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Step-by-Step Payroll Guide for Small Businesses

Need a step-by-step payroll guide to establish your small business's payroll?

If you have a small payroll, you can do it yourself with minimum time and effort...even if you do not have any accounting experience.

However...be aware that there are many laws governing employee pay and if you are unsure of these laws or do not want to stay up-to-date on them...you might want to consider hiring a small payroll service.

If you do decide to do it yourself...the key is setting up a simple payroll system that complies with all the applicable federal and state laws.

Here is a step-by-step guide to get you started setting up your small business’s payroll system:

Step-by-Step Payroll Guide - Step One: If you do not already have an Employer Identification Number (EIN), you will need to apply for a number by filling out IRS Form SS-4. You can get the number immediately, either by phone or online. (See SS-4 instructions)

Step-by-Step Payroll Guide - Step Two: Get state and local identification numbers if they are required in your area. Contact your state revenue department directly for information on applying to be a payroll provider in your state. (Oklahoma only requires your federal EIN number.)

Step-by-Step Payroll Guide - Step Three: Determine who is an independent contractors and who is a full time employee.

You don't have to withhold taxes from an independent contractor's pay; however, please don't think that you can save yourself some trouble by classifying all of your employees as independent contractors.

The IRS may penalize you heavily if you designate regular workers as independent contractors. For details, see the IRS Publication 15, also known as Circular E, The Employer's Tax Guide.

Step-by-Step Payroll Guide - Step Four: Determine a pay period. Your small business is entitled to pay based on any schedule you want; however, most states require you to pay your employees on regular paydays.

Typically small businesses pay weekly, bi-weekly, semi-monthly, or monthly. A few states allow some employees to be paid once a month, but most require that you pay your employees at least twice a month. Check with your state department of labor for your state's specific guidelines.

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