Step-By-Step Payroll Process: Small Business

More and more small businesses are opting to work with a qualified payroll provider to take advantage of mobile access, automated features, improved security, long-term cost savings, and heightened employee engagement. Managing payroll thoughtfully from the start also reduces the risk of non-compliance, legal penalties, and issues with employee turnover or dissatisfaction due to underpayment or other issues.

Step-By-Step Payroll Process Small Business

Whether your business plans to handle payroll entirely in-house or is considering working with a payroll provider to streamline the process, there are several core steps necessary to get started. This article will outline how to set up payroll for your new small business and how a qualified provider can support you with this process.

Request an Employer Identification Number – Federal and State

To remain registered with the IRS as a legal employer, you’ll need to apply for a federal employer identification number (EIN) through the IRS’ online platform. Your EIN number will be used to identify your business to federal and state agencies whenever you report employee information, whether it’s taxes, deductions, net income, or otherwise.

Remember that although most municipalities and states will recognize your business’ federal EIN, some cities and states have their own unique policies. For instance, South Carolina, Massachusetts, and New York require a state EIN for tax reporting. Be sure to check for any additional EIN requirements based on the city or state where your business operates.

Determine Employee Classification & Provide Necessary Forms

It’s important to understand all local, state, and federal regulations regarding employee classification, including salary or wage thresholds that sometimes shift on a yearly basis. These factors can play a significant role in determining whether your employee is exempt, nonexempt, an independent contractor, or otherwise. Unemployment taxes, FICA taxes, and income reporting are all impacted by employee classification. To determine classification, you’ll need to answer relevant questions about salary, hourly wage, location and duration of work, benefits offerings, and much more.

As you onboard new employees, you’ll also need to gather a range of employee information that will be used for taxes and payroll and ensure timely payments. Your employees will need to complete an IRS Form W-4 for tax withholding, as well as an I-9.

Explore our related article for insights and advice on how to speed up payroll processing.

Select Your Pay Schedule and Payment Method

Most new job candidates prefer direct deposit as a payment method, and it often saves businesses money and prevents organizational headaches later in the year. As for frequency, most employers opt for biweekly or semimonthly payments. Nevertheless, it’s important to look into any local or state requirements regarding pay periods. Some states mandate that employees are paid at a certain frequency. Be sure to familiarize yourself with requirements in the state where your business operates.

Establish Company Payroll Policies

Especially if you plan to work with a qualified payroll provider, it’s essential for your business to establish practical company policies regarding payroll. Whether it’s establishing protocols for PTO requests, overtime reporting, or benefits election, clear guidelines make payroll easier for you, the provider/platform you partner with, and your employees. When policies are easily understood by employees and paired with cloud-based, automated software, common payroll tasks become a breeze and boost employee confidence in your business’s ability to support its employees.

Find a Payroll Partner for Your Business

As you consider how you’ll manage the many facets of payroll processing, remember that partnering with a qualified payroll provider can save your business time and money while ensuring accuracy, legal compliance, and employee satisfaction.

A payroll provider with a mobile, cloud-based platform is usually the best choice, especially if you’re interested in integrating your payroll functionality with other HR tasks, including hiring, benefits administration, time & labor management, and more. Your provider should be capable of providing help with the following payroll tasks and more:

  • Calculating gross pay; managing deductions and exemptions
  • Local, state, and federal taxes
  • FICA taxes (Social Security and Medicare)
  • 401(k) and Workers’ compensation contributions
  • Tracking employee hours, wages, payments, and direct deposits
  • Detecting and remedying any payroll errors
  • Organization and filing of tax documents
  • Generating payroll reports due to IRS and state tax office, as well as reports to improve productivity and business performance 

As you operate payroll for your business (in-house or with a qualified provider), remember to retain employee records, including payroll records, for up to six years after employment is terminated.

Create a Long-Term Payroll Solution with Workforce PayHub

Starting a small business is demanding enough without lingering concerns about payroll accuracy, compliance, and unexpected costs, penalties, or late payments to your employees. Working with a qualified payroll provider can save your business money and improve employee satisfaction in the process. 

Workforce PayHub provides the professional guidance and intuitive tools you need to automate and expedite payroll to support your most valuable asset: your workforce. If you’re in need of more comprehensive support, our payroll services can be easily integrated with benefits administration, time & labor management, HCM, and more to benefit your business. 

Ready to enjoy mobile, cloud-based software that improves payroll accessibility and accuracy for you and your employees? Contact us today to let us know how we can support your small business.

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Eric Jones
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