As a solopreneur, you may be focusing on developing the best product for your market. While your product is key to building a successful startup, you need to prioritize your business operations as well. Have you hired employees?
Maybe you’re thinking about hiring or planning to hire the right talent in the next few months. Do you know how to pay employees? If you answered no, you should figure out how to run your accounting operations before hiring new talent.
Don’t know where to start? We’ve got you covered. Here’s the step by step guide to start paying your employees today.
1. Obtain Your Employer Identification Number and Employee W-4s
As a business owner, you might have been focusing on launching your startup instead of setting up your accounting operations. Have you requested your employer identification number? If you answered no, you should apply for your EIN as soon as possible.
This number will identify your startup when you file your business taxes with the Internal Revenue Service (IRS). When you hire an employee, you’ll need to request a W-4 during their onboarding process. This form will detail how much federal taxes you’ll withhold from the employee’s paycheck.
2. Choose Your Payroll Schedule
It may be tempting to pay your employees on a project basis during the startup phase. However, it’s recommended you choose the applicable pay schedule to comply with local and federal laws. Depending on your location, you may be able to pay your employees on a weekly, bi-weekly, or monthly basis.
If you’re unsure about the right schedule, you may consider consulting an accounting expert. An accountant will provide insight into the most convenient schedule – there are plenty of companies that specialise in accounting for startups should you need them.
3. Calculate and Withhold Taxes
The next step to pay your employees is calculating and withholding the applicable federal and local taxes. Remember you should follow the information from your employee’s W-4 to calculate the federal tax withholding rate.
If your employee legal status changes, you must ask them to complete a new W-4 that reflects these changes. Keep in mind you’ll also need to calculate any applicable state and local taxes depending on your location.
4. Pay the Applicable Federal and State Taxes
After withholding taxes from your employees’ paycheck, it’s time to pay these taxes following the established schedule. An example is how if you meet the IRS guidelines you may deposit the applicable federal taxes on a monthly or semi-weekly basis. It’s recommended you consult an accounting expert to make sure you follow the right schedules when paying your federal and state taxes.
5. Pay Your Employees
After setting all the basics to pay your employees, it’s time to run your payroll. Believe it or not, you can automate this process by using accounting software. You should also consider using a paystub maker to provide proof of income to your employees.
Now You Know How to Pay Employees, What’s Next?
Learning how to pay employees is vital to building a successful business. Having a great idea is the starting point of any startup. Yet, efficient business operations are pivotal for boosting company growth.
While you may be able to set up your accounting operations, you may consider outsourcing this role. Consider hiring a bookkeeper or accountant to pay your employees and run your accounting department.
Outsourcing this role will allow you to lower your overall costs while running your company more efficiently. Also, an accounting expert will be able to provide insight into the applicable filings and tax withholding regulations.
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