As a business owner, you know that hiring employees is an essential part of growing your company. However, hiring employees can be incredibly time-consuming.
Not only do you have to spend time looking for qualified applicants, but you also have to manage payroll. The average business owner spends more than five hours every pay period filing payroll taxes alone!
This is because most businesses don’t have a system in place that makes payroll simple, fast, and easy.
That doesn’t mean it’s impossible. Here are a few key tips that will make establishing payroll for startups easy.
1. Get Your Business’s EIN Set Up
Unless you are the only employee in your company, you’re going to need an employer identification number. This is the number that the IRS uses to keep track of your quarterly and annual tax payments. Think of it as your business’s version of a Social Security number.
Without it, you won’t be able to file taxes for your business or hire employees to help you grow your operation.
You’ll need to apply for the EIN online through the IRS. The process can take several weeks, so it’s best to apply as soon as possible. Remember, you won’t be able to hire employees or establish a payroll system without one.
2. Review the Laws
Every state has different laws regarding taxes, employment practices, and payroll processes. Take the time to review your state’s laws to make sure you’re in full compliance before you start looking for employees.
Make sure you understand the tax rules and regulations that will apply to your business. Once you have an understanding of the state’s laws, read up on the federal guidelines to make sure your company won’t have to face costly fines.
If you’re unsure, don’t try to figure things out on your own. Contact a local accountant or CPA that’s familiar with businesses like yours. They’ll be able to tell you about any relevant rules you’ll need to follow.
Even better, they can help you make sure you’re filing your business’s taxes properly every year.
3. Classify Your Employees Correctly
Many businesses hire a mix of both contract workers and regular employees. Hiring contract workers can help you lower your payroll taxes at the end of the year. This often leads business owners to try to hire only contract employees.
Doing so can end up costing your business thousands of dollars in fines.
If your contract workers are performing the same duties and working the same hours they would as regular employees, you may need to change their classification. Remember, contract workers should only provide labor that is outside the scope of your normal offerings.
4. Know What You Have to Cover
When you hire employees, you’ll be responsible for covering certain tax liabilities as part of your payroll process. Before you bring your first team member on staff, you’ll need to figure out what you’re responsible for.
Typically, most startups have to pay a portion of your employees’ Social Security taxes, Medicare taxes, and the Federal Unemployment Tax. Your employees will also have a portion of their wages deducted from each paycheck to help cover their tax liability throughout the year. You’ll also have to cover payroll taxes each quarter.
Again, your accountant will help you establish the proper tax payments and can help you set up the right payment schedule for your business.
5. Figure Out Your Payroll Calendar
As a business owner, it’s up to you to decide when to pay your employees and establish a payroll calendar that works for your company. Most businesses pay twice a month, but some find it easier to pay once each month.
Think about what will work best for your employees and your company. Once you figure out the right pay period schedule, make a note of it so you’ll always be able to pay employees on time.
It’s also a good idea to make a note about tax payments on that calendar. This way, you’ll never have to worry about being late or missing a quarterly payment.
Remember, one late payment can result in costly fines for your business.
6. Consider Who Will Handle Payroll
If your company is like most startups, it’s likely on the small side. This makes it easy to handle payroll on your own. All you have to do is stay on top of your payments and use a paycheck stub template to create the necessary documents for your employees.
However, as your company grows and you hire more employees, taking care of payroll on your own may not be possible. You’ll need to decide whether to hire a dedicated in-house payroll specialist or to outsource the task with a third-party provider.
Both have their benefits. An in-house specialist will always be there when you have questions or need to modify certain procedures and timelines. However, you’ll also have to pay their wages, provide benefits, and supervise training.
When you outsource, you won’t have an expert in your building, but you also won’t have to pay for benefits or deal with the expense of hiring another employee. Third-party providers are typically available during business hours to answer questions and make changes as needed.
Setting Up Payroll for Startups Is Simple
Keeping your business’s finances on-track means making sure your payroll processes are as streamlined as possible. Follow these tips and you’ll be able to set up payroll for startups in no time flat.
Once your payroll process gets established, you’ll find staying on top of your taxes, pay periods, and employee information far easier. Just remember to maintain clear documentation on everything to implement. This way, you’ll be ready come tax time every year.
Looking for more tips to help you make your business as successful as possible? Check out our latest posts.