You’ve identified your payroll responsibilities, obtained the necessary employer IDs, gathered employee paperwork and properly classified your workforce. Now it’s time to make decisions, do the math and deliver on your payroll obligations.
Here are the final steps toward setting up a payroll process:
Pick a pay period and decide how to pay employees
Some states have laws in place regarding how often employees are to be paid. Many employers favor a biweekly model. Other options include semi-monthly (e.g., the first and fifteenth of the month) and monthly. After the pay period is determined, you will need to consider how to handle things like paid time off (for holidays, vacations, sick days and personal days) and overtime, how you will track employee hours and decide if you will offer direct deposit.
Select a payroll solution
Payroll processing is tedious, time-consuming and often confusing, so choosing the right method for your organization is a critical step. If you want to save yourself time, hassle and headaches, choosing an automated payroll process option is the way to go. Automation sets the due dates, calculates wages correctly, takes out all the withholdings properly and sets up the generation and filing of the tax returns themselves.
Calculate payroll, and don’t forget to include deductions
Whether you have hourly or salaried employees, you must figure out who is getting paid what amount. Once gross pay is calculated for each employee, subtract the federal withholding based on their W-4 Form, then state and local taxes (if applicable), then Social Security and Medicare taxes.
Next up, consider any “fringe benefits,” such as health insurance, life insurance, a retirement plan and/or an employee stock purchase plan that you offer. These contributions, or voluntary payroll deductions, must be properly taken out of employee paychecks with either pre-tax or post-tax dollars, depending on the classification of the benefit being paid for.
Non-voluntary deductions include garnishments and child support payments. These government-mandated deductions, if you don’t comply with them, can result in costly penalties.
Make all that hard work pay off – literally
Now that you have all of your information calculated and collected, you can run your first payroll and actually pay your employees. If you are generating the payroll, you’ll enter the numbers yourself, depending on the system you’ve chosen. If you are outsourcing this task, you’ll hand over the pertinent information to whoever is handling the payroll process.
Report payroll taxes to the proper authorities
Reporting payroll taxes means depositing and filing tax information or depositing taxes and filing returns. There are several payroll tax reports you are responsible for submitting to local, state and federal entities at different times throughout the year, making automation even more attractive. By not having to have a constant eye on the calendar, you can focus on running your business.
Ten steps are all it takes to establish a reliable payroll process for your new business. Automating the process will ensure your company remains in compliance with complex tax laws and government regulations, and your employees are paid consistently and correctly.