As an employer, you are supposed to withhold payroll taxes on behalf of your employees, but remembering the complicated terms of taxes like FICA, FUTA and SUTA or doing the math for calculating these taxes can get tough sometimes.
Especially when you are in the process of hiring employees, setting up payroll should be the first task on your list. There are a few steps every business needs to follow for ensuring there are no delays in paying employees, adhering to the tax laws and paying taxes on the correct due dates.
You should be able to find all your payroll questions here, but if you want to save yourself time from setting up a payroll process from scratch, we also offer payroll software that does the heavy lifting for you!
Payroll Tax and its inclusions
Payroll taxes are taxes imposed on employers or employees based on wages, tips earned and salaries paid to employees. The employees incur part of taxes through a payroll deduction, and the rest of it is paid to the IRS directly from the employer.
Federal Tax Withholding
Each new employee must complete a W-4 form to list their marital status, withholding exemptions, and other factors that affect withholding.
FICA
In the United States, FICA stands for Federal Insurance Contribution Act. It’s a mandatory payroll tax deduction that includes programs like social security, Medicare and other insurance programs.
The employer deducts the employee’s share which is 50% amount from their paycheck, and the other 50% is paid out of the employer’s own revenue.
Additional Medicare Tax
The Additional Medicare Tax is a tax that is paid solely by employees and the self-employed. In other words, the employer does not match the Additional Medicare Tax. Added in 2013 as part of the Affordable Care Act, it applies to taxpayers who earn over a set income threshold.
Federal Unemployment (FUTA) Tax
This tax isn’t withheld from the employer’s pay and is incurred separately from the other taxes.
Self-Employment Tax
This tax is similar to social security and Medicare for self-employed individuals.
Steps for setting up a payroll process
- Register with the IRS for a FEIN
For employment purposes, you must use a federal employment indication number (FEIN). Once obtained, this is the number you will use on all business tax filings and forms. This number is assigned to your business after registering with the IRS.
- State-Local IDs
Depending on your business’s location and where your employees live, you’ll need to register with local state agencies in order to be able to process taxes.
- Take Care of Employee Paperwork
New employees must fill out Federal Income Tax Withholding Form W-4. Your employee must complete the form and return it to you so that you can withhold the correct federal income tax from their pay.
- Choose a payroll schedule
You may have a manual process for this but generally, each state has its own requirements on how often employees need to be paid. Most companies choose to keep their pay period as biweekly or semi-monthly mostly based on their yearly schedules, though some states require that hourly workers be paid weekly.
- Mark all of your payroll dates
Other than paying your employees the right amount, payroll also includes paying taxes. Non-compliance or any delay in paying taxes can result in hefty fines and penalties, so make sure you map out all your due dates when you’re setting up payroll to ensure you never miss any deadline.
How payroll software can do it?
Setting up a payroll process definitely isn’t a cakewalk; it requires you to make decisions- from the kinds of employees to the payroll process and pay period you want to choose. If you employ different kinds of employees such as hourly workers, contractors, permanent employees, you’ll want to look out for payroll software that can make this an easy process for you.
We offer payroll software which makes it effortless and cost-friendly to outsource these responsibilities as we know it can get overwhelming to handle everything at a single time.
UZIO offers a complete payroll solutions providing you with user-friendly software for all your Payroll, Benefits, and HR processes.
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