Even for small business, payroll systems are essential to make sure that employees get paid accurately and on time, and that payroll taxes are remitted properly. Establishing a well-organized payroll processing system – and sticking to it – will make it a little easier to deal with federal, state and local tax and labor laws. In addition to saving time a good payroll system can also help you avoid costly government penalties that could potentially devastate your enterprise. The Small Business Administration suggests taking these steps to set up a payroll system:
Get an Employer Identification Number (EIN) from the IRS – before you hire your first employee. The EIN must be listed on your company’s tax returns and other documents that must be sent to federal, state and sometimes county or municipal agencies. Some state and local governments issue their own tax ID numbers that you must obtain from state and local agencies.
Properly classify those who work for you as either employees or independent contractors. It’s important to know the difference, but sometimes drawing this distinction isn’t easy. If workers are improperly classified as independent contractors, your business could wind up paying a small fortune in back taxes and penalties.
Complete new employee paperwork, especially IRS Form W-4. The amount of federal tax you withhold from an employee will be based on the information that he or she supplies on this form.
Establish a regular pay cycle. Be sure that the pay period you choose complies with the laws in your state. Some states require that employees be paid at least bi-weekly, for instance.
Thoroughly document your compensation system. Write up a payroll administration manual that addresses your company’s pay cycle, method of tracking hours worked, paid time off policies, overtime policies (which must comply with federal, state and local labor laws) and any benefits you offer. Keep your manual updated with any changes you make to your payroll and compensation policies.
Choose a payroll processing system. In-house payroll processing options are available, but strongly consider payroll outsourcing if you don’t have the time or the background to give payroll administration the close attention and care that it requires. Accuracy is of utmost importance in payroll processing, and ultimately you, the employer, are responsibly for correct payroll reporting and payment of taxes.
Keep good payroll records. Keep your records organized, and be sure to retain all records for at least the minimum period of time specified by state and federal regulations.
Report and remit payroll taxes accurately and on time. Familiarize yourself with both IRS and state reporting regulations. Remit tax payments and submit quarterly and annual reports as required.
Padgett Payroll Services help small business owners simplify their lives by expertly handling their companies’ payroll management functions. Thousands of small businesses have learned the advantages of outsourcing to Padgett Payroll. Join them by contacting the experienced payroll specialists at Padgett through our website, or by calling (706) 548-1040 today.