Use form 5304 or 5305 to set one up (the former allows your employees to pick a custodian, the latter does not...utlimately it really doesn't matter).  Employer contributions are deductible and employee contributions are excluded from gross income for FIT purposes (you are still going to pay FICA though).  Your plan must be in writing and must be communicated to employees.  Most providers will provide you with a master or prototype plan to get started.  I chose TD Ameritrade.  
Some advisers recommend going with SEP IRAs vs SIMPLE, but in my mind the additional paperwork doesn't make sense.  With a SEP IRA you can contribute the maximum amount of money tax-deferred.  This isn't appealing to me since I'm pretty much living paycheck to paycheck and can't afford to sock away a large portion of my income for retirement.  Here's a breakdown of SEP and SIMPLE differences:
Employer ConsiderationsA Simplified Employee Pension (SEP) IRA is for self-employed individuals and for use by small companies for qualified employees to receive employer contributions.  Employers may contribute up to 25% of an employee's compensation (capped at $245,000 or $49,000) per participant in 2010. For 2011, these limits remain unchanged.  

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is an employer-run savings plan that features employee tax-deferred contributions and matching contributions by the employer. Employers with 100 or fewer eligible employees who did not maintain another retirement plan are eligible to establish a SIMPLE IRA.

Employer contributions are mandatory.  

The employer matches employee salary contributions dollar-for-dollar up to 3% of compensation (can be reduced to 1% in any two out of five years), or makes a non-elective contribution of 2% of compensation for all eligible employees (including those who decide not to contribute for themselves).

The compensation cap for determining employer contribution amounts is $245,000.

Employer contributions are tax deductible.  

Employee ConsiderationsEmployees may also make traditional contributions to their SEP-IRAs of $5,000 for 2010 and 2011. Workers age 50 and older may contribute a total of $6,000 each year for 2010 and 2011. Workers who make their maximum Traditional contribution to their SEP IRA may not contribute to another Traditional or Roth IRA for the same tax year.

Each eligible employee can decide whether or not to participate and how much to contribute.

Employees may contribute up to 100% of compensation or a maximum of $11,500 for 2010 and 2011. Participants age 50 and over may contribute up to $14,000 for tax year 2010 and 2011.

Other Goofy Considerations Funds cannot be removed from the SIMPLE IRA until it has been established for at least two years. Withdrawals from a SIMPLE IRA after two years are still subject to federal income tax and/or a tax penalty.
Special Forms RequirementsA copy of the employer's SEP plan document (e.g., 5305-SEP Plan Document) must be filed with the custodian.  A copy of the IRS Form 5305-SA, and either 5305-SIMPLE or 5304-SIMPLE, must be on file with the custodian.