Irrespective of the fact that whether you are having 50 employees or only one employee, setting up a top quality and useful payroll system is quite important. As an employer, it helps you in streamlining your capacity of staying on top of the regulatory and legal responsibilities that you might be having. Doing a perfect payroll not only saves time but also protects an employer from incurring expensive IRS or Internal Revenue Service penalties. If you are willing to know How To Do Payroll then there are ten effective steps that you need to follow. The steps include:
Obtaining EIN or Employer Identification Number
Prior to hiring employees, you have the responsibility of getting an EIN or Employer Identification Number. You will get this from the Internal Revenue Service. EIN is also called Form SS-4 or Employer Tax ID. It is necessary to report taxes as well as other documents to IRS. Additionally, it is required for reporting information about employees to the state agencies. In order to get an EIN, you can either contact IRS directly or apply online.
Check whether you require Local or State IDs
There are some local and state governments that require businesses to possess ID numbers for processing taxes.
Know the Basic Different between an Employee and an Independent Contractor
You must be very clear about the difference that lies between an employee and an independent contractor. Legally, the line between these two is not clear always. It tends to affect the procedures you use for withholding and paying Income Taxes, Medicare Taxes, Social Security Taxes and Unemployment Taxes.
Be Very Careful with Employee Paperwork
In order to come up with a good payroll, it is necessary for you to be very careful with employee paperwork. Ask the new employees to fill out the Federal Income Tax Withholding Form W-4. All the new employees need to complete this form and then submit it to you. You can use the information on the form for withholding their correct federal income tax from the total payment. I worked for this loan business in the past and some employees didn’t provide their SSN in time. It was was a tax and legal nightmare at the end of the year.
Chuck Out a Particular Pay Period
You might be having a manual procedure for this. However, setting a pay-period whether bi-monthly or monthly, is generally determined by the state law. Here, it is to be noted that most state laws favor bi-monthly payments. It is instructed by the IRS that you need to withhold the income tax of your employees for that specific period in spite of the fact that your employees have not worked for the entire period.
Compensation Terms of the Employees Need to be Documented Carefully
When doing payroll, consider the procedure of handling paid time off, tracking employee work hours, paying overtime and various other important business variables. You must also not forget to deduct business deductibles and employee compensations like retirement contributions and health insurance premiums from the paychecks of the employees. Post deductions, you need to pay these deductibles to the right organizations.
Choose a Perfect Payroll System
Payroll administration needs complete attention to accuracy and detailing. Therefore, it is important for you to carry out a thorough research in trying to understand the options available. The options that you can use in your endeavor of payroll management include outsourced or in-house options. No matter, what option you choose, you have the responsibility of reporting as well as paying the payroll taxes as an employer.
The moment you possess all the information and forms, start running payroll. You can either choose to enter the payroll yourself or provide the information to the accountant depending on the payroll system that you choose.
Keep all the Records
State and Federal laws require employers to keep some records for a particular time span. Employers are required to keep W-4 forms on file for minimum three years post the termination of an employee. Employers are also required to keep the copies of all the filed tax forms, amounts and dates of tax deposits and W-2s.
Report the Payroll Taxes
Employers need to submit several reports of payroll taxes to appropriate authorities annually or quarterly. In case, you are completely confused about the obligations, try having a look at the Employer’s Tax Guide presented by the IRS. This will provide you with the required information on the Federal Tax filing requirements. You also have the option of visiting the state tax agencies for getting complete information on specific requirements of tax filing.