bake - September 2016 - 14

labor front

10 Steps to Better Accounting
Whether you have one employee or 50, setting up a payroll
system not only streamlines your ability to stay on top of your
legal and regulatory responsibilities as an employer, but it can
also save you time and help protect you from incurring costly
Internal Revenue Service (IRS) penalties.
Here are 10 steps from the Small Business Administration to
help you set up a payroll system for your small business.
Obtain an Employer Identiﬁcation Number (EIN). Before hiring
employees, you need to get an employment identiﬁcation
number (EIN) from the IRS. The EIN is often referred to as an
Employer Tax ID or as Form SS-4. The EIN is necessary for
reporting taxes and other documents to the IRS.
Check Whether You Need State/Local IDs. Some state/local
governments require businesses to obtain ID numbers in order
to process taxes.
Choosing a Payroll System. Payroll administration requires an
Independent Contractor or Employee - Know the Difference.

acute attention to detail and accuracy, so it's worth doing some

Be clear on the distinction between an independent contractor

research to understand your options. Start by asking fellow

and an employee. In legal terms, the line between the two is

business owners which method they use and if they have any

not always clear and it affects how you withhold income taxes,

tips for setting up and administering payroll.

withhold and pay Social Security and Medicare taxes, and pay
unemployment taxes.

Running Payroll. Once you have all your forms and information
collated, you can start running payroll. Depending on which

Take Care of Employee Paperwork. New employees must ﬁll

payroll system you choose, you'll either enter it yourself or give

out Federal Income Tax Withholding Form W-4. Your employee

the information to your accountant.

must complete the form and return it to you so that you can
withhold the correct federal income tax from their pay.

Get Record Keeping Savvy. Federal and some state laws require
that employers keep certain records for speciﬁed periods of

Decide on a Pay Period. You may already have a manual

time. For example, W-4 forms (on which employees indicate

process for this, but setting up a pay-period (whether monthly

their tax withholding status) must be kept on ﬁle for all active

or bi-monthly) is sometimes determined by state law with most

employees and for three years after an employee is terminated.

favoring bi-monthly payments. The IRS also requires that you

You also need to keep W-2s, copies of ﬁled tax forms, and

withhold income tax for that time period even if your employee

dates and amounts of all tax deposits.

does not work the full period.
Report Payroll Taxes. There are several payroll tax reports
Carefully Document Your Employee Compensation Terms. As

that you are required to submit to the appropriate authori-

you set up payroll, you'll also want to consider how you handle

ties on either a quarterly or annual basis. If you are in any

paid time off (not a legal requirement, but offered by most

way confused about your obligations, take a look at the IRS's

businesses), how you track employee hours, if and how you pay

Employer's Tax Guide, which provides some very clear guid-

overtime, and other business variables.

ance on all federal tax ﬁling requirements.

14 < SEP 2016 | bakemag.com
http://www.bakemag.com
bake - September 2016

Table of Contents for the Digital Edition of bake - September 2016
