Tips for Setting Up a Payroll System

Posted on: 10 December 2015

No matter the amount of employees that your business has, it is essential that you set up a payroll system once you hire the first pool of employees. A payroll system is one of the most important aspects of accounting, and it is also essential to the growth of any business. You need to make sure that your employees are paid accurately and in good time to ensure that they will work in a productive manner and to meet legal requirements. Setting up a payroll system streamlines the process and also helps you to avoid legal penalties. It is important that you understand some of the most helpful tips designed to simplify the process of setting up a payroll system.

Identification Number

The first thing that needs to be done involves getting an employer identification number. This is something that you should do before you even begin hiring employees. This is a number that is essential when you are reporting taxes. Applying for this number can be done online, but there is no way to avoid obtaining an identification number.

Employee Paperwork

As an employer, it is important that you are aware of the distinction that is made between employees and employers when it comes to tax liability. Tax withholding forms need to be filled out by all employees that you hire. If an individual is going to be on the payroll, they need to first fill out the required documents that stipulate the withholdings from their pay.

Compensation Terms

It is also important that you determine what your employee compensation terms will be like before you begin hiring. These terms can help you secure reliable and qualified employees, but also need to be identified before payroll can be done. This means that you need to make determinations including hourly rates, overtime compensation and how pay periods will be set up.


Once you begin doing payroll for employees, it is important that you are aware of how long you need to retain possession of certain tax documents. There are some guidelines that require you to keep documentation for a specified amount of time even after an employee is no longer receiving a paycheck from you. Before you get rid of documents or organise your files, it is essential that you know exactly how long all payroll-related documents need to be saved. It is also important that you report all payroll taxes by given deadlines to ensure that you can avoid any penalties or violations that could be assessed to you as an employer.

If all of these tasks sound daunting, be aware that you can hire a professional accountant to help you.