Eventually, there comes a time for you to hire your first employee. This is an exciting time for any business owner, especially when you finally find someone who knows what to bring to a job interview. But, it can also be a bit overwhelming. Setting up payroll and onboarding new hires can seem like a complicated, daunting process. Thankfully, it does not have to be. Learn how to set up payroll in five simple steps below.
1. Apply For Your EIN
The first step to hiring new employees is to apply for an Employer Identification Number, or EIN, with the IRS. This is required of all businesses in the country that have employees. This number also serves as your business tax ID. Some business owners may have already gotten an EIN when they incorporated. If not, make sure you apply for your EIN before onboarding new employees. Otherwise, you will not be able to set up payroll.
2. Register For Your State Taxes
Next, you will need to register your business for state taxes. This is not applicable for all business owners. Some states do not require you to have a state business ID on top of the federal business tax ID. But, you will need to check to determine whether or not your state is one of those that requires a local business ID. These state business IDs are sometimes required for tax processing at the state level. Make sure you do your proper due diligence and check with your state government to understand what is required of you.
3. Have New Employees Fill Out A W-4
Now that your business is all set up to pay taxes, have your new hires fill out their W-4 form. W-4 forms are required by the federal government in order for your employees to get paid. The purpose of this form is to document employee filing status and track personal allowances. If your state requires it, make sure you also file a new hire report for each employee at this time. This way, you are prepared to handle payroll taxes for each new employee you hire.
4. Set A Payroll Schedule
Next, decide on a payroll schedule for your business. Make sure you choose a pay schedule that fits your business and allows for optimal cash flow management. Then once you have decided on a schedule for payroll, mark it down in your calendar. Also, be sure to include a copy of the pay schedule in your employee onboarding paperwork. This way, everyone knows what to expect, and your business can be prepared to pay employees every other week.
5. Withhold Taxes
The last thing you will need to do, before sending your new employees for Six Sigma training, is to calculate the amount of tax you will need to withhold for each employee. Make sure you account for state and federal taxes, as well as employee and employer taxes. You can use a paycheck calculator to help you do this. Or, you can use the IRS withholding calculator and whatever similar resource your state provides for calculating state tax withholdings. Regardless of how you get it done, make sure you calculate these figures before paying your employees. Otherwise, your business risks being audited. Just remember to pay taxes each month, including federal, state and local tax deposits.
If you have just hired your first employee, setting up payroll can seem daunting. But, it will not be if you choose to follow the five simple steps above that teach you how to set up payroll. You do not have to become an accountant just to learn how to setup payroll on your own. This step by step guide makes it easy to set up payroll and onboard your first employee so that they can get to work sooner. Make sure you follow each step and file your taxes on time. Once you do, you will have successfully learned how to set up payroll for your first new hire. After the first employee, it becomes second nature.
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