Payroll Registration for Your Business in the US
Before launching a small business, you must take several steps and ensure that you are protected by abiding by government rules. In the USA, most new businesses require at least one employee or contractor to be on your payroll. To register your firm with the government, you must take a few steps before you can begin paying your employees.
Consider the following scenarios: your company is set up as a corporation, a sole proprietorship, or a Limited Liability Company (LLC). In that scenario, to obtain any business permits or licenses to operate your business, your company must be registered with the state where it is located.
Whether your business is operating from a physical location or from an employee’s place of employment, it has to be registered.
Employer Identification Number (EIN)
Obtaining a Federal Employer Identification Number (FEIN/EIN) is the first step.
This step must be completed even if you don’t have any employees because this ID is needed to identify a separate legal entity from you. For instance, corporations, partnerships, etc. The only individuals who are not required to apply for an EIN and do not hire anyone are sole proprietors. If they have paid any excise taxes or payroll taxes in the USA, they must obtain an EIN.
The IRS form SS-4 can be completed online to apply for an EIN, which is a fairly simple process. It is the approach chosen most frequently for requesting an EIN. You must have a Tax Identification Number to complete the form.
The IRS offers this service free of charge, so you can submit your application online or by fax or mail.
How do I start payroll in the USA for the first time?
If this is your first time running payroll in the USA, you may feel overwhelmed. There are numerous new processes and terminology to learn. You will need to learn how to set up payroll, collect employee information, run payroll, promptly pay, and file various taxes.
What Are the Requirements for Running a Payroll?
It is simple to believe that the payroll process in the USA starts when you give your employee their paycheck.
Before employees receive their paychecks in their bank accounts, however, a lot of things must occur for your payroll to be conducted properly. Everything starts when you begin hiring new personnel.
You must complete the following steps before you can pay the wages of your employees:
1. Select a Payroll and Accounting System
It will be stressful if you attempt to complete all your accounting responsibilities manually. Instead, it’s preferable to put accounting and payroll software in place ahead of time so that you can keep all important information centralized and structured including:
- IRS W-4 Form
- State W-4 Form
- U.S Citizenship and Immigration Services (USCIS) Form I-9
- Direct Deposit Enrollment
You will also need to collect additional information, such as an emergency contact number and benefits enrollment (health insurance, retirement, saving plans, etc.), in addition to the information already given.
Enrolling your firm in the Electronic Federal Tax Payment System, which can help keep track of all your files, is usually a smart idea if your accountant or payroll provider handles all your business’s tax payments. You should confirm and comprehend what tax payments are being handled directly with your provider.
2. Select a Payroll Schedule
When will you be paying your employees? Decide on the pay period or recurring schedule. You should always verify that you are abiding by pay period regulations and find out whether there are any mandatory payment frequencies in your jurisdiction.
How to Process Payroll in the USA in 5 Easy Steps
After you find out what is needed to manage payroll for your small enterprises, prepare to start paying your employees. The easy steps mentioned for processing payroll are as follows:
1. Calculate the Employee’s Gross Salary
Calculate the gross salary for each employee. Gross pay is the total amount you owe them, net of any deductions or withholdings. Your employees’ gross pay will vary depending on whether they are hourly or salaried workers. Also included in the gross wages are the following:
- Overtime pays
- Sick and vacation pay
- Bonuses
- Commissions
- Tips
You must adjust an employee’s base pay if they file or are eligible for any of the abovementioned within a pay period.
2. Determine the Withholding Amount and Deductions
The gross wage of the employees is not available for collection. Payroll taxes in the USA (federal, state, and municipal income taxes), are just a few of the deductions that employers must figure out.
The wider category known as payroll tax is made up of Social Security and Medicare taxes (sometimes known as FICA taxes), as well as state unemployment taxes (SUTA) and federal unemployment taxes (FUTA).
As a result, if you recruit a new employee, you must gather the necessary initial forms since you will use this data to calculate the withholding tax you demand. Additionally, any contributions made by employees to a retirement savings plan, health insurance, or other benefits must also be taken out of their compensation.
3. Payout Distribution
This is when employees receive their wages or salary. Paychecks or direct deposits will be distributed to them.
4. Deposit Payroll Taxes
Payroll tax must be paid to the IRS once you have paid your employees. The federal income tax withheld from employees, the Social Security and Medicare withheld, and the amount you owe for Medicare and Social Security taxes are all included in these deposits.
5. Update Your Payroll Register
Your payroll register will be useful in helping you maintain accurate payroll processing records. It is a record that shows the following information for each employee:
- Total gross pay
- Total and type of each deduction
- Total net pay
Payroll Components in the USA
- employee information,
- hours worked,
- salaries and wages,
- deductions, and
- net and gross pay.
Employee Information
You must first collect some data from your employees before processing payroll. Each employee must accomplish Form W-4. This form collects relevant information about your employees’ federal income tax withholding as well as specifics like address, name, and SSN. To correctly divide payroll and run payroll, this information is necessary. The W-4 form must be completed each time a new employee is hired.
Hours worked
You must keep account of the hours worked by any employees who are paid an hourly wage. It will guarantee that your employees receive accurate and timely compensation. It’s also important to keep track of their working hours to ensure that they have spent the entire allotted time at work.
Salaries and Wages
The term “salary” refers to a set sum that can be paid to an employee. An employee’s annual compensation is typically calculated by dividing the sum of all the pay periods during the year by 12. Wage is the amount you give your employees in accordance with the number of hours they put in. You must establish a fixed rate of compensation for every hourly employee. On the other hand, to determine their total salary, multiply the pay rate by the employee’s total number of hours worked.
Overtime pay
Overtime compensation is required for all non-exempt workers. Both salaried and hourly employees are included. Only until an employee has put in 40 hours a week can they start working overtime. One and a half times the regular pay rate is paid for overtime. You can check the state overtime requirements here.
Other pay
Employees may receive compensation from additional sources. For instance, service providers may get tips. Additionally, there are payroll taxes on tips, which employees must submit to you. When you provide your staff commission or bonus pay, that is considered other pay. You can add these pay when you conduct payroll.
Deductions
Any amount you subtract from the total pay of an employee is referred to as a deduction.
Payroll Taxes
Payroll taxes must be subtracted from each employee’s compensation to cover these costs. Depending on the overall earnings and information on Form W-4, each employee will have a different amount deducted from their pay. The following are the payroll taxes in the USA:
- federal income tax,
- state income tax,
- local income tax,
- federal unemployment tax,
- state unemployment tax,
- Medicare tax, and
- Social Security tax.
Medicare and Social Security taxes are part of payroll taxes in the USA. Once a person turns 65, they are eligible for medical coverage through Medicare tax funds. On the other hand, social security taxes pay for benefits for retirees, the dependents of retired employees, and the disabled and their families.
These taxes are collectively referred to as FICA taxes (Federal Insurance Contributions Act) taxes. Half of the FICA taxes are deducted from employee earnings, and the other half is covered by employer payroll taxes. Self-employed individuals must also pay federal payroll taxes, paid through self-employment tax in place of FICA tax.
Net and Gross Pay
You should display the net and gross wages of an employee on a paycheck. Gross pay refers to an employee’s whole compensation. For IRS forms, the employee’s gross pay is typically requested. It is the amount of an employee’s salary and all withholdings while the take-home pay for workers is their net pay.
What Kinds of Payroll Frequency Are There in the USA?
The payroll frequency refers to how often you pay your staff. To know exactly when they will be paid, each employer must adhere to a payroll schedule.
The four most common pay frequencies in the US are as follows:
- Weekly
- Bi-weekly (once every two weeks)
- Semi-monthly (twice a month)
- Monthly
To summarize
Because of the multiple taxes, regulations, contributions, and procedures, the USA payroll system can be challenging. Knowing the fundamentals can help you keep track of your company’s finances regardless of how you handle payroll. Running payroll effectively is essential for the health and success of your small business, even if labor costs might be a company’s biggest expense.
It is best to tap a solutions provider company like Bolder Launch, so you can get the help you need in managing your payroll smoothly. Our professionals are experienced in handling and computing federal taxes, state and local taxes, and other contributions.
This guide is part of Relocate Staff to the USA in our Launch Guide.
