Congratulations! You’re a business owner!
Now it’s time to get some help! Before you post an ad that you’re hiring, please Take some time to learn the process and requirements of paying your employees.
Here’s a quick guide to help you get started:
Hiring employees means paperwork.
Get an Employer Identification Number from the IRS. Use it to report taxes to the IRS and state agencies.
Obtain a state or local business ID if necessary. Contact local and state government officials to see whether you need a different tax ID number.
Obtain essential information from each new hire. You’ll need a Social Security number or an Individual Taxpayer Identification Number. Ensure you get each employee to fill out Form I-9 to verify employee eligibility. For proper payroll processing, each employee must also fill out Form W-4.
KEEP AN EYE ON THE CLASSIFICATION
Of course, you may have a mix of staff employees and independent contractors like many companies. You can’t blur the line between them, and you need to know each group’s different rules and paperwork. Consult an employment expert and work with IRS Form SS-8, which can help you decide. One of the most significant differences between an employee and an independent contractor is the employer’s requirement to withhold and pay payroll taxes. If you make a mistake here, the penalties can be severe.
The Fair Labor Standards Act also requires employers to distinguish between employees subject to its provisions and those not, i.e., exempt and nonexempt employees. One of the key differences is that nonexempt employees are entitled to overtime pay, and exempt employees are not. But, again, the distinction can be complex, so work with a qualified expert.
SET UP YOUR SYSTEM
First, consider a pay period. Weekly, every other week, and twice monthly are common options. However, state and local laws may limit your choices. Also, consider what your employees might want. For example, accounting departments often like twice monthly because it means 24 even periods, while every other week means 26 payments — it doesn’t divide evenly into a year. But employees often like their paychecks on the same day of the week.
Whatever you do, be transparent. Share important details about the process with employees: how they’ll be paid — check or direct deposit — and any deductions they should know about. Add these details to your employee handbook.
Finally, consider how you’ll handle payroll. Once you get more than an employee or two, making the correct calculations and issuing the checks or direct deposits will take time and energy. That’s why many companies choose to outsource the entire payroll function. If you decide to do that, please ensure the provider you hire meets your business’s particular needs.
This is just an overview of the many payroll obligations you will face. Be sure to work with qualified professionals to keep up with all your responsibilities.