How to Set Up a Company Payroll
The manner in which you set your company payroll depends on the payroll system you choose. A manual payroll system requires payroll processing by hand; an in-house computerized system uses payroll software to process the payroll, and an external outsource sends the payroll to a payroll service provider. Apply the system that best meets your requirements.
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Instructions
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Implement a manual system if you have few employees, such as fewer than 10. Be careful when using this system, which is prone to errors since everything is done by hand. Purchase standard time sheets or a punch clock, tape calculator, payroll registers to log employee pay details for each pay period, and payroll checks with a pay stub attached at an office supply store. Include the employee's wages and deductions (gross-to-net earnings) on the pay stub. You can hand-write the paycheck and pay stub information or use a typewriter for a potentially more legible paycheck and pay stub.
If your state does not require you to give employees a pay stub, you can use your bank checks. Use IRS Circular E to manually calculate federal payroll tax withholding and your employer payroll taxes. Enter payroll data, such as employee hours and wages, for each pay period into the payroll register. File hard-copy payroll records in a confidential area.
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Establish an in-house computerized system if you want to simplify your payroll. Payroll software allows you pay employees via direct deposit. The system calculates wages and deductions based on inputted data; generates paychecks and pay stubs; and allows you to create and print payroll reports, such as preprocessing reports for you to double-check the payroll before printing paychecks. It also stores payroll records, including payroll registers and W-2s.
Buy the software that best suits your requirements. A small company seeking payroll and accounting features, for example, can choose QuickBooks; and a medium-sized company seeking payroll and human resources features can choose something like Ultimate Software. Payroll software allows you to import employee time from a computerized timekeeping system into the software; this process eliminates manual time-card calculation.
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Set up an external, outsourced system if you want to significantly reduce your payroll tasks. The payroll service provider allows you to upload your payroll hours via the Internet or fax or e-mail them. The company processes your payroll and sends you paychecks and payroll registers, which breaks down each employee's wages and deductions, by payday. Some companies allow you to print paychecks yourself and access payroll reports online. Give the provider your bank account and routing number for direct deposit purposes.
Many providers provide benefit and payroll tax services. If you choose these options, sign a power-of-attorney document giving the company the legal right to handle such affairs on your behalf. Have an on-site staff member double-check the provider's work.
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Tips & Warnings
Check with the U.S. Department of Labor to learn federal wage and hour laws, including minimum wage, overtime pay, child labor, record-keeping, final paycheck, and nonexempt and exempt laws.
Check with your state labor department for state labor laws, which might equal or differ from federal law.
Stay abreast of state payroll tax guidelines via your state revenue agency.
IRS Circular E provides comprehensive information on how to report and pay federal employee and employer payroll taxes.
Create a flowchart for your payroll system, which shows your payroll processing tasks from start to finish.
References
Resources
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