Payroll is one of your most important tasks as a small business owner. If you don’t pay your people in a timely and accurate fashion, you’ll soon lose your employees. Without employees, your business activities will grind to a halt. If you want to retain your team members, payroll processing must be a top priority.
Doing payroll doesn’t simply mean writing a few checks and handing them over to your workers. Payroll processing for small business involves tax forms and calculations too. Learning the ins and outs of payroll processing can contribute to your success as a business owner.
Steps to Payroll Processing for Small Business
To get payroll right, you’ll want to be careful and methodical about your processes. This step-by-step guide provides an overview of what you'll need to do.
1. Have an EIN number.
If you’re just getting started with payroll processing for the first time, you’ll need to apply for an Employer Identification Number (EIN). This is a federal requirement, and it’s essential for payroll taxation purposes. Your state may have a separate requirement, so make sure to check out those regulations.
2. Collect forms from your employees.
The people on your payroll will need to complete some documentation before you can pay them. For the IRS, there’s the I-9, which verifies whether someone is eligible for employment, and the W-4, which deals with tax withholdings.
If your state has an additional income tax, then there may be another withholding form needed.
Also, if your organization offers health insurance or other employee benefits, you may have a form on which your team members can indicate their selections.
3. Make a plan.
You’ll need to have a set schedule for paying your people. Perhaps you’ll issue checks every week, every other week or once a month. Mark down the dates and make sure you stick to them. Put other important payroll dates, such as tax deadlines, on your calendar as well.
4. Take care of the calculations.
For hourly employees, calculating pay requires multiplying their hourly wages by the number of hours that they’ve worked in a pay period. Some employees may receive a different pay rate for different hours. For example, they may receive overtime pay.
Your employees won’t receive their full salary in their paychecks. You’ll withhold money for taxes, and you may also deduct money for some benefits, such as health insurance premiums or retirement contributions. Wage garnishment is another consideration.
To accurately pay people, you’ll need to calculate how much should go in their checks and how much should be withheld. You will also need to figure out how much money you need to submit to the government and how often you must do so.
Along the way, it’s critical that you keep detailed records.
5. Conduct payroll reconciliation.
Before each pay date, be sure to double-check that everything has been done correctly. That means making sure that employees are getting paid for the correct hours and that the withholdings have been handled properly. Failure to handle payroll accurately can result in big penalties.
6. Issue paychecks.
On payday, deliver paper checks or electronic deposits to your employees. Many business owners prefer to have a separate bank account that’s dedicated solely to payroll purposes.
7. Send in taxes and forms.
One of your payroll responsibilities is to submit tax payments and forms to the government. That may include:
- Monthly payroll tax payments
- Quarterly tax forms
- Annual W-2 forms
Remember that, in addition to federal filings, you may have state and local ones as well.
Options for Small Business Payroll Processing
As a small business owner, you might not be in a position to hire a full-time employee to handle payroll. You have three primary options to choose from instead.
On Your Own
You may be up for keeping track of payroll and deductions on your own. To succeed at this you’ll need:
- Confidence in your abilities
- An organized system
- Time to dedicate to the task
It’s incredibly important that you keep detailed records and always check your work multiple times for accuracy.
Payroll Software
Most small business owners aren’t taking care of payroll with pencil and paper alone. It’s much more common to use some sort of payroll platform.
There are many software options on the market today. You can choose a platform that meets your needs and fits your budget. Depending on your service, you might get features like payroll reminders, automated deposits and easy-to-generate reports.
An Accounting Service
While payroll software can be incredibly helpful, it does require work on your part. Also, software lacks the human element. You may prefer to outsource your payroll tasks to an accounting service. In doing so, you can remove many payroll responsibilities from your plate and trust that they're being handled by an expert.
Your accountant will understand your business and its unique needs. If there are considerations outside of the norm, a professional accountant can handle them in a way that software may not be able to. Also, a local accountant will know the ins and outs of tax regulations in your state and municipality.
Your Professional Payroll Processing Team
Payroll processing for small business is a serious responsibility. You’ve got to get it right. Your employees are counting on it, and the success of your business depends on it too.
Instead of trying to go it alone, trust the professional team at John F. Dennehy Jr. CPA, PC. We have the skills and expertise to handle your payroll needs, including tax forms, payroll reconciliation and records management. Call today to learn more about how Dehenney CPA can help with payroll for your small business.