Processing payroll means paying employees for their work. To do this accurately and in compliance with all regulations, you will need:
- A payment schedule
- Employer identification number
- W-4 and W-9 forms
- Pay statements
- A payroll manager
- Time and attendance tracking
Calculating payroll taxes and withholding deductions are also required. Many companies use payroll software to automate payroll processing, which ensures efficiency and accuracy.
Determine a payroll processing schedule
There are four standard options for how often you can pay your employees:
- Weekly (52 paychecks per year)
- Biweekly (26 paychecks per year)
- Semi-monthly (24 paychecks per year)
- Monthly (12 paychecks per year)
Some states require at least bimonthly payments for all workers, while others mandate specific frequencies for different types of workers. If you are not bound by state payday requirements, you can choose whichever pay period works best for you and your staff.
Apply for an employer identification number (EIN)
An EIN – also known as Federal Employer Identification Number or a Federal Identification Number – is a nine-digit number (format: 00-0000000) the IRS uses to track your company for tax purposes. Think of it as a Social Security number for your business. Some state and local governments also require employers to have a separate tax ID number.
Have employees and contractors complete W-4 and W-9 forms
Employees on staff must fill out a Form W-4 and independent contractors must complete a Form W-9, so that the IRS can calculate their tax liability. You aren’t required to withhold any taxes for independent contractors, but you do need to file Form 1099 at the end of each calendar year that reports how much you paid them. Bona fide employees receive a Form W-2.
Create compliant pay statements
Some states have specific requirements when it comes accessing statements electronically and items that must be displayed on a pay stub. Avoid violations by contacting the labor departments in the states in which you have employees.
Designate a payroll manager
Every business needs someone to administer payroll. That person could be the office manager, the human resources director or even the owner. The amount of time the job takes depends on whether you are running payroll manually or automating the process with payroll software.
Track time and attendance
How you choose to manage time and attendance – whether it’s a time clock, a mobile app or a pencil and paper – is entirely up to you. Keep in mind, however, that doing it manually opens the door to human error. Companies that choose an automated time and attendance solution that integrates with payroll are 30% less likely to commit payroll mistakes.1
Calculate payroll taxes
As an employer, you’re responsible for calculating and withholding money for federal, state and local taxes from every employee’s paycheck. The amount you withhold is determined by W-4 forms and current tax rates. In addition, the United States government requires that you pay federal unemployment tax (FUTA) and match what your employees pay in Social Security and Medicare taxes.
Withhold additional payroll deductions
Employees can choose to have you withhold money from their paychecks to fund retirement plans and insurance premiums. Each of these requires a separate consent form. Sometimes, you must also withhold deductions for court-ordered garnishments, such as child support and alimony.
1. Total Workforce Management 2013: The State of Time and Attendance, Aberdeen Group, July 2013.