New Business: What to Know about Setting up a Payroll System

As a new entrepreneur, you know there are many aspects of getting up and running you just don’t know much about. From licensing, to renting office space, it can be hard to know where to start. Setting up a basic payroll system for your business can be a little daunting as well, and there are many systems and ways to go about it. The following are five areas of concern you will want to address for a solid, functioning payroll system for your business.

Obtain an EIN for Your Business

It doesn’t really matter how many employees you plan on hiring to work for you. What does matter is that you have already acquired an EIN for your business. An EIN, otherwise referred to as an Employer Identification Number, is an essential component to handling your business's payroll and tax filing procedures. You will need to determine if your region requires your business to obtain the ID numbers for your employees for proper tax filing purposes. Most businesses file their employee tax forms quarterly which helps to keep everything on a fairly consistent and predictable schedule.

Employees and Withholdings

In general, an employee will fill out a W4 form, which will be used as the basis for determining the amount withheld from an employee’s check for tax reasons. It is critical to note this does not hold for the situation where a person working for you is a contract employee. It is also important to be aware that your payroll system accounts for these differences in employment status to ensure that you are paying and withholding from everyone correctly.

Establishing a Payment Period

Whether you have fifty employees or just two, they will want to know when they can expect to be paid. Some companies pay once a week, and others bimonthly. It is important to know about any legal requirements on establishing an employee payment period for your state or local area. Developing a payment period structure in line with state and local regulations is the best course for avoiding any legal problems down the road.

Payment Methods

Think carefully about the type of payroll system you want to use. There are many options for outsourcing. Talk to fellow business owners what methods they use and what programs or systems have worked well for them. New software programs are always being updated and improved, so research which have the best track record and will keep your business up to date. If you don’t want to use a third party, having a payroll system in house is also a good option for small businesses.

Who Will Manage Your Payroll System

Generally, it is fairly easy for a small business to assign someone over the process of managing the payroll accounts. An employee sufficiently grounded in accounting and has an online masters degree in accounting should be able to keep all the payroll records straight and make sure everyone is getting paid on time. Alternatively, you can also do the work yourself provided you abide by all state, local and any federal regulations and tax code requirements.

A properly functioning payroll system works when there is attention to detail. Attentive record keeping, making proper withholdings, and timely tax form filings will inevitably keep problems at a minimum. The last thing your business wants is an employee or the IRS breathing down its neck because of an easily avoidable mistake. With careful planning, your properly designed payroll system will serve your employees and your business for years to come.

About the author

Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information, contact Brooke via Facebook at facebook.com/brooke.chaplan or Twitter @BrookeChaplan

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