Setting up a payroll system in today’s business world is a bit complex but actually there are many decent software and cloud-based programs (not to mention actual accountants and specialized HR firms) you can use to help you learn how the process works as well as help you calculate out the tax deductions and all the other aspects around paying your employees.
While many growing businesses focus on small business loans, bad credit and other financial challenges affect your ability to maintain a fully funded payroll system.
The Small Business Administration or SBA has offered several tips to setting up a payroll system – as there is nothing more satisfying then making sure your hard working employees are rewarded for their efforts.
- Get an EIN: When you first set up your company you have to apply immediately for Employee Identification Number or EIN. If you haven’t done this yet, you can visit the IRS website to complete that process as the EIN is usually how the IRS identifies your company when you have to fill out forms for payroll tax as well as forms for reporting for both state and national agencies. You should also check to see if your state also requires your company to have an identification number. This varies from state to state.
- Who are your employees? Employees can be consultants, part timers or full timers – in other words, depending on the status of your employees, you need to know what forms each employee needs to fill out (such as a W-4) and what withholdings to take out of their checks (which depends on their status). The IRS has several sites where you can find the right types of forms and information for your employees. This site here is a good place to start as it will outline the all the basics including what forms your employees need to fill out: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Starting-a-Business
- Pay Periods and Paid Time Off: As an employer you have many responsibilities and decisions to make based on the nature of your business and the amount of employees. The SBA recommends to choose a pay period and stick with it. For instance, you may choose to pay your employees every two week or once a month. In addition, as a small business owner you may want to decide to give your employees “paid time off” or PTO. This could be for a vacation period. Again, PTO is not a necessity but certainly a great benefit as all people need a break from time to time. That said, offering PTO may depend if your business can handle PTO costs (especially if you are a new business just starting out), but the SBA has advice for handling both vacation and sick days.
- Tracking Employee Time: Whether you hire workers and pay them by the hour or have salaried employees, you may want to consider how to track your employees’ work hours. Some industries (like the technical industry where 60 to 80 hour weeks are the norm) it may not be such an issue. But if you have many hourly employees, there are many excellent software timesheet programs to help you track employee hours. In addition, if you own a law or public relations firm, where employees track their hours per client, time sheets are also a necessity and many software programs can help with that aspect as well so you know how much to bill various clients.
- Finding a Good Payroll System: Most people like to outsource payroll and there are many ways to do this. For instance, there are many firms that will handle all aspects of payroll, tax and human resources aspects of the business. These firms mostly deal with larger small businesses (25 full time employees and more). If you are a smaller business and have less than 10 employees, there are several software programs that will not only track payroll but provide time sheets, help you track expenses, calculate taxes and more. Many small businesses also work with accounting firms that will also help you with your payroll system. The important point is to do the research – as the number of these programs and firms and plentiful and using sites such as the Better Business Bureau (not to mention asking fellow business colleagues for their advice) will help you discover the right method for managing your payroll system. Many companies also turn to business cash advance companies for assistance in meeting short term working capital and cash flow needs, such as payroll and seasonal bonuses.