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Setting up payroll for a new business can be a little bit of a difficult task, especially if you don’t have any previous experience.
Starting a new business is an exciting adventure, but with that excitement comes a lot of responsibility, especially when you hire your first employees. One of the most crucial tasks is setting up payroll. Having a clear, efficient payroll process ensures that your employees are paid on time, taxes are handled correctly, and your business stays compliant with legal regulations.
Obtain an Employer Identification Number (EIN)
Before you can begin the payroll process, you’ll need to apply for an Employer Identification Number (EIN). This number, issued by the IRS, is essentially your business’s tax ID, and it’s required for reporting taxes and other information related to your employees.
You can apply for an EIN through the IRS website, and the process is straightforward and free. This is an important first step, as you’ll need the EIN for most payroll and tax-related filings.
Register with Your State’s Tax Agency
In addition to the EIN, you’ll need to register your business with your state’s tax agency. Many states require businesses to withhold income taxes from employees’ paychecks, and the process can vary from state to state. Be sure to look into the specific requirements for your location, and don’t forget about any local tax obligations as well.
Tip:
It’s a good idea to check whether your state requires you to register for unemployment insurance taxes. This tax is used to fund benefits for employees who lose their jobs, and employers are typically responsible for contributing to this fund.
Understand Employment Laws
When setting up payroll, it’s essential to familiarize yourself with federal, state, and local employment laws. You’ll need to adhere to regulations such as the Fair Labor Standards Act (FLSA), which governs minimum wage, overtime pay, and record-keeping requirements.
Be mindful of worker classification. Employees and independent contractors have different tax and legal requirements. Misclassifying workers can lead to significant fines, so ensure you correctly classify each person who works for you.
Choose a Payroll Schedule
Next, you’ll need to decide how often your employees will be paid. Common payroll schedules include:
- Weekly
- Bi-weekly
- Semi-monthly
- Monthly
Choose a payroll schedule that aligns with your business’s cash flow and works well for your employees. Keep in mind that state laws may dictate how often you’re required to pay employees, so make sure you’re compliant.
Set Up Payroll Software or Hire a Payroll Service
While some small businesses handle payroll manually, payroll software or a payroll service is often the best solution for reducing the risk of errors and ensuring efficiency. Payroll software allows you to automate calculations, tax withholdings, and reporting. Many programs also handle direct deposits, which simplifies the process for you and your employees.
If you prefer to outsource payroll entirely, there are third-party payroll providers who can manage everything from calculating wages and filing tax forms to depositing payments. This can save time and reduce stress, especially if you’re unfamiliar with the intricacies of payroll compliance.
Popular Payroll Software Options:
- Gusto
- QuickBooks Payroll
- Paychex
- ADP
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.
We gladly serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of tax time, contact us online or give us a call at (410) 573-9991 for a free consultation. Follow us on Facebook, Twitter, YouTube, and LinkedIn for more tax tips.