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It can be daunting to start a new payroll system, especially if it’s your first time running payroll or if you have used another payroll method in the past. Payroll software isn’t meant to be stressful. There are certain things that you will need to adjust to.
It shouldn’t take long to set up payroll software, provided you know what to expect. Before you start, here’s all you need to know about payroll.
Select the right software
Your business needs must be met by the payroll software you choose. It must meet your business’s needs.
Different payroll software packages are not created equal. Every software package comes with different pricing and features.
How to Choose a Payroll Service. Consider the features that you require. To see what customers think about the software, visit payroll software reviews.
For small businesses, payroll software is best. Payroll software designed for large businesses may not be suitable for small businesses. Small business payroll software is more affordable.
Register your company
New businesses need to register their business with the state. Each state has its requirements to register a business. Make sure you consult your state agencies.
You will need to know your company’s legal name, DBA, and address to set up your payroll software account.
Get your business identification numbers
These numbers are used for filing and remittance of employment taxes.
An Employer Identification Number (EIN) is required.
Your EIN will be used to report federal taxes to IRS. Your EIN can also be used with other IRS documents or state agencies.
You will most likely need separate state or local identification numbers to report state taxes. To find out if an identification number is required, search payroll information for employers within your state.
Collect information about employees
To run payroll, you need to have several pieces of information about each employee. Each employee’s information is required:
- Full legal name
- Social security number
This information should be provided to employees when they start working for your company. This information could change as employees get married or move. You should inform the employee of any changes and update your software and records.
Each employee will have a different deduction. The benefits you offer your employees, and the amount employees contribute to each benefit will determine how deductions are calculated. You may have to withhold wage garnishments from employees who have unpaid debts.
You can deduct a fixed amount of money or a percentage from the wages. It is important to know what deductions you can make from the wages of each employee and how much.
Some deductions must be withheld before taxes, while others must be withheld after taxes. To properly subtract them, you must be able to distinguish pre-tax and post-tax deductions.
Calculate tax rates
Your payroll software probably already knows some of the employment tax rates. Every business is subject to identical rates for Social Security taxes and Medicare taxes (FICA tax). The software also knows your federal unemployment tax (FUTA tax rate), except if you are in a credit reduction state.
The software will ask you to specify how much to withhold from other taxes, such as income taxes and state unemployment taxes (SUTA taxes).
How to manage taxes
You can file and remit employment taxes yourself. You can also ask the software provider to handle your taxes.
You need to know when to deposit your taxes and how to report employment taxes. It is also important to understand which payroll forms you should use.
You will need to provide your tax information if the software company handles the payroll taxes. The company will need to know your FICA and federal income tax depositing schedules. The company requires your tax filing identification numbers. By filling out Formula 8655, you authorize the company to collect taxes on your behalf.
Choose a pay period
It is important to decide how you will pay your employees. You will need to select a pay period (also known as a payment frequency). This is the frequency at which you will pay your employees.
The most common pay frequency is weekly, biweekly or semimonthly. You will probably keep the same pay period if you have employees. You will need to select your frequency if you are a new employer.
You may be allowed to use certain pay periods in some states. To ensure payroll compliance, check your state laws.
Take into account compensation
You will continue to pay your employees the same amount if you change how you run payroll. New employers will need to make many decisions when it comes to compensation.
It is up to you to decide whether your employees will be paid a salary or hourly wages. You must also know what rate you will pay your employees.
You must know the differences between exempt and nonexempt employees. Nonexempt employees must be paid overtime wages, regardless of receiving a salary.
It is also important to decide whether you will offer other forms of compensation to employees. You might offer tips and commissions to your employees.
Choose a payment method
There are many options for how you can pay your employees. There are many payment options you can choose from check, direct deposit, and payroll cards. Select the method you prefer.
Depending on which option you select, you might have to set up the software. If you pay employees via direct deposit, for example, you will need to enter the bank information of your company, as well as the information for each employee.
Collect previous records
You will need to have your payroll history if you’re changing how you do payroll. The software may require you to input the records from your previous payrolls. The software can accurately calculate taxes and deductions by adding your payroll history.
Create a system for record-keeping
It is necessary to maintain employee payroll records. These records might be kept by your payroll software so that you don’t need to worry about printing copies.
To organize and store all your employee data in one place, you can also use human resource software. All documents can be uploaded to an employee’s file.
Choose a start date
You can choose a date that you would like to begin running payroll using the software. Before you plan to start running payroll, you need to set up the software. It can take time to enter all of the information. The software company may need additional time to verify your account. Payroll will not be completed immediately after you have purchased the software.
You must choose a tax takeover date if you want the software company to handle your taxes. This is the date that you wish the company to manage your taxes.
Employee access granted
It is up to you to decide whether employees have access to payroll information. Employers can view pay stubs and personal information using employee self-service software in conjunction with their payroll processing services. Employees can track their attendance which is one less thing you have to do.