Your small business finally is starting to take off. In fact, business is so good that you’ve added an employee. Now it’s just a matter of tracking your new hire’s hours and cutting her a check, right? Not so fast. There are legal and regulatory responsibilities that come with your payroll. Here are some important things SBA.gov suggests small business owners consider when setting up a payroll system.
1. Fill Out the Forms – Obtain an Employer Identification Number (EIN) from the IRS. You’ll need it to report taxes and other documents to the IRS and state agencies. Apply online at the IRS website. In addition, some state and local governments require businesses to obtain tax ID numbers in order to process taxes. New employees must complete a Tax Withholding Form W-4 so you can withhold the correct federal income tax.
2. Decide on a Pay Period – State law can have a bearing on which pay period you choose. Most favor bi-monthly payments. Consult with your accountant or tax professional for advice.
3. Document Your Process – Consider how you’ll handle issues like tracking employee hours and any overtime. Remember that you may also handle deductions for any health plan or retirement contributions. Documenting your process will help you be consistent and help demonstrate adherence to regulatory requirements.
4. Put Uncle Sam on Your Payroll – There are several taxes you must submit to federal and state governments on a quarterly or annual basis. The IRS’ 2014 Employer Tax Guide can provide guidance on federal tax filing requirements. Your state tax agency can do the same for state requirements.
5. Know When to Ask for Help – Whether you decide to administer the payroll yourself or outsource it, you will want to consult with your accountant or tax professional to avoid any IRS penalties and stay ahead of changing regulations.
A growing business often comes with increased responsibilities. When setting up a payroll system, it’s important to know what you are required to provide. For more complete information, go to SBA.gov, Managing a Business section.
Source: 10 Steps to Setting Up a Payroll System, U. S. Small Business Administration, SBA.gov, 2014.