Your company is finally growing, and you are ready to start hiring employees. You are excited that your business is taking off, but now you have anxiety over all the requirements and challenges that come with hiring and paying employees.
Before you hire your first employee, do some research and understand the basics of state laws for establishing a small business, required tax forms, workers’ compensation, and most importantly, what is required to manage your own payroll.
And, follow these tips to help ease your anxiety.
1. Consider Hiring a Small Business Expert
Before you make your first new hire or worry about business payroll, determine whether you have the knowledge, skills, ability, and time to ensure accurate record-keeping for your business.
The U.S. Department of Labor exists to protect both businesses and their employees. The federal government offers guidance for employers and employees regarding employee wages, health insurance, classifications for employees vs independent contractors, and so much more.
In addition, there are myriad payroll tax requirements imposed by the IRS and the states, including federal income tax, state income tax, social security tax, employment tax, and local tax – the list goes on. You can find information at the Small Business and Self-Employed Tax Center, or through your state and local department of labor.
You can easily read through all this information yourself, but consider hiring an accountant, local attorney, or bookkeeper. A trained professional can make sure you adhere to all the requirements unique to your business. Avoid issues later by partnering with an expert to set up payroll and ensure you are prepared at tax-filing time.
2. Apply for an Employer Identification Number (EIN)
This number is issued by the U.S. Internal Revenue Service for tax administration purposes. The EIN, also referred to as the Taxpayer Identification Number, is issued to the person who owns or controls the business and will be used in your business filings to identify your company. Think of this as the Social Security number for your business. Access the IRS website for more information and to fill out the proper forms.
3. File Appropriate State Business “Paperwork”
Now that you have your EIN, ensure you also fulfill your state’s business startup requirements. Turn to the Small Business Administration’s state-by-state resource site to understand your state tax requirements for tax IDs, state unemployment insurance, and income tax.
4. Establish Your Employee Payment and Payroll Policies
Now is the time to establish your payroll policies and procedures. Determine your pay periods, payroll schedule, and paydays. Will payday be biweekly, semimonthly, or monthly? Will you manage payroll in-house or use a payroll service? Will you use direct deposit so employees’ pay goes directly into their bank accounts? All of these questions and more must be answered to clarify how you will process payroll and deliver your employees’ paychecks.
Also, create and document policies for employees indicating how your business manages paid time off, sick time, overtime and other types of non-mandatory leave. You can also include company benefits for part-time and full-time employees. Include any additional information regarding other reimbursements or incentive pay your company offers.
Consult with an accountant to help catch any issues before they become a problem.
5. Invest in Payroll Software
The days of manual payroll processing are over. Even if you have just a handful of employees, the benefits of purchasing and setting up an automated payroll system far outweigh the costs. Automating payroll, and other areas of your business, helps to streamline your workflow and business operations. It also nips those payroll headaches in the bud!
Automated payroll manages calculations including gross pay, tax rates, federal income tax, and state income tax withholdings, social security withholdings, and generates end-of-year tax return information.
6. Onboard Employees
Now that you have a payroll system in place, you’re ready to hire and onboard employees. During the onboarding process, they will need to fill out all appropriate business forms and tax forms, including Form W-4. If you are using a payroll system this process will probably be handled via the software. Otherwise, you should be able to find online payroll templates of any forms you may need.
Find More Tips for Operating Your Small Business
Go to our Learning Hub for more tips about payroll, AP, technology, and other critical processes small business owners should know to keep operations running smoothly. We also offer reviews and comparisons of accounts payable and receivable, bookkeeping, and more.