Setting up payroll as a private employer may seem like a task that will take enormous time and effort, but Old State Staffing’s employment experts are here to break it down into 7 simple steps.
Before you get started though, there’s a few things you’ll want, such as an Employer Identification Number (EIN) and an employee agreement and/or employee handbook, outlining the terms of your employment relationship with your employee. Once you have these basics covered, you can then move forward with setting up your payroll system. While there are many vendors who handle payroll for private employers and small businesses, many employers prefer to manage payroll themselves. If that sounds like you, here are 7 easy steps to setting up your own payroll:
1. Obtain An Employer Identification Number
Also called an EIN or federal EIN, this is a number issued by the IRS for tax administration purposes. Your EIN will be used in your business and tax filings to identify your company. Getting an EIN is free and quick — you can apply for it on the IRS website and receive one immediately.
2. Figure Out Your State’s Requirements For Employers
In addition to a federal EIN, you may have to register as a business in your state and file for a state ID number. This number will be used when you pay state taxes for income and employment (nine states have no state income tax). You can check whether you need a state ID number by using the Small Business Administration’s state-by-state resource. At the same time, check with an accountant or attorney about whether you need to apply for state withholding and unemployment insurance accounts.
3. Figure Out If Workers Are Independent Contractors Or Employees
As a private employer, you’ll need to determine if the people you’re hiring should be treated as contractors or employees so you can file the correct paperwork and withhold taxes for any employees. The IRS has a guide to help you classify workers as independent contractors or employees. Old State Staffing’s employment specialists can help you determine if your employee is considered an independent contractor or an employee. You can also file a form and ask the IRS to make this decision on your behalf.
4. Decide On A Payroll Schedule
The most common pay frequency is biweekly, although you may decide it is better for you or your employees to pay on a weekly, semimonthly or monthly basis instead. States also have requirements about the minimum pay frequency for employees, which you can confirm with your attorney or by visiting your state’s department of labor website.
5. Create An Employee Agreement/Handbook
An employee handbook is a compilation of your policies and processes as an employer. It also includes the rules employees should follow and defines the terms of your employment relationship. Your handbook will be unique to you as an employer and the staff you employ, but Old State Staffing can assist you in creating a suitable handbook. You can also refer to resources like the National Federation of Independent Business for guidance on what to include in your handbook.
One of the policies you’ll want to design is how your employees manage paid time off, overtime and other types of non-mandatory leave. Many private employers with a staff of <3 employees find it easier to define these terms in an employment agreement. The advantage being that an agreement is an individual document that applies to each employee and the terms of employment may be customized for each employee.
6. Select A Payroll System And Decide Who Will Manage It
This is the big step: As a private employer, it’s up to you to decide if you’re going to run payroll with the help of payroll software or hire a payroll service company to do it for you. Many payroll software options allow you to automate payroll entries, file quarterly tax forms and remain compliant with federal and state laws. Payroll services are third parties that handle payroll from start to finish.
If you go with payroll software, you should also think about who will manage the payroll process going forward. If you only manage a few employees, it may make sense to handle payroll yourself. However, there are many vendors that cater to private employers that can handle these services as affordably as $15-20 per month. Old State Staffing can connect you with these services as we learn more about your hiring situation.
7. Ensure New Employees/Contractors Complete Necessary Paperwork
If you’re hiring staff on your own, there are two forms that every new employee should complete:
- W-4: The employee withholding certificate gives you the information you need to withhold the correct tax amounts from the employee’s paycheck. Form W-9 is used for independent contractors, but you don’t need to withhold taxes for them.
- I-9: This form verifies that the employee is eligible to work in the United States.
If you are hiring on your own, you’ll also need to verify your employee’s Social Security number and name, which you can do on the Social Security Administration’s website. You also have to file a new hire report to your state within 20 days. Old State Staffing will handle verifying your new employee’s work eligibility and is happy to introduce you to vendors who can handle payroll, benefits and insurance if you are interested in having someone else manage these benefits for you.
