Becoming a business owner comes with countless responsibilities. One of these responsibilities is, of course, paying your employees the correct amount at the correct time. Doing this is more complex than simply writing out paychecks every two weeks. Instead, you will need a well-thought-out payroll structure.
The U.S. Small Business Administration provides a list of key steps to take when setting up a payroll system for the first time. Here are some of the most important ones:
1. Request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). In most cases, you can apply for an EIN online.
2. Get a State Taxpayer Identification Number (STIN), if needed. This will allow you to pay state taxes, among other things. Again, you should be able to do this online.
3. Determine whether you want to hire actual employees or independent contractors. This is an important step, since misclassification can potentially lead to wage and hour lawsuits.
4. Have employees fill out W-4 forms on their first day of work.
5. Think about the pay periods you plan to implement, and set them up so that they coincide with IRS tax withholdings.
6. Determine how you will provide time-off compensation to employees for vacations, holidays, etc.
7. Take required employee benefits into account. As an employer, you may be responsible for paying Social Security taxes, purchasing workers’ compensation insurance and providing other benefits.
8. Determine who will be responsible for managing and administering payroll. Will you personally cut the checks and handle the other administrative details, or would you rather hire an outside company to do it?
9. Pay attention to which financial records to keep, and store those records in a safe place.
10. Report payroll taxes regularly. You may be required to do so once every quarter or once a year.
If this seems like too much to think about, remember that you don’t need to do it all on your own. A business law attorney can be an excellent resource to help you get your company up and running while complying with all applicable legal requirements.