How to setup payroll for the first time?

 We've got to tell you something: you're awesome. You've established your company, and you're now ready to hire a few new employees and set up payroll services in Islamabad.

It's a significant achievement for you, and you've created a job for someone else. Isn't that cool?

Growing, as exciting as it can be, brings with it a new set of challenges. Company-related terms such as "business structure" and "EIN" are likely making their way into your vocabulary, and you're probably beginning to experience some strange emotions that are diametrically opposed to the elation you've had so far.

We understand; we've guided thousands of business owners through rites of passage such as the first time they set up payroll.

We've divided the steps into two sections: what to do before setting up payroll and how to get started. Here's our best advice for meeting the majority of the regulatory requirements for running payroll while saving time and avoiding IRS penalties.

Here's what you'll need to do before you can set up payroll.

Steps 1–4 are all about gathering information before you begin working on payroll. Fortunately, you'll only have to go through most of these steps once. Spend a few days gathering the following information and registering for the appropriate accounts:

Step 1: Obtain an EIN

You must first obtain an EIN (Employer Identification Number) from the IRS before you can hire anyone. In case the terminology is unclear, EINs are also referred to as "Employer Tax IDs" by some.

Your EIN will be used to report taxes and other information to the IRS and state agencies.

Apply for an EIN online, and your first task is complete.

Step 2: Obtain a local or state business identification number (if necessary)

Some state and local governments require businesses to have ID numbers in order to process taxes. Check with your local and state governments to see if you require an additional tax ID number.

We know it's a pain, but once you're done, you can proudly cross that one off your list.

Step 3: Write down your team's information.

You'll be responsible for filing reports and taxes on behalf of your team now that you're an employer. You'll need to keep the following information (and forms) on hand for each employee or contractor you hire:

• Name in full
• Date of employment initiation or termination
• Tax identification number (Social Security number or EIN)
• The birthdate
• current location
• Compensation details: Make a point of putting compensation details in writing to avoid disagreements.
• Form I-9 is used to verify an employee's eligibility to work in the United States.
• A W-4 form for employees (or a W-9 for independent contractors)

Remember that gathering this information is only the first step. To remain compliant, you must also submit your employees' I-9 forms for verification.

Here's the complete list (along with all the links you'll need) to ensure compliance on your employee's first day.

But since we're talking about payroll here, let's stick to what you need to do to get your employees paid (and keep them happy).

Make Every Minute Count Count: Why Should Your Workplace Be Concerned About Time Tracking?

Management of a Group

Step 4: Categorize your employees

Before you even consider adding up the payroll figures, you must determine who is an independent contractor and who is a full-time or part-time employee. Even if this seems self-evident, there are legal definitions for each — and differences between the two — that affect how much you owe them and how you withhold their taxes. If you fill out Form SS-8, the IRS will help you figure it out if it's unclear.

Why is it critical to correctly classify employees? For example, if you mistakenly classify an employee as an independent contractor, you would not withhold income taxes or pay payroll taxes on their behalf. As a result of your error, you may be required to pay back payroll taxes.

Not to mention the possibility of having to amend your taxes and possibly pay interest or penalties. According to a report by the Economic Policy Institute, studies in multiple states have revealed that 10 to 20% of employers misclassify their employees as independent contractors. Because employees typically cost companies 25 to 30% more than contractors, you want to make sure you get it right the first time.

Similarly, the FLSA distinguishes between exempt and nonexempt employees—that is, those who are not eligible for benefits such as overtime and those who are.

Step 5: Select a pay period

Payday will be a day your employees look forward to, but what day should it be? And how frequently should you have it?

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

What does your state require? Examine this list of federal and state payroll resources to see if there are any restrictions on when or how you can run payroll.

When is the best time for you? Payroll is the most expensive expense for many small businesses. Will processing payroll cause cash flow issues? Is there a time when it would be more convenient for you to run it? Set up your schedule in a way that is comfortable for you before your employees pass Go and collect $200.

What do your workers require? Remember that payroll is all about looking after your team. They basically give you their labour on credit, and it can be difficult for them to wait a month for payment. Try to understand their needs and preferences, especially if they are likely to have cash-flow issues of their own.

Once you've decided on a pay period, make sure to notify your employees so they can plan accordingly.

A website with the domain name Accotech has been created for the purpose of providing our clients in Pakistan with accounting, tax, and technology-related services. So, if you require any of these services, please do not hesitate to contact us.