How to Setup Payroll

Bringing on workers for your business includes many factors: mostly taxes and benefits you need to pay.  Federal, State, and Local (County + City) regulations influence this.

Federal:

 Employer Identification Number (EIN):

• The EIN is a nine-digit number issued by the IRS required by all employers who are required to report employment taxes or give tax statements to employees or annuitants.

• Apply for one online by visiting IRS.gov/EIN. And see our how to if you need applying for an EIN.

• Eligibility:

  • Principal business located in United States or U.S. Territories

  • The person applying has a valid Taxpayer Identification Number

  • The person applying must be an individual (not an entity)

Employee’s Social Security Number (SSN):

• A SSN is required for employment. If your employee has an Individual Taxpayer Identification Number (ITIN) instead, then do not accept it as they are not eligible for US employment.

  • This also applies to if their SSN card says “Not valid for employment”

• Required to get each employee’s name and SSN and to enter them on a Form W-2.

• If you don't provide the correct employee name and SSN on Form W-2, you may owe a penalty unless you have reasonable cause.

  • Double check to make sure that the employee’s name and SSN are correctly recorded

  • Use the Social Security Number Verification Service (SSNVS) to verify that your employee is providing accurate information - SSA.gov/employer/ssnv.htm

• Fill-Out form I9 – Employment Eligibility Verification for each new employee

California:

California Employment Identification Number

• Register on https://www.edd.ca.gov/payroll_taxes/e-Services_for_Business.htm.

New Employee Registry

• Every newly hired or rehired employee must be reported to the California New Employee Registry. This includes employees of all ages, those who work less than a full day, part-time and seasonal employees, and those who discontinue their employment prior to the 20th day of work.

• Submit a Report of New Employee(s) (DE 34) electronically with, e-Services for Business. For information on reporting new employees online, visit FAQ – e-Services for Business.

• You must report the new employee information no later than 20 calendar days from the employee’s first day of work. Employers who report electronically must submit two monthly transmissions which are not less than 12 days or more than 16 days apart.

• For more information see https://www.edd.ca.gov/Payroll_Taxes/FAQ_-_California_New_Employee_Registry.htm

E-file and E-pay Mandate

• All employers are required to electronically submit employment tax returns, wage reports, and payroll tax deposits to the Employment Development Department (EDD).

• Go to https://www.edd.ca.gov/Payroll_Taxes/e-Services_for_Business.htm to enroll in e-Services for Business

Benefits:

Not all benefits are necessary. It can depend on the state you do business in and the state your employees are in. Please do your research.

Different Kinds of Benefits:

• Social Security, Medicare, and Federal Insurance Contributions Act (FICA)

  • Employers are required to withhold Social Security tax at 6.2 percent of gross compensation, up to the Social Security Wage Base ($147,000 for 2022). Employers must also withhold Medicare tax at 1.45 percent of gross compensation, and an additional 0.9 percent of compensation in excess of a threshold amount based on the employee’s filing status if an employee’s compensation exceeds $200,000 (there is no wage base for Medicare). Employers must also match 6.2 percent for Social Security, up to the Wage Base and 1.45 percent for Medicare. Employers do not have to match the additional 0.9 percent.

• Unemployment Insurance

  • Federally mandated, state administered program.

• Workers’ Compensation Insurance

• Health Insurance

  • For companies with 50 or more full-time employees, including full-time equivalent employees. Under the Affordable Care Act, applicable large employers risk a potential assessment if they do not offer adequate and affordable coverage to their full-time employees and their dependents

• Family and Medical Leave

  • Employees in private firms with 50 or more employees, and all public employees, are eligible for up to 12 weeks of job-protected, unpaid leave during a 12-month period for qualifying family and medical reasons, and to handle qualifying exigencies, as well as up to 26 workweeks of unpaid, job protected leave in a single 12-month period under the Military Caregiver Leave.

Setting up a Payroll System:

• A payroll system involves everything from keeping track of hours to withholding taxes.

• We suggest finding a payroll service that works within your budget to keep track of all of the requirements of a payroll system.

• A basic payroll service will collect wage and hour information from the employer and use that information to calculate gross wages, subtract all pertinent withholdings and deductions, print checks, make direct deposits and prepare all employment tax filings. The service will also mail out W-2 and 1099 forms and resolve any inquiries from the IRS or other government agency.

• Payroll Software is the most convenient way to accomplish this task. Some examples of payroll software include:

  • ADP

  • QuickBooks

  • Namely

  • Rippling

Do some research and find one that works best for you!