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Setting Up Your Payroll System

April 13, 2006

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If you have hired an employee, you have to devise a system for paying that person. Below are the steps in setting up a successful payroll program:

• get a Federal Employer Identification Number (EIN)
• get state and local (where necessary) account/identification numbers
• get employees' Social Security numbers
• obtain a Form W-4 for each employee
• establish a pay period
• determine your workers' status as exempt or nonexempt
• post any notices that are legally required
• keep good records

Once you've done these things, you can begin paying employees by determining the hours they've worked, determining what their regular rate of pay is, taking deductions from their checks, and getting the money to employees.

You also have the option of using software or an outside payroll service to handle these administrative tasks for you. Software may save you some time by automating some of the process involved in payroll while an outside service will relieve most of the burden from your shoulders — for a price.

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