Setting up a payroll system for your business is more than just crunching numbers. It involves everything from setting up your business as an employer to paying your workers, taxes and other applicable expenses. As a small business, you might have focused on setting up your products or services and sidelined important operational functions such as payroll operations. Fortunately, it’s easy to do. Here’s how to set up your payroll in a few easy steps.
Step 1: Set your business as an employer
After establishing your business and getting all the required licenses, the first step to setting up your payroll is meeting all the requirements that allow you to operate as an employer. This includes:
- Obtaining an employer identification number EIN from the IRS. You will use this in your business filings as a form of identification.
- Verify your state identification number is similar to your federal EIN. If not, you might have to apply for one.
- Enroll for an Electronic Federal Tax Payment System account.
- Open a bank account separate from your main business account dedicated to payroll transactions.
- Purchase workers’ compensation insurance.
Step 2: Set up your payroll process
Next, you should determine how you will run your payroll for each period. This includes figuring out what works for you and ensuring your HR team is well trained to handle the process smoothly. To set up your payroll schedule, factor in:
- Your pay schedule. Will you pay your employees weekly, bi-weekly, or monthly?
- Define the type of employees you have. As a business owner, you ought to decide if those you are hiring are to be treated as contractors or employees. If they are employees, are they full-timers or part-timers? Similarly, are they exempt or non-exempt?
- Track work hours. If you need to do this, how will you do it?
- Determine what benefits you are offering, such as health insurance. Who is paying for them? Are your employees chipping in or paying for them in full?
- How often will you need to pay your taxes? And which ones are you subject to? Find out the rates, so you know figure out much you should withhold.
- Figure out how you will calculate your payroll. Is it by hand, using a payroll program or hiring a payroll service?
- Finally, how will you pay your workers? By cutting checks, direct deposit, pay cards, or cash?
Lastly, make sure you collect important payroll documents when hiring new employees, such as W-4, W-9, and I-9 forms. Afterwards, collect timesheets and make your payroll calculations. As you pay, your employees don’t forget to pay your taxes and benefit providers. If you are in Denver, CO, contact us today and let’s set up your payroll system.