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Payroll Guide: How to Set Up Payroll for the First Time

Setting payroll for the first time

Before we begin, we wanted to say, congratulations & thank you!  You’re doing big things by starting your business.

This moment right now: soak it all in. You’re growing your business and expanding the team. This is a huge milestone for you: welcome to your level up.

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With growth, new challenges may arise, and we want to help you navigate uncharted waters. Like getting started with paying the person or people you plan to employ.

We’ve created an easy step-by-step guide that breaks down
the process into 2 parts.
PART ONE: Payroll Prep: What you need to know before you begin

The first four steps of this guide are all about organizing and preparing your business

Step 1: Register for an EIN
An EIN is also known as an Employer Identification Number. Before hiring, you need this from the IRS. You’ll use your EIN to report your taxes to the IRS and state governments.

Applying for an EIN is relatively easy and you can do it online!

If you’re an established business– then congrats! You can skip this step and move on to the next step.

Step 2: Get a local or state business ID (if needed)

Check your state law: some states require companies to have ID numbers to process taxes. Not all states require this, so contact your local or state government representatives to see if you need one.

Step 3: Gather your employee’s information

If you’ve done steps 1 & 2: you are now on your way to becoming an employer. This means you’ll be responsible for filing federal and state taxes for your team. Be sure to have the employee forms ready that also include a W-2 or 1099 forms on hand for each employee or contractor you bring on to your team! Information you need will look like this:

  • Full legal name: First, Middle, Last
  • Employment start & end date
  • Employee’s Social Security number or EIN
  • Date of birth
  • Current address
  • Compensation agreement: It’s helpful to put this in writing to make expectations clear and to prevent disagreements in the future.
  • Form I-9 to verify employees’ eligibility for employment in the US
  • A W-4 for employees (or a W-9 for independent contractors)

Gathering this information is the initial step. You still have to process. your employee’s I-9 to be fully compliant. The I-9 form verifies a person’s eligibility to work in the United States.

Step 4: Classify your employees

It’s important to classify your employees and job roles so that you’ll know who to withhold taxes.
This can be a costly mistake in the future, so setting yourself up right from the start will prevent mishaps that could potentially cost you.
If you are unsure about the legal definitions and implications we recommend reaching out to the IRS to help you further. If you need help, the IRS can assist you if you fill out this form: Form SS-8

Check our part 2 to continue the process