Setting up payroll and personnel management isn’t just about organization; it’s also about complying with federal and state law. Your first step is to set up a system by:
- Obtaining a nine-digit federal ID number and where applicable, state and local employer ID numbers (EIN). To get a Federal EIN, complete and submit Form SS-4. (If you already did this when you first established your business, use your existing EIN.) Most state and local jurisdictions use your Federal EIN, so check with their respective departments of revenue to confirm that’s the case.
Having each employee sign and file IRS Forms W-4 and I-9.
• Form W-4 - Employee’s Withholding Allowance Certificate, includes the employee’s Social Security Number and, as important, denotes how many deductions they’ll be claiming for tax purposes. That determines how much you’ll need to withhold from their paychecks for payroll taxes. Filing Form W-4 with federal and state governments is critically important, so don’t let it lapse, especially with new hires. Also, many states have their own payroll withholding tax forms, so check with them.• Form I-9 – Employment Eligibility Verification Form, which was established under the Immigration Reform and Control Act of 1986, verifies a worker’s eligibility to work in the U.S. It needs to be accompanied by other documents (such as a U.S. Passport), which are listed on the Form. Completing and filing Form I-9 must be done within three business days of an employee’s hire. In addition to filing it, be sure to keep it on file as long as the employee is on your payroll.
- Determining your pay period – how often you’ll pay employees. This schedule is often dictated by state law, so check with your state’s department of revenue. Regular payroll periods can generally range from daily to annually. The one you choose is important, because it determines how much payroll tax you’ll be collecting and holding. It also determines where you must forward payroll taxes to the government.