Check out our guide to creating a payroll budget for a deeper look into this process. You’ll also need to make sure that you have an employer identification number (EIN). You will also most likely need a state tax number from the state’s tax assessor. establishing credit terms for customers Apart from the FLSA, there are hundreds of regulatory Acts and Bills that deal with paying your workers.

With a payroll policy, employee info, and a direct deposit in place, it’s time to track hours. The FLSA requires employers to maintain accurate records of work hours for all nonexempt employees. In most cases, non-exempt (as opposed to exempt) includes hourly employees. After deciding on the type of payroll, whether in-house or outsourcing payroll, it’s time to set up a payroll policy. First, you’ll want to review your local labor laws, state overtime laws, and federal labor laws.

Payroll Policies and Procedures

You have fewer obligations if you hire independent contractors (also known as 1099 employees in the US) instead of full-time employees. Before making a decision, you’ll need to be mindful of your cash flow and other important expenses, such as annual tax filings, utilities, and rent. The employer can collect this information by requesting that each new employee completes a W-4 form, also known as an Employee’s Withholding Certificate, at the start of employment.

“In some cases, the payroll schedule could be semi-weekly, monthly, or quarterly. At the end of each period, you must file and report your payroll, which happens to be in both quarterly and annual intervals, depending on the form,” says Garcia. Salary refers to the amount of pay earned by each individual employee. Payroll refers to the process or system used to calculate and pay the salaries of all employees. Payroll software can be extremely affordable, costing from $40 per month plus $10 or less per employee. With all of the time, energy and potential liability involved in payroll, this is well worth the price.

1. Avoid this mistake by planning each hiring process and investing the time to double-check the paperwork if necessary.
2. Implementing this change cannot only streamline your payroll process but also improve employee satisfaction.
3. By taking these steps, you can safeguard your payroll data and maintain the trust of your employees.
4. Another important decision you have to make is how you will distribute salaries.
5. Also, if you’ve decided to rely on technology, bear in mind that it’s not perfect.

Use Employee Scheduling & Time Tracking Software

You’ll need to withhold tax amounts and forward the totals at the appropriate time. The first few payrolls will likely be the most difficult as you walk through the process and get used to what you need to do. It may be helpful to consult with a tax professional or accountant to make sure that you are checking everything in the process. It’s almost time to officially run your payroll, so it’s time to submit it. Also, if you’ve decided to rely on technology, bear in mind that it’s not perfect.

Problem #1: Not keeping payroll records for at least 3 years

Some programs will even disburse the payment through direct deposit or another digital method at the end of the pay cycle. The entire process involves collecting employee data and inputting it correctly into a file or document. You’ll have to calculate each paycheck for every pay period, making sure taxes are calculated correctly. The last step is making sure both your employees and the appropriate government agencies are paid on time correctly. If you are running payroll manually, the process will be important to ensure that you don’t overlook any critical detail when processing payroll.

This allows you to stay on top of changes and make necessary adjustments, ensuring your business remains financially stable. Most employers choose either a weekly, biweekly or monthly cycle to make payments based on preference and compliance with state laws. Typically, while hourly employees are paid weekly or biweekly, monthly payment is generally more common for salaried employees. The IRS says to store payroll records for at least four years from the date when the taxes are due or from the date that you made the payment―whichever is later. This means that you need to keep time cards, spreadsheets and copies of checks and deposits for this period of time should an audit or a discrepancy arise. Establish any benefits programs that you will offer employees, such as retirement plans or health insurance.