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How to Set Up a Payroll System (Even if You Only Have One Employee)

8/3/2015

12 Comments

 
If your business has any employees, you’re not only responsible for issuing paychecks on a set schedule, but also for deducting and paying all applicable federal, state, and local income taxes to the government. Some people are intimidated by this responsibility, but the truth is that once you have a payroll system in place, it’s not that difficult to keep it running smoothly, especially with the help of your accountant. Here are the steps you should take to set up a system that will streamline the process.

Apply for an Employer Identification Number

An Employer Identification Number (EIN) identifies you as a business entity that’s responsible for paying payroll taxes to the government. According to the IRS, if you have employees (not just independent contractors), you’ll need to apply for one. To do so, go to the IRS website and print out Form SS-4 [PDF] if you plan to submit it by mail or fax. If you are an international applicant, you can apply by phone. You can also complete and submit the form online.

Learn Your State's Withholding Requirements

In addition, some states require that you withhold state income tax, disability, or unemployment taxes from your employees' paychecks. Your state may require their own, separate, employer number and also an Account Number for unemployment purposes. The IRS offers a list of all state government offices where you can find your state’s requirements. Your accountant will be able to help with any questions or concerns you have with this process.

Get the Required Paperwork from Employees

You’ll need to have each of your employees fill out a Federal Income Tax Withholding form W-4 [PDF]. This will allow you to withhold the right amount of income tax from their paychecks.

Decide How Often You’ll Pay Employees

Next, you’ll need to decide how often to pay your employees. In addition to what’s convenient for you, you’ll need to adhere to your state's laws. (Every state has laws that determine how long you can go in between paychecks.) The typical pay schedule is every week, or every-other week.

Choose Your System

Next, you’ll need to decide which type of payroll system to use. Many business owners choose to calculate and record their payroll themselves manually. This option may seem lucrative, as it is the cheapest method, but it is also the most labor intensive and the most prone to error, leading to headaches during tax season and possible fines from the IRS.

Using an online payroll service saves time and makes it easier to track important details such as employee hours, overtime, vacations, health care premium deductions and retirement contributions. In addition, the online system calculates the amount of the paycheck and tax withholdings, files the required tax forms, and pays your payroll taxes.

If you’re like most small-business owners, time is your most valuable asset -- which is why many choose to completely outsource their payroll system to an accountant. Hiring an accountant to handle your payroll takes all calculations, reporting, and check issuing off of your plate and allows you to focus on other more pressing matters.

Run the Payroll

After you’ve set up your system, you’re ready to run payroll. If you use a desktop software program, you’ll have to enter the required information and print out the checks. If you choose an online payroll service, you simply enter the hours, and then either print the checks yourself or use the free direct-deposit feature. All that’s left is to report the payroll taxes to the appropriate tax agencies, paying them within the required time period. If you have chosen to outsource your payroll to an accountant, the process will run without you having to worry about it. All checks or direct-deposits will go out, plus all payroll taxes will be reported and paid within the required time period.
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12 Comments
online cpa services Marlboro, NJ link
12/26/2022 05:14:09 am

Very helpful article for me. I was searching for this topic because I am a blogger in the beginner stage. Now I will use these methods for my blog. I hope it will work for me.

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Braden Bills link
1/17/2023 10:26:22 am

My friend wants to make sure that he can pay his employees properly. It makes sense that getting a payroll system set up would be important! That seems like a great way to make paying his employees a lot easier.

Reply
Mia Evans link
1/31/2023 06:18:10 am

It really helped when you said that it will be easier and faster to have an online payroll system, especially when you need to track many details about them. In that case, it is a good idea to hire a PEO service that uses that kind of system to ensure that you get fast results and prevent delays in the salary of the people. With that kind of strategy, the workers will feel that they are being cared for and will continue doing their best because of the benefits they are receiving.

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Payroll Specialist link
2/13/2023 09:54:28 am

Staying compliant with the state is important. You should also look into a wide-reaching geo-area software if you have employees scattered around the country. We use Advanced Micro Solutions, which supports all 50 states, as well as the District of Columbia and Puerto Rico. It also includes and regularly updates state and federal tax tables.

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Expert CPA link
5/15/2024 08:16:41 pm

I never used them until switching to a new office, but they really are helpful when it comes to compliance. Plus, they have multiple e-file options. It's good to have a pay per form option when you have a limited number of employees.

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pay stub link
4/17/2023 04:11:17 am

Are there any legal requirements or regulations that need to be considered when setting up a payroll system for a sole proprietorship with a single employee?

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online payroll services link
5/8/2023 02:27:59 am

The quality of the content of your blog was great. Very impressive and useful write-up. Will be waiting for more updates. Keep posting.

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Malins Book World link
8/31/2023 09:25:39 pm

Thank you for sharring this

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cpa services for small business link
9/20/2023 06:08:01 am

One of the best posts I have ever come across. Not only did I learn a lot of hidden things. Keep uploading and encouraging us.

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Millie Hue link
12/21/2023 02:13:08 am

I find it interesting when you talk about the importance of time if you are a small business owner which is why hiring small business payroll services is going to help a lot. In my opinion, as long as you can afford, looking for the help of professionals will definitely be worth it because you can save time and effort with their expertise. Also, you can be sure that there will be no mistakes in the processes, especially if you are going to start providing salaries for the people you are going to hire for your shop.

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Single Parents Ogden link
5/15/2024 01:37:49 am

Thanks for postiing this

Reply
Jim T.
11/20/2024 08:05:00 pm

Understanding withholding requirements and liabilities is such a hassle without payroll software. That's why we invested in AMS Payroll: https://1099-etc.com/payroll-software/payroll/. The software includes state and federal tax tables. It also shows state and federal tax liabilities at any time through the View command.

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  • Swenseth Law
    • Accounting & Tax Preparation
    • Business
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