There are a few steps you need to take before your startup can begin hiring. One of the most important things you must attend to is setting up a payroll system.
So what is payroll? In general terms, payroll is the process of paying your employees. The term refers not only to the distribution of paychecks but also to processes like financial bookkeeping and calculating relevant payroll taxes. With a well-functioning payroll system in place, you can track employee hours, issue paychecks on time, and pay payroll taxes. A good payroll system will also help your startup stay in compliance with regulatory laws by making necessary deductions for things like Social Security and Medicare.
In this article, we’ll take a closer look at what payroll services are and how they can help your startup. Read on for a general overview of payroll services for startups or click on any of these links to skip to the section you’re most interested in:
- How to set up payroll for a startup
- Why should you use a payroll service for your startup?
- How to choose a payroll service
If you’re not sure how to set up payroll, you’re not alone. Many first time employers and small business owners initially have no idea how to establish and operate a payroll system for their startup. Although it takes some time and effort to get a payroll system going, it’s not as difficult as you may think.
To get your small business payroll system up and running, you’ll have to take a few basic steps:
- Set a payroll schedule to determine how often you’ll pay employees (i.e. weekly, twice a month, or monthly).
- Provide new hires with Form W-4 to determine withholdings so you can deduct the proper amount of income tax from their paychecks.
- Stay on top of IRS deadlines to avoid penalties.
- Compile your employee payroll information and keep it for your records.
For most small business owners, the idea of running payroll themselves every pay period isn’t exactly exciting. That’s because running payroll can be a tedious and time-consuming process. Additionally, to run payroll the right way, you must possess knowledge of tax laws and regulations at the local, state, and federal levels.
Making payroll processing mistakes can have serious consequences, such as unnecessary fees and fines from the IRS. Additionally, if you pay your employees the incorrect amount or issue paychecks late, it can contribute to employee dissatisfaction. In fact, 24% of workers report that they’d begin searching for a new job after experiencing a single paycheck error.
As a small business owner, you have a few different payroll options to choose from. There are three main ways to handle payroll:
- In-house: Either you, one of your employees, or an in-house bookkeeper is responsible for running payroll for the company.
- Outsource: Payroll is handled by a third party, such as an independent contractor or accounting firm.
- Payroll service: Payroll providers and payroll software can handle all of the basic aspects of payroll management for your company. Many payroll providers and accounting software programs also offer add-on services like time tracking, tax filing, and processing tax forms.
Many small businesses choose to use a payroll service because it’s a convenient and often affordable option. Using a payroll service can save time and money by streamlining the payroll process, which reduces the amount of time you spend running payroll and minimizes mistakes.
Full-service payroll programs also include a number of helpful features that make setting up and managing payroll a breeze. Some of the most common features include:
- Direct deposit: With direct deposit, paychecks go straight into your employees’ bank accounts. While it may cost extra to set up direct deposit, it’s a common convenience that nearly all businesses offer. As a matter of fact, approximately 82% of US workers get paid via direct deposit.
- Time tracking: Many payroll services offer built-in time tracking software that makes it easy to keep track of employee working hours in real time. In the case of full-time and part-time hourly employees, this enables you to calculate their gross pay.
- Auto payroll: Want to be hands-off when it comes to payroll? Auto payroll allows you to set up your payroll so that it runs automatically.
- Tax filing services: As an employer, you have to file payroll taxes to stay in compliance. Many payroll services can calculate and file state and federal taxes, as well as any other necessary payroll taxes, for you. Automated tax filing can help you avoid hefty IRS penalties. QuickBooks offers tax penalty protection, meaning we’ll pay up to $25,000 if you receive a payroll tax penalty, regardless of who made the error.
- HR support: In many cases, you can combine payroll and human resources services so that everything’s in one convenient place. You’ll be able to customize onboarding procedures for new employees, track PTO, and manage employee benefits like health insurance, all in one place.
- Workers’ compensation: Workers’ comp is a type of insurance required in most states. Make paying into workers’ comp easier when you incorporate it into running payroll.
As far as choosing a payroll service, you have a few options. There are a variety of different payroll service providers out there, as well as different packages and add-ons to choose from. To choose the payroll service most well-suited for your startup, follow these important steps:
- Take a look at your company. To decide on the payroll service that works best for your startup, you’ll first need to examine some of your company’s relevant characteristics. Consider factors like the number of employees you have, the frequency of your payroll cycles, and whether you have employees in multiple states. All of these factors will play a role in how much you end up paying for a payroll service.
- Determine your business needs. Make a list of the things you need in a payroll service. Perhaps you just need the bare minimum, or maybe you need features like HR support, benefits administration, and tax filing services. Every business has its own unique needs, so take some time to determine yours.
- Set a budget. After you’ve evaluated your company and determined what you need in a payroll service, it’ll be easier to assess how much you can actually afford to spend. Working with your startup’s CFO to set a budget can prevent you from getting carried away with add-ons and help you stay in compliance.
- Look into desired features. Beyond basic payroll functions, most payroll providers offer other add-ons at an additional charge. Explore these features to see if any interest you and decide whether they’re budget-friendly in your case.
- Compare plans. It’s always a good idea to explore different payroll service plans and compare pricing before making a final decision. So don’t pull out your company credit card and make any purchases until you’ve done your research.
Setting up and managing an effective payroll system is critical to the success of any company, no matter the size. If your startup is considering hiring employees, then it’s better to set up a payroll system sooner rather than later. Having a payroll system in place will make it easy to issue paychecks on time, avoid tax penalties, and keep your business finances in order.
However, running payroll yourself can be a headache. To stay on top of payroll while saving yourself time and money, consider using a full-service payroll provider like QuickBooks. Our team of experts will make sure your startup’s payroll gets done the right way. And, without having to worry about payroll, you can devote time and energy to the aspects of your business you care about most.
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