Payroll Basics For New Businesses
October 15, 2018
While the process itself may seem easy – you’ve just hired your first employee and you need to pay them – if you’re new to business and payroll, you may find that it’s not clear exactly what you should be doing and how to go about it. There may be many words and phrases that you’re not familiar with, such as ‘pay periods’, ‘unemployment tax’ and ‘Form 941’ to name but a few.
So, if you’re a newly formed business who has taken on their first employees, here are a few basics to help you get started:
Pay periods and pay days:
Firstly, you’ll need to determine your pay schedule, which is when you pay your employees for work carried out, and the beginning and end of this schedule becomes the pay period. Pay day is the date upon which your employees are paid, and this is usually a fixed number of days after the pay period has ended.
Employee and employer taxes:
Employers and employees are required by law to pay taxes on wages, and these are owed to the federal government and the state. In most cases, the employer will be responsible for collecting federal income tax, Social Security and Medicare tax from their employees pay checks based upon what employees have marked on their W-4 form.
Employers must also match an amount to pay into Social Security and Medicare tax, as well as Federal Unemployment tax or FUTA. This is a federal employer tax that provides workers who have lost their job, with unemployment compensation. Depending on where you live, as an employer you may also be required to collect and pay state income tax.
Paying and filing taxes:
Most federal and state income taxes must be paid monthly, while other types of taxes are usually paid quarterly, but it may depend on the size of your business. In general, most employers must pay taxes monthly and they will receive notifications from the state and federal government if they are required to pay them more often. If you are using the services of a paid payroll provider, then they will usually withhold these taxes every pay period and release them to the government only when they’re due.
Where filing taxes is concerned, a federal form 941 must be filed quarterly, while Form 940 must be filed annually. Similar forms may also need to be filed to the state, while Forms W-3 and W-2 must go to the SSA every year.
The laws that must be adhered to when setting up payroll can be complex and adhering to them is can be tricky if you’re tackling payroll alone.
Most workers are classed as either ‘exempt’ or ‘non-exempt’ employees relative to their salary and the type of work they are employed in, and as an employer, you must keep track of the hours worked for non-exempt employees who are paid by the hour.
As a new employer, you’d be wise to do some research into the requirements you must meet when paying your staff, or better yet, seek professional help and guidance from a firm who specialize in offering payroll solutions to businesses, or outsource your requirements to avoid any costly errors and to satisfy your newly formed workforce.