As a new business owner, you’ve already completed a wide array of tasks to establish your company and set it up to thrive in your market or industry. Our related article on Starting a New Small Business in Michigan can help you navigate the early stages of that process to ensure you’ve established a viable blueprint for success.
In this article, we’ll walk you through the required steps to establish an efficient payroll process, and outline the options you have with regard to payment scheduling frequency; developing an employee handbook with PTO, overtime, and leave policies; and choosing payroll software and support that works for your business.
With the right support, you can establish a payroll system that abides by state and industry laws and offers you the features you need to grow your small business in the early stages and beyond. Here are the steps to get there.
Initial Steps - Registration
Once you’ve acquired a federal employer identification number (EIN) online through the IRS’ website, it’s time to take a closer look at requirements in your own state to see if you need to register there, as well. This may be necessary for filing state employment and income taxes. For instance, in the state of Michigan, new businesses should register online through the Michigan Department of Treasury. Bear in mind that nine states do not require state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming, and New Hampshire (which does not tax wages earned). When it comes to determining requirements or best practices with unemployment insurance accounts or state withholding, be sure to consult payroll experts for advice specific to your state or industry.
Employee Types and Payroll Scheduling
As another important part of the payroll setup process, you’ll need to determine whether a new hire is an employee or a contractor. This ensures that you’re filing accurate paperwork and properly withholding taxes based on these designations. The IRS offers useful clarification on this topic, which should be handled thoughtfully to avoid liability for any employment taxes related to a misclassified worker.
Once you’ve completed this key step, you should determine how frequently you’d like to pay your employees based on cash flow: monthly, semimonthly, biweekly, or weekly. Keep a few considerations in mind. First, some states have legal requirements regarding the frequency of pay. For instance, according to Michigan's Payment of Wages and Fringe Benefits Act, the majority of Michigan employers must pay their salaried and hourly employees biweekly, with some exceptions or company policy adjustments permitted. Check the Department of Labor website in the state where your business operates to confirm legal requirements, and always double-check with a payroll expert to ensure you understand all of the terms.
Generate an Employee Handbook and Choose a Payroll System
Among the many topics your employee handbook should cover, it should articulate all of your business’ policies related to paid time off (PTO), overtime, and non-mandatory leave. In general, it should function as a guide for employees regarding their legal rights, as well as the policies and processes they should follow, including those that apply to payroll.
As an employer, the biggest choice to make in the payroll setup process is whether you will manage payroll internally (in-house) or enlist the help of a payroll service provider that offers software and support. It might help to know that at least 45% of small businesses currently outsource their payroll process to streamline reporting, payroll taxes, and administration, and to ensure legal compliance. Only 19% of small businesses manage these processes internally and, unfortunately, this approach can lead to employee misclassification, human error in processing, compliance violations, and time spent away from key business tasks.
That’s why, especially for businesses that are growing rapidly or wish to dedicate all of their time on core business operations, hiring a qualified payroll provider is an ideal approach.
Paperwork, Recordkeeping, and Reporting
Working with a qualified payroll provider can also help your business smoothly navigate the paperwork and reporting for new employees and contractors. Whether it’s W-4s, W-2s, I-9s, SSN information, filed tax forms, or tax deposits, payroll specialists ensure that your paperwork and tax submissions are accurate, archived, and abiding by all applicable municipal, state, or federal laws. Since payroll processes vary state by state and labor law policies frequently change, it’s best to collaborate with experts who can let you focus on your day-to-day business needs without any lingering concerns or preoccupations about compliance.
Optimize Your Payroll Process with Workforce PayHub
Launching a new business is an exciting but overwhelming process. Streamlining payroll can help you enjoy peace of mind about administration, taxes, legal compliance, and employee satisfaction. Workforce PayHub offers a comprehensive Payroll Solution that adapts to the needs of your business and offers an employee self-service portal for your employees to monitor pay statements, W-2s, PTO and more directly from their smartphone or digital device.
Ready to see our Payroll Solution in action? Contact us today for a free quote.
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