Starting your own business can be incredibly rewarding, but if you’re not careful, it can also end up being extremely costly in terms of time and money. If you want to ensure that your startup succeeds in the long term, pay close attention to how you handle payroll when you’re just starting because when it comes to taxes and expenses, small businesses have some unique challenges to face. Take this guide on how to manage payroll in your early days as an entrepreneur to heart so that you don’t spend more than you need to in the coming years.
Decide the right structure for your business.
Before looking at how to do payroll, it’s a good idea to figure out what kind of business entity you’ll be. Is your business a sole proprietorship, a partnership, an LLC, or an S-corporation? Each has its own set of requirements and formalities. Sole proprietorships are easy to create and maintain, but they don’t provide as much liability protection as other forms. S-corporations offer more tax advantages and minimal personal liability, but setting one up requires additional filing procedures. Partnerships work well for small businesses with two or more owners sharing management tasks and profits. Corporate structures allow a company to take on a legal identity apart from its owners—an important consideration if your business operates internationally.
Get your Employer Identification Number (EIN).
Your EIN will be your business’s social security number, so to speak. It is essentially a taxpayer identification number for your company, which you will need if you hire employees. EIN is also called the Federal Tax Identification number that identifies your business. You can find information on obtaining an EIN at the IRS website. You can even apply for your EIN online here. Once obtained, keep it in a safe place because you will need it for all tax and financial transactions related to your business.
Choose your tax period
A business can choose how frequently it pays its taxes. Most businesses choose a monthly or quarterly period, but there are benefits to choosing a biweekly tax period. A business with lots of small transactions may save money by choosing an annual tax period because they won’t have to make as many estimated payments. However, if your business is seasonal and expects few sales in December, you might want to choose quarterly over annual if your sales typically peak in June. Keep in mind that whichever method you choose for your first year will be considered a permanent selection going forward, so be sure it’s right for your business from the start.
Ensure your employees fill out the Form I-9 and Form W-4
For a company to hire an employee, they need to provide certain information about themselves. One of these requirements is that employees provide their employer with a completed I-9 or Employment Eligibility Verification form. This form documents that employees are legally eligible for employment in America and can begin working. Employers should also have all employees fill out a W-4 form, which informs employers how much federal income tax they need to withhold from their paychecks. It’s important to know that even if an employee does not intend on filing taxes at the end of the year, they still must submit a filled-out W-4 so your company knows how much money should be withheld each pay period. This makes it easier for them to file taxes at year’s end since there won’t be any surprises. You can download Form I-9 and Form W-4 here directly by clicking on them.
Know your payroll taxes & file them as per the IRS guideline
Your payroll & employment taxes include the following:
- Social security and Medicare taxes
- Federal income tax withholding
- Federal unemployment tax (FUTA)
When your business is growing, likely, you’ll also be hiring more employees. As an employer, you must stay on top of all payroll taxes. First off, be sure to know what types of taxes are required for your business including federal, state & local taxes; for example, if you’re based in Texas and run a small company with five employees, you will need to pay state unemployment insurance (SUI), federal unemployment insurance (FUTA), and Medicare (HI) taxes. Additionally, as self-employed individuals, you and your employees may need to pay estimated quarterly taxes throughout the year. And don’t forget those other necessary forms: Form W-2 and Form 1099 for wages paid to employees and contractors/independent workers respectively.
File your payroll taxes on time
You can do it yourself or hire a professional to do it for you. There are chances of errors and data discrepancies if you do it yourself and the consequences of which could be severe, and result in high penalties, distrust amongst the employees, and would eventually consume tons of time to rectify the mistake. Alternatively, you can hire a professional to do so but even then you can’t be 100% sure as after all the professional you have outsourced to is only a human. Besides, hiring an external professional to manage your payroll can be expensive. Whatever you do, make sure you have the best resources available to file your payroll taxes on time.
Find a full-service payroll solution to automate everything in the payroll process
UZIO is a full-service payroll platform where business owners can run payroll with just a few clicks. The UZIO state-of-the-art solution ensures it is updated with the latest compliance and tax laws, to ensure a smooth and error-free process. UZIO is a self-service platform that allows your employees to view their pay stubs and get access to UZIO’s free customer service. The UZIO payroll solution can be ten times cheaper than outsourcing to a professional who still might be using UZIO or a platform similar to this for managing your payroll.