Starting a new business is an exciting venture, but before you hire your first employee, it’s essential to set up payroll correctly. Doing so ensures compliance with federal, state, and local laws – and helps you avoid costly mistakes down the line. Here’s a simple step-by-step guide to get your payroll up and running the right way.
Step 1: Get Registered
The first step in setting up payroll is obtaining an Employer Identification Number (EIN) from the IRS. This number is required for reporting taxes and filing essential paperwork related to your business and your employees. You can apply for an EIN quickly and easily through the IRS website.
Step 2: Classify Your Workers
Before processing payroll, determine whether your workers are employees or independent contractors. This classification affects how taxes are withheld and reported. Misclassifying employees can result in penalties, so it’s important to review the IRS guidelines or consult a tax professional to ensure accuracy.
Step 3: Understand Payroll Taxes
Payroll taxes can be complex. As an employer, you’re responsible for withholding:
-
Federal income tax
-
Social Security and Medicare taxes (FICA)
-
State and local taxes, depending on your location
You’ll also need to pay the employer’s share of Social Security and Medicare, as well as federal and state unemployment taxes (FUTA and SUTA).
Step 4: Set a Payroll Schedule
Decide how often you will pay your employees – weekly, biweekly, semi-monthly, or monthly. Your pay schedule must comply with state labor laws, and once it’s established, it’s important to stick with it consistently.
Step 5: Keep Accurate Records
Proper payroll recordkeeping is essential. Keep detailed records of:
-
Employee information
-
Hours worked
-
Wages paid
-
Tax withholdings
You’ll also need to file the appropriate forms, such as W-2s for employees and 1099s for independent contractors, on time.
Avoid Payroll Headaches with the Right Team
Setting up payroll correctly from the start can save you time, money, and stress. Working with a trusted payroll provider and CPA team ensures your business stays compliant and your employees are paid accurately and on time.
Ready to get started? Visit AbacusPay.com to learn how we can help you build a strong foundation for your growing business.