A good payroll processing is the way successful businesses pay their people. New employers have a bit of setup work, but they can be running payroll in just six steps:
- Apply for an Employer Identification Number (EIN)
- Obtain a state or local business ID
- Collect employee information
- Classify employees
- Choose pay periods
- Open a payroll bank account
Get your EIN number
In concept, an EIN is very similar to a Social Security Number (SSN).
As you need your SSN to file your personal taxes, your business needs an EIN in order to file payroll taxes. Employers can request an EIN at no cost online by filing Form SS-4, Application for Employer Identification Number.
Obtain a state or local business ID
State and local governments sometimes need a state or local tax ID instead of the federal EIN. State unemployment ID number.
Some states also require a state unemployment ID number, which is used to pay state unemployment taxes. Specific information should be obtained by employers from the business registration office in their State.
Collect employee information
The following is the basic information that each employer will need for each employee:
- First and last name
- Date of birth
- Last Name/First Initial · Social Security Number
- Home address
- Start date
- Compensation details and information
In addition, new hires must complete the following documents:
- Form I-9, Employment Eligibility Verification
- Form W-4, Employee’s Withholding Certificate
State withholding certificate (required in some states with income tax)
Note: If an employee doesn’t furnish Form W-4, withholding must be based as if he or she were single with no other entries.
Classify employees
Employees must be classified as exempt or nonexempt. Nonexempt employees must be paid minimum wage and overtime under the FLSA if they work more than 40 hours per week. A few states have separate overtime provisions for nonexempt employees.
Choose pay periods
There are some states that mandate certain pay frequencies for some industries or situations. Before setting up a payroll calendar, employers should always consult with your state’s department of labor.
Open a payroll bank account
Some employers chose to open a payroll bank account, separate from their business bank account, for paying employees and remitting tax. This routine could facilitate having more reliable records of payroll transactions and avoiding errors.
Separate accounts also enhance security. Another example: If the attack broke only into the company’s payroll account, the company finances would probably be left untouched. And if the business account was hacked, the employer wouldn’t have to watch paychecks bounce.
Top payroll solutions for growing your business
At a certain point, most small business owners outgrow their DIY payroll process. The good news is that there are plenty of options to free them up from time-consuming payroll processing. Some of these options include:
- -Cloud-based technology with internet and mobile app access for payroll processing, tax filing, and HR services
- A managed HR solution, which includes payroll processing and benefits administration as an integrated component of managing employees.
- CPAs who do their client’s payroll and tax compliance
- Service and support models that blend on premise payroll software with outsourced expertise
The Payroll Company’s small business payroll services
Getting the most out of payroll software and reducing costs
The biggest advantage to a payroll service is that it frees up time by automating administrative tasks like these.
It can also save employers the expensive fines that often result from computational errors and tax-filing missteps.
Here’s how you can tap into the benefits of a payroll solution to save even more time and money.
- Digitize manual paper work – By converting payroll processes to digital, printing costs and security needs are addressed as hard-copies can still be accepted with little effort.
- Expand the payroll system ‐ Combining payroll with time and attendance, benefits administration and HR means no multiple systems to maintain and save time.
- Centralize reporting and analytics – Multiple-site employers often favor cloud payroll software because it gives a very dependable, centralized look at their expense for payroll wherever they are located.
