When you own a business, you are in charge of hiring employees. Top-notch employees can help streamline business processes, add innovative ideas, and grow your business. Before worrying about candidate sourcing strategies or hiring your first employee, you need to understand payroll.
Most business owners are experts in their industry, not payroll. Setting up and running payroll might seem overwhelming, but with extra hands helping to run your business, it will be worth it.
Read on to learn employer responsibilities, like how to set up payroll and withhold taxes from employee wages.
To hire employees, you need to set up payroll. Establish a system: do you want to do payroll by hand, use software, or hire an accountant?
Keeping business documents organized will make setting up payroll smoother. To set up payroll, you need company and new employee information.
Business information:
– Apply for an EIN (Employer Identification Number) from the IRS. The EIN is a nine-digit number that identifies your business. You need it to report taxes or send tax-related information to the government.
– Pay federal taxes by setting up an EFTPS account.
– Register with your state’s labor department. You need a new hire reporting account to report new employees. You might need state and/or local ID numbers. And get workers’ compensation insurance.
Employee information:
– Obtain information for each new employee, including name, address, and Social Security number.
– Collect tax information, like filing status and details on deductions and contributions.
– Have new employees fill out Form W-4 to determine federal income tax withholding.
– Have employees complete Form I-9 to confirm eligibility to work in the U.S.
Pay information:
– Determine pay rate and frequency. Will employees receive hourly wages or a salary? How often will you pay them?
– Implement an attendance management system to track employee hours, overtime, and paid time off.
– Determine if employees are exempt or nonexempt from overtime pay.
– Choose a payment type: checks, direct deposit, payroll cards, or cash.
To comply with the IRS when running payroll, familiarize yourself with withholding payroll taxes. Withhold federal income tax, state and local income tax (if applicable), and FICA tax.
Federal income tax:
– Withhold federal income tax based on the number of allowances an employee claims on Form W-4.
– Use the IRS’s Publication 15 to help calculate the amount to withhold.
– Some employees might be tax exempt. Their Form W-4 will indicate their exemption status.
State and local income taxes:
– Check with your state to determine if you need to withhold these taxes.
FICA tax:
– FICA tax includes Social Security and Medicare taxes. Both the employer and employee contribute.
– The FICA tax rates are subject to change annually.
– Ensure you withhold and contribute the correct percentages.
As an employer, you also need to pay federal and state unemployment taxes. These are not withheld from employee wages.
Deposit and report taxes according to the IRS’s schedule and forms.
After withholding taxes, file and remit them to the government tax agencies. Follow the depositing schedule and report taxes on the appropriate forms.
To streamline payroll, consider investing in payroll software that fits your business needs. Some systems will withhold, deposit, and file taxes. If you have questions, contact your local tax agency or refer to the IRS’s resources about employment taxes.
Setting up payroll can be manageable as long as you have a clear outline of what to do.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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