Putting a payroll system in place for your small business is one of the most critical tasks. Before you hire an employee, you need to have things in place, such as an Employee Identification Number (EIN) and an employee handbook. Once you cover these bases, you can set up a payroll system. Ideally, hiring a professional is best to ensure you’re setting up your payroll based on industry requirements and state laws. While this may seem overwhelming, all it takes is seven steps, which we’ll share with you.
Get an EIN
An EIN or federal EIN is a number that the IRS gives businesses for tax administration purposes. You’ll use the EIN in your business filings so that the IRS can identify your small business. It’s free and quick to get an EIN; you can apply for it by visiting the IRS website.
Research Your State’s Business Requirements
After receiving your EIN, you might have to register your business in your state and obtain a state ID number. You’ll use this number when paying state employment and income taxes. Only nine states don’t have income taxes, which include the following:
- South Dakota
Check if your state needs an ID using the Small Business Administration’s state-by-state resource. During this time, it’s also best to check with your accountant or attorney to see whether you must apply for state withholding and unemployment insurance accounts.
Determine if Your Business Needs Independent Contractors or Employees
You’ll have to decide if the people you’re hiring will be contractors or employees to ensure you file the appropriate paperwork and withhold taxes for any employees.
The IRS provides a guide that will help you classify your team as independent contractors or employees. If you’re unsure which one to choose, you can file a form and allow the IRS to make this choice.
Decide When You’ll Pay Employees
It’s common for employers to pay employees biweekly. However, depending on your business and industry, weekly, semimonthly, or even monthly might be the better option. It also depends on your business’s cash flow. Each state also has requirements about how often employees should receive pay, which you can look at here.
Set Up Time-Off Policies
You can set up time-off policies in an employee handbook. Your employee should be unique to your business. However, many online resources can help you shape them. You’ll want to include how your small business manages paid time off, overtime, and other company policies and processes.
Select a Payroll System and Who Will Manage It
This step is essential. You’ll have to decide if you’ll run payroll with payroll software or hire a company like ours to do it for you. Payroll software allows you to automate payroll entries, file quarterly tax forms, and stay compliant with state and federal laws.
However, you’d still have to think about if you want to manage this system yourself or hire professionals to take care of this for you. If your business grows exponentially, it might be easier to hire a third party.
Ensure Your Employees or Contractors Complete the Appropriate Paperwork
After these steps, you can officially hire your first employee. The two forms that every new employee has to complete are the W-4 and the I-9.
- W-4: Gives the information you need to withhold the right tax amounts from your employees’ paychecks
- W-9: For independent contractors, but you don’t have to withhold taxes
- I-9: Verifies that the employee is eligible to work in the U.S.
Contact Malden Solutions today if you’d like to learn about the benefits of outsourced payroll services.
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Malden Solutions has a wealth of expertise in providing employer insurance solutions, HR solutions, and individual insurance solutions to businesses both big and small. Our team of seasoned professionals can help you navigate the rapidly-changing world of insurance with ease. We partner with businesses and individuals throughout the country to provide our dedicated services for employee benefits but also work within our surrounding communities in Maryland, Northern Virginia, and Washington, D.C. Contact us today to learn more about how we can provide effective, dynamic solutions for your business. Stay connected with us on Twitter, Facebook, and Linkedin.