Payroll definitely requires good bookkeeping and a healthy paper trail. Whether you are hiring a bookkeeper or a bank or payroll service or not, you must make certain that all of the employee payroll-related documentation is on file. The W-4 and I-9 forms signed by employees when they’re brought on board must be on hand.
The W-2 sent to employees on wages earned or the 1099 forms sent to independent contractors for services performed for the company each year must be sent out, and a copy kept in your files.
To comply with all of the rules and regulations on payroll withholding and reporting you will need to follow the ten steps listed here:
- File IRS Form SS-4 to get your federal Employer Identification Number (“EIN”).
- With your EIN and articles of incorporation open a bank account.
- Get each employee an IRS Form W-4 (Employee’s Withholding Allowance Certificate) and have them fill it out. Keep this on file. (All of the IRS forms referenced here can be found at IRS.gov.)
- Visit your state’s employment division office, register your business and make the required unemployment insurance payments.
- Institute a payroll plan for making payroll tax deposits on a regular basis. Either a staff member or an outside service must be responsible for this.
- File the Employer’s Quarterly Federal Tax Return (Form 941) at the end of each quarter (March 31/June 30/September 30/December 31).
- At the end of each tax year report your federal payroll tax payments on either Form 940 or 940-EZ.
- At the end of each year report each employee’s annual wages and health care information to the IRS (always required) and state (if required) on Form W-2.
- At the end of each year file and report payments of $600 or more to each independent contractor on Form 1099-MISC.
- Take a deep breath. Acknowledge that while this is a lot of work every other legal business out there is going through the same thing. They are doing it. So can you.
For more information on this and other payroll compliance issues as you start your new company, please read Run Your Own Corporation.