7 steps to setting up payroll for your small business

Before you set out with the actual payroll setup it is extremely important that you conduct a thorough review of all the guidelines, policies, and laws that your government deems legally binding when paying employees and setting up your overall payroll system. This could include, for example, necessary tax deductions, HRA, travel, or other legally necessary benefits that need to be included in the salary. In some countries, like the US, these regulations can differ within the country, from state to state, as well so it would do good for you to check out your local government’s regulations for any additional requirements.

The next step is to acquire the necessary documentation with which you can officially start setting up your employee payroll. This could include documentation that both you as a company need to comply with as well as legal processes that your employees have to follow as well. In the US, for instance, this would include acquiring a Federal Employer Identification Number (FEIN or EIN). Again, in India, this would take the form of obtaining a TAN or tax deduction and collection account number. Your employees would also have to fill out certain legally binding documents during the time of hire so ensure you have the required papers at hand.

Analyze your current situation, future potential, and how you want to get there, and then decide the way you want to manage payroll structure. Besides the actual salary, your payroll structure will also include, for example, CTC or cost-to-company components. These could include different forms of allowances, insurance, PF, or other benefits that are legally necessary. It will determine how you break down an individual salary and how much the employee will receive and when.

Having your bookkeeper or HR team roll out payroll for small businesses might be tried and tested but it’s not a great option for scalability. As your company grows your workforce will grow and so will the complications that arise with payroll systems. A wise move would be to choose a payroll software provider or an integrated HR system. Many SaaS providers have comprehensive spend management software that can automate your entire payroll process. These platforms can cut down payroll timelines from months to days with less than half the effort that would otherwise be required.

Once you’ve gone through the legal formalities, decided how you want to manage payroll and its structure you must then determine your payroll schedule. Companies can choose to pay their employees weekly, bi-weekly, or monthly. There’s also the case of contractual workers getting paid one-time amounts. You need to decide which approach amongst these is the best for you. Once you do you can set the time periods on your payroll software and let it work its magic.

As you might have already observed by the time you reach this step, you’ll have to pay a certain amount of taxes on behalf of your employees. Besides this, you’ll also have to carry out a number of other formalities for them. In order to be able to do this, you need to have the necessary information about your employees. This information includes, but is not limited to, employee name, address, phone number, government ID number, bank account details, phone number, and any other declarations they might have.

Finally, once you’ve done it all - set up payroll account, fill out forms, and complied with guidelines - it’s time to pay the actual salaries and, of course, the tax deductions that come with it. This part of the job is especially easy if you have payroll software working for you, it pretty much automates most of the process. If not, you need to remember the right dates, crunch numbers on time, and ensure compliance at all times to avoid legal or financial roadblocks.