step 2: Get a Local/State Business ID

State withholding number applications are similar to EIN applications.

Applying for a state company ID may seem excessive, but preventing payroll tax withholding and year-end tax form problems is more important.

Businesses are required to pay state unemployment taxes on behalf of their workers. In most states, you cannot use your normal state income tax number to apply for a state unemployment tax ID number.

Step 3: Gather Employee Information

Before you can add an employee to the payroll, you must have the following items:

• W-4: Personal data withholding certificate for employees, including name, address, social security number, dependents, and modifications. When you invite your staff, they may submit this information, but you must preserve a copy for your records.
• I-9: A form used in the United States to check job eligibility. Consequently, employees must have current Social Security numbers. You may also accept an ITIN instead of an SSN for employee identification or employment.

An ITIN begins with the number “9” and is structured similarly to an SSN. It is only accessible to residents and nonresidents who cannot work in the United States and need identification for other tax reasons.

• Contact information through email: Send an invitation to your workers to enter their personal information and have access to their pay stubs and W-2s online.
• Work address: The address where your employee works.
• Employee wage or pay rate, various pay kinds, and pay schedule (how often you’ll pay them)
• Direct deposit information includes the employee’s bank routing number and account number.

Three IRS Common Law Rules assist in establishing employment status. To classify employees correctly in your accounting system, ask these questions.

1. Classifying Employees

Employee and independent contractor payrolls vary. Independent contractors pay taxes, while employees have payroll taxes deducted. Misclassification may cause payroll tax arrears.

2. Behavior

Who sets job requirements?

You have employees if you manage work tasks and timetables. In contrast,  Independent contractors work without your supervision and control.

3. Financial

Who controls pay, including tool and supply costs?

Independent contractors provide their equipment. If you repay them for these fees, they must be paid as employees.

Form SS-8 helps you determine how to pay small company staff. Furthermore, an IRS professional analyzes this form to verify payroll setup is correct.

Step 4: Choose a Pay Schedule

Choosing a payment plan is next on the list. Small enterprises may customize their payroll schedules. The common payment plans are Bi-weekly, semi monthly, and monthly payment. To help you understand better, following is a brief overview of the plans:

• Weekly—52 payrolls each year.
• Bi-Weekly — You pay your staff 26 times a year.
• Semi Monthly — You pay your staff twice a month for 24 payrolls.
• Monthly – Twelve payrolls a year pay your staff.

Minimizing payrolls seems good, but monthly payrolls demand a lot of cash. Thus, you must pick a convenient payroll arrangement as an employer. Why?  Because running payroll weekly is time-consuming, and monthly is cash-intensive.

To pick the best option for yourself, check your cash flow cycle for consistent income. For instance, you may choose to set up payroll for the second week of the month if many of your clients pay on the first.

Step 5: Pick a Business Payroll System

Payroll software helps you to handle payments for your workers easily. As a result, you’d be able to easily maintain correct records, withhold payroll taxes, and set up direct transfers. Furthermore, your staff would be paid correctly and on schedule.

A suitable payroll solution enables employees to collaborate on the same platform. As a result, jobs previously handled by disparate teams are now more readily available.

Step 6: Payroll Processing

Payroll processing completes the company payroll setup.

For this, start by collecting employee hours. To compute employee hours, you must distinguish between overtime and PTO compensation.

Enter the hours worked into your payroll system for calculating paycheck or manually compute pay. Your employees’ payroll taxes will be withheld according to their withholding amounts, wage and hour requirements. And there you go! You are done!

First-time payroll may be difficult. You may also make mistakes on your first paycheck. But don’t worry about them. Your next payroll can fix most issues.

Remember! After submitting your first paycheck, you’re still responsible to pay taxes to federal, state, and local entities.

Bottom Line

Payroll setup and payroll management for a new business may be a difficult undertaking. There are several factors to consider, including which payroll system to employ, how often to run payroll, and which taxes to withhold.

Thus, if you are considering setting up payroll for your new firm, thoroughly assess the advantages and downsides. Payroll management systems may be a valuable tool for your company. However, it is critical to ensure that it is the proper match for your needs.

We are optimistic that after reading this blog, you have an idea about how to set up a payroll for your new business. We realize how difficult it may be to establish your own company. There is so much to consider and arrange that it may be difficult to know where to begin. This is where we step in.

GJM & Co. can assist you in setting up your firm for payroll by helping you understand payroll management systems. We will also walk you through the payroll management process, taxation policies, tax filings, and more.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.