How Do I Set Up Payroll for the First Time? The Employer’s Complete Guide

So, you've found your company, and you're now ready to hire new staff and establish payroll.

When most individuals think about payroll, they instantly think of numbers. Although calculations are required, understanding the complete procedure is crucial to learning how to perform payroll yourself. Payroll encompasses everything from registering your company as an owner to paying your staff, tax authorities, and other relevant institutions.

Payroll errors might happen more quickly than you expect. While it is necessary to ensure correct and regular payment, it is also crucial to follow many rules and norms, such as labor legislation, PF, PT, and other regulatory filings. Noncompliance with these regulations may cause significant legal and accounting penalties.

To ensure that your staff is pleased and in compliance with the law, you must first understand payroll and how to operate payroll properly. So we'll start with the fundamentals of payroll.

Table of Content

Let's Start!

What is Payroll?

Payroll is the process of paying salaries to employees of a corporation. It begins with compiling a list of personnel to be paid and concludes with recording expenditures.

It's a complex procedure that requires cooperation between departments like payroll, HR, and accounting. However, businesses can readily manage all the complexity by using current technology.

The procedure involves calculating what employees need to pay for a specific payroll cycle after correcting for essential deductions, such as TDS, Medicare contributions, and meal coupons.

The payroll cycle is the time between two salary payments. For example, businesses might pay salaries weekly, biweekly, or monthly. In the USA, it is often biweekly.

What are the Stages of Processing Payroll?

A payroll manager must thoroughly prepare. In addition, continuing duties require attention and the need to constantly monitor changes in withholdings and payments to social security funds.

Pre-Payroll Activities

Creating a Payroll Policy

Several factors influence the total payment. At that point, the company's many rules, such as its wage structure, leave and compensation plan, attendance regulation, and so on, play a role. For consistent payroll handling, management must first be carefully specified and allowed by such policies.

2. Obtaining Feedback

Interactions with several departments and employees are necessary during the payroll process. In addition, there may be statistics, such as mid-year salary change details, attendance, etc.

In smaller businesses, inputs originate from a single origin or a small team. In a big firm, however, the work of acquiring data may appear to be onerous.

3. Input Validation

Once you receive the inputs, you must validate the data adherence to business policy, authorization/approval matrix, appropriate formats, etc. Ensure that you are not overlooking any current employees and are not using invalid worker data for salary payments.

The Actual Payroll Process

Load the confirmed input data into the payroll system for payroll processing. The net salary after taxes and other taxes is the outcome. To avoid mistakes, reconcile the figures and verify accuracy after completing the payroll process.

Post-Payroll Process

Statutory Obligation

All mandatory taxes are deducted when payroll is processed. The money is subsequently sent to the government entities by the corporation. In most circumstances, you have to pay dues through cheques. After all, you have paid the debt and have filed the reports. ECR is created and submitted, for example, while filing PF returns.

2. Payroll Accounting

Every business keeps track of its financial dealings. The wage paid is among the key operating costs shown in accounting. Ensure that all wage and payment data is correctly input into the accounting/ERP system as part of payroll administration.

3. Payout

You can pay wages in cash, via check, or bank transfer.

4. Reporting

Once you have completed the payroll run for a month, the finance and top managers may request information such as departmental employee costs, locational employee costs, etc. Then, as a payroll officer, you must delve into the data, extract the information, and distribute the reports.

How to set up payroll in six steps?

Apply for a FEIN with the IRS

Your firm will receive a FEIN after applying with the IRS. The FEIN number is essential for any federal tax remittance forms and for your workers to pay their taxes.

2. Register with state authorities

Enroll with local state officials to make contributions and remit duties to the government, depending on the firm's location and where your workers reside. If all your workers live and work in the same state, you merely need to register with the government or agencies. Each agency will provide your company with a unique account number. This number, like your FEIN, will be required when you pay and submit state taxes. In addition, if your company is eligible for state unemployment taxes, you will be issued an SUI rate.

3. Ensure that workers register in the state where they live

In most cases, the worker's residence determines the local taxation. You must declare unemployment insurance based on the state in which your staff member works. A few exclusions and state licensing accords may cause payroll issues. Contact the state agency directly with your queries and check the registration authority if in doubt.

4. Get employees' paperwork in place

You'll submit paperwork and fees on account of your staff now that you have a business. You'll need to maintain the following information on hand for each employee you recruit:

Name.
Date of employment initiation or termination.
Tax identification number
Birthdate
Current location.
Compensation Details. Make a point of putting facts concerning pay in writing to avoid misunderstandings.
Form I-9 verifies a worker's eligibility.
Employees must complete a W-4 form.

Remember that gathering this data is merely the first step. You must also submit your workers' I-9 forms for verification to be compliant.

5. Establish a pay schedule

Payday will be a day your staff looks forward to, but what day should it be? And how frequently should you get it?

To select the best payroll schedule, consider the following three factors:

What does your state require? Examine this table of national and local payroll tools to discover if there are any restrictions on when or how you may conduct payroll.
When is the ideal time for you? Payroll is the most expensive expenditure for many small companies. Will processing payroll create cash flow issues? Is there a time when it would be more suitable for you to perform it? Set up your timetable in a way that is pleasant for you.
What do your workers require? Remember that payroll is about looking after your team. They effectively give you their work on debt, and it might be difficult for them to wait a month for payment. Try to understand their requirements and preferences, especially if they have cash-flow concerns of their own.

Once you've decided on the pay date, notify your staff so they can prepare.

6. Determine how to pay personnel

You have a choice as a business in how you set up worker payouts, but these are the most typical options:

Check
Direct Deposit
Pay cards
Cash

Challenges in Handling Payroll Management Process

The payroll procedure gets difficult for two key reasons.

The Duty to Be Legally Compliant

Noncompliance with statutory requirements can cause imposing fines and penalties and the business's survival. There is some complex payroll administration software available today that automatically handles payroll by statutory laws.

2. Dependence on a Variety of Payroll Input Sources

Before you can manage payroll, you must gather all of the info, such as attendance registers, travel facility usage data, info from HR, such as salary modification data, and so on, which is a time-consuming process.

Bottom Line

It might be hard to learn how to perform payroll. First, you must make sure that your company is registered with all the agencies. Then, you'll have to complete documents for each employee and get workers' compensation insurance while working under a tight deadline. The complexity of payroll compliance may confound even the most seasoned business owners.

As a result, payroll service providers like Deskera are the most convenient and time-saving alternatives for business owners.

Frequently Asked Questions

How frequently should I run payroll?

State legislation and collective bargaining agreements with unions may specify how frequently a company must run payroll. Employers may pick a payroll calendar that works best for them and their employees if such restrictions do not apply. Weekly, bi-weekly, and semi-monthly are the most prevalent.

What is an EIN, and where can I obtain the EIN for my company?

To pay taxes, businesses must have an Employer Identification Number, also known as a Federal Tax Identification Number. After applying for one, employers receive a confirmation letter from the IRS with their unique number. EINs are also frequently seen on company loan applications and credit reports.

What are pre-tax deductions?

Employee payments to employer-sponsored benefits such as group health insurance, group term life insurance, and various forms of retirement savings programs are normally pretax deductions. They are beneficial since they reduce an employee's taxable income.

How Can Deskera Assist You?

As a business, you must be diligent with employee leave management. Deskera People allows you to conveniently manage leave, attendance, payroll, and other expenses. Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.

Try Deskera For Your Business

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Key Takeaways

Payroll is the process of paying salaries to employees of a corporation. It begins with compiling a list of personnel to be paid and concludes with recording expenditures.
It's a complex procedure that requires cooperation between departments like payroll, HR, and accounting. Businesses can readily manage all the complexity by using current technology.
There are three stages of processing payroll:
Pre-Payroll Activities
Actual Payroll Process
Post-Payroll Process
Follow these steps to set up payroll for the first time:
Apply for a FEIN with the IRS.
Register with state authorities.
Ensure that workers register in the state where they live.
Get employees' paperwork in place.
Establish a payment schedule.
Determine how to pay personnel.
The payroll procedure gets difficult for two key reasons:
The Duty to Be Legally Compliant.
Dependence on a Variety of Payroll Input Sources