Compensating a new employee is a multilayered operation, consisting of activities that must be completed before, during, and after payroll processing. Since paying a new recruit is serious business with various points to be considered, you must take great care while gathering the necessary information to process payroll of new hires.
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Before You Process Payroll
Before starting the payroll process, check the following:
- Determine the new hire’s pay frequency, such as weekly, biweekly, semimonthly, or monthly. Make sure the payday frequency doesn’t contradict any laws.
- Verify that you have all the information needed to process the employee’s first paycheck, including direct deposit information, W-4 form for federal income tax withholding, and applicable state withholding form. If you use an integrated human resource (HR) and payroll solution, related information, including the employee’s Social Security Number, address, date of birth, and benefit deductions, should already be in the payroll system.
- Gather the employee’s timecard information, if he or she is classified as non-exempt, and check for accuracy. Submit the necessary preprocessing data to your payroll service provider if you outsource payroll.
During Payroll Processing
When preparing payroll, compensate employees according to their status:
- If employees are non-exempt, compensate them based on hours worked and ensure that compensation is not less than the federal or state minimum wage.
- If employees are exempt, pay them at the agreed-upon salary.
- If employees work under an employment contract, compensate them according to the terms of the agreement.
Note that exempt salaried new hires will not submit timecards, as they are not paid according to hours worked. Ordinarily, unless a permissible deduction applies, exempt salaried employees should receive their full salary each payday. But, regarding the first week of employment, employers need only pay the exempt-salaried new hire for the number of days worked during that week.
Withhold taxes and deduct applicable benefits. Before closing out the payroll, run reports and double-check the new hire’s compensation.
After You Process Payroll
When you finish processing payroll, ensure you complete the following:
- Record your payroll liabilities and expenses, including the new hire’s wages and withholdings payable, for the pay period in the general ledger.
- While onboarding new employees, apart from issuing direct deposits or printed checks, providing an informative paycheck stub is essential. This document outlines gross wages, deductions, taxes withheld and other critical compensation details crucial for both the employee’s financial planning and ensuring payroll transparency.
- Pay the new hire, whether by printed check or direct deposit, on the established payday. The best practice is to provide all new employees a paystub showing their gross wages, deductions, and net pay, even if this is not required by state law.
- Submit the new hire’s withheld taxes to the Internal Revenue Service (IRS) and applicable state revenue agency, by the mandated deadline for your business.
- Report the new employee’s wages and withholdings to the IRS (such as on your quarterly Form 941) and state revenue agency. Also, report wages to the state unemployment agency.
- Give the new hire a Form W-2 by the required due date and be sure to file the form with the Social Security Administration.
Although new hire reporting is essentially an HR function, it’s still part of payroll compliance, because it allows child support agencies to find delinquent child support payers and issue income withholding orders.
Ensure smooth integration of payroll data by leveraging automation tools that connect seamlessly with your HR systems. This reduces the risk of errors in the initial pay period and streamlines the onboarding process for new hires, providing a more welcoming and efficient entry into the organization.
