Setting Up Payroll Services and Systems

Small businesses that hope to expand their operations will, eventually, hire employees. Whether you have a single employee or a dozen, setting up payroll services and systems properly will help you:

  1. Streamline the process
  2. Avoid potential problems with the IRS
  3. Adhere to legal and regulatory requirements

A few of the items that you’ll need to put on your to-do list are:

Know the Difference Between Contractors and Employees

Will you be working with independent contractors, employees, or both? Knowing the difference between the two allows you to withhold all of the necessary requirements and file the proper paperwork, such as:

  • Income tax
  • Medicare taxes
  • Social Security tax
  • Unemployment
  • 1099s

If you’re not sure what category a worker falls under, discuss it with your accountant.

Learn more about whether a worker is an independent contractor or employee in our quick, 3-minute video.

Decide on a Pay Payroll Period

States may or may not set pay periods. Adhere to your state’s laws or choose a pay period that works best for your business: weekly, bi-weekly, semi-monthly, or monthly. There are different reasons different businesses pay on different schedules. 

Generally speaking, most employers have to pay manual workers weekly. Many business owners prefer the regularity of bi-weekly; paying their employees every other Friday. When companies have mostly salaried employees they will opt for the semi-monthly approach, 15th and last day of the month. Finally, some larger corporations choose to pay their employees monthly.

Gather all Paperwork

Employee paperwork is an essential part of any business. You’ll need to have your employees fill out their W-4 (Federal Income Tax Withholding Form) that allows your business to withhold the appropriate taxes. As well as their I-9 (Proof they are legally allowed to work in the country) and supporting documents as outlined in the form.

Compensation Terms

You’ll want to sit down and determine all of your compensation terms, which will be added to your payroll services system. The terms can include how you handle:

  • Salary or Hourly
  • Time off (paid and unpaid)
  • Overtime policies
  • Retirement contributions
  • Health premiums
  • Other forms of compensation

Sign Up for Unemployment Insurance

In New York, the Department of Labor has clear requirements for when unemployment insurance is required. You can register online or by mail (follow the link above) to get started.

Some states do not have unemployment insurance requirements, such as Alabama.

Nolo has a great guide to unemployment insurance, or you can contact your state’s Department of Labor.

Learn the Rules for Disability and Paid Family Leave

Just as states have different rules and requirements for unemployment insurance, they also have different rules for disability and paid family leave. New York, typically, requires most private businesses with one or more employees to obtain Paid Family Leave (learn more here).

Employers in New York must also provide disability benefits from an approved Plan for Disability Benefits (learn more here).

Be sure that your business, in your respective state, meets disability and paid family leave requirements.

Choosing Payroll Systems

Some payroll service providers make it easy to offer these key benefits to employees and many others, too. Using the right payroll system will save you time and money while also ensuring that you meet your state’s requirements for benefits, unemployment insurance, and leave.

You’ll find different services offer different integration options, which may or may not work best for your business. Let’s take a look at the differences between two major payroll services: Gusto and Justworks.

Gusto vs Justworks: A Quick Rundown of Features

If you want to run your business efficiently, you should be working with someone that offers accounting services and someone that provides payroll services.  There are two types of payroll service providers a Professional Employment Organization and a Payroll Service Provider. These two companies. Gusto and Justworks are good examples of the differences. Both offer great payroll options, but they have slightly different offerings.

Gusto – is a full-service payroll service provider that offers the option of integrated healthcare benefits and HR services.

Justworks – is a PEO where the people you hire are technically employed through Justworks. All the federal, state, and local withholdings legally required are filed through Justworks. Your company pays Justworks and then Justworks pays your employees. In return, your company gets access to health care and HR services that are typically only afforded to giant corporations. (Economies of Scale)

Of course, there are a lot of additional payroll service providers that may work better for your business. Make sure that you demo the different types of payroll system providers so that you can choose the option that is best for you.

Working with accounting services that can help your business early on with integration, setting up payroll systems, and offer strategic professional advice is best for the business owner that wants to focus more on sales and less on the payroll.

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