Setting up payroll for just one employee involves careful consideration to ensure everything is handled accurately and legally. Here’s a comprehensive guide to help you navigate this process effectively.
1. 1 Employee Payroll-Understanding Payroll Basics and Classification Challenges
Begin by classifying your worker as either a contractor (1099) or an employee (W2). It’s crucial to accurately classify your worker; misclassifying an employee as an independent contractor without a reasonable basis can lead to liabilities for employment taxes, as per Internal Revenue Code section 3509. For more detailed guidance on classification, visit the IRS’s guidelines here and read FRIDAY's comprehensive discussion on the topic here.
2. 1 Employee Payroll-Compliance with Tax and Insurance Regulations
You must register your company with your state’s withholding tax and unemployment insurance divisions even if you only have 1 Employee on Payroll. Note: If you have employees working in multiple states, you must register with each state individually.
In some states, a combined registration option is available for both the Withholding Tax and Unemployment Insurance Divisions. This option will be marked as 'combined registration' in the withholding column. With the exception of a handful of states, you can file this application online. Below are the links for each individual state by tax type. For states that do not offer an online registration option, we have indicated this as 'paper only.' Note: If you have employees working in multiple states, you must register with each state separately. Comprehensive state-by-state registration information can be accessed here. Be prepared with your legal and mailing address, the business start date, key business information, and a Federal Employer ID Number (FEIN).
3. 1 Employee Payroll-Understanding Insurance Requirements
Ensure you meet state-mandated insurance requirements like workers' compensation, short-term disability, and paid family leave. Each state has specific regulations which you can review in detail through the NFIB’s state-by-state guide here.
4. 1 Employee Payroll-Choosing the Right Payroll Software
Select software that simplifies rather than complicates your processes. FRIDAY, for example, is designed for small businesses (1 to 50 employees), emphasizing simplicity and effectiveness without unnecessary features. This helps in maintaining focus on essential tasks and avoids over-complication.
5. Managing Hourly vs. Salary and Tracking Time
For hourly employees, accurate time tracking is essential to ensure proper payroll processing. Utilize a reliable system to track hours worked, including overtime. Salary employees are paid a set amount but tracking their hours can still be important for managing PTO and ensuring compliance with labor laws.
FRIDAY Helps Small Businesses Manage and Pay Their Team the Right Way
When it comes to managing, tracking, and paying your employees, even 1 Employee Payrolls, additional help goes a long way, especially when employee turnover rates are increasing in the workforce.
FRIDAY is the simplest software created to help small businesses manage, track, and pay their team without any paperwork involved.
FRIDAY is an easy to use, yet powerful payroll and team management solution. Stay up to date on our blog, where we frequently post educative and informative articles for small business owners.
DISCLAIMER
All information on or distributed by this Site is intended for general informational purposes only.
