For some, doing payroll for a small business is the least enjoyable part of the job. It could become tedious and costly if not done properly and efficiently.
Luckily, with these helpful 9 tips for your small business, running payroll for your employees would be easier, faster, more accurate, and more reliable than ever before.
Set Up a Payroll System
Setting up a good payroll for small businesses entails you would have to choose from three options. It could be either a;
- outsourced, or
- a software-based system that helps you calculate and manage your employees’ paychecks.
So before making a decision, weigh in several factors such as budget, your number of employees, and your confidence in making a good payroll.
Some small businesses still opt to do payroll by hand. Although a manual payroll may save you on initial costs, it is the most tedious and time-consuming system in the long run. It is also at a disadvantage when you have many employees and the most prone to errors, leading to a higher cost of financial repairs.
If you have extra cash, you could choose to hire outside service from paycheck companies to do your payroll for you. Their assistance usually involves everything from preparing and processing paychecks to handling payroll taxes, withholding taxes, deposits, etc. However, if you have a tight budget outsourcing your payroll is most likely not an option.
When setting up a payroll system, the best option is to use cloud-based software that would give you access to all payroll information in one place. It combines the best from both a manual and outsourced method. A paystub maker for a small business is a cost-effective, time-saving, accurate, and convenient way of processing information.
Understand and Follow Wage Laws and Tax Deadlines
As an employer, you should have proper knowledge and understanding of federal, state, and local wage and tax laws. You should also be familiar with essential deadlines and legal and financial obligations as a small business owner.
An online cloud-based system, such as Real Check Stubs, would give you up-to-date wage and tax rates, as well as remind you of significant dates for when to file for W-2s. Online software makes sure that you are paying the correct employment taxes on the payroll for small businesses. It accurately computes FICA taxes (Social Security and Medicare) which you could monitor and keep track of.
Decide Carefully on Pay Schedule and Wage Status
Your payroll for a small business involves various vital decisions, including pay frequency and salary status.
- Pay schedule or pay frequency determines when you pay your employees and how often they receive their payment. For a small business, you have plenty of options when it comes to how often you create a payroll. It could be weekly, bi-weekly, or monthly time frame, depending on the overall size of your business. If you have fewer workers, you may be able to apply more frequent scheduling.
- Wage status refers to how you pay your employees, either at an hourly rate (non-exempt) or in a salary-based (exempt) amount. A payroll system for a small business would have issues if non-exempt and exempt employees. Paying your staff a salary could help you manage your payroll easier, as they would always receive the same amount each pay period. Meanwhile, paying by the hour could be more complex and tedious as you would need to keep track of the total number of hours worked.
An integrated payroll software such as a paystub maker for small businesses would give you accurate calculations for your worker’s compensations.
Establish a Standard Payroll Policy and Process
It is vital to develop and establish a standard payroll policy and process before making your first payroll. Documenting your payroll process ensures that everyone on your staff, from management to your employees, is aware of how payroll functions. If you have extra cash to spare, you could also enlist the assistance of a payroll service company to create one for you.
A payroll policy would tell the members of your business how much they expect to take home when the pay schedule is and how their benefits such as leave and overtime are computed and paid. In the event that you need to hire new employees, the payroll process would make training easier and faster. Make sure to include all details of how payroll for a small business plays a role, from an employee’s hiring and orientation to termination.
Set Your Budget
Always secure your budget for salaries and taxes when you plan to run your online payroll for the business. Include federal and state taxes, as well as Social Security and Medicare, which you as an employer need to match. You need to withhold FICA taxes from your employees’ payments each pay period and deduct them from their gross earnings. Constantly get updates of current wage and tax rates so you could better prepare and set your budget ahead of time.
Determine How Long to Keep Records and Which Document To Store
To keep yourself from getting a visit from the IRS, your payroll for your small business should maintain a good and clean record. As an employer, you should be prepared for any possibility, and the best way to do that is by keeping every form of your tax filings, payrolls, and employment documentation.
According to the rules of the IRS, you should keep your tax records for at least three years and your employment records for four years. However, many experts recommend keeping all your documents for at least seven years. Moreover, you do not only need to store all records but also ensure you have good records.
Consider keeping both physical and electronic copies of every document. A cloud-based software system would store all of your financial information regarding payroll. If the government ever decides to conduct an audit, you could access and check each record quickly.
For your employees, advise them to save their paystubs for at least three years and their time cards for two years.
Secure Your Employer Identification Number
As an owner, you would need to have an employer identification number (EIN). You would also need your EIN before listing employees on your payroll. The EIN identifies your small business for tax purposes, much as the Social Security number (SSN) identifies you.
If your business is a corporation or a partnership, you should have an EIN. However, if you do not have a number, you would need to acquire one through the IRS. Additionally, depending on the location of your business, you might need to apply for a state-level EIN aside from the federal EIN.
Complying with the IRS
Ensure that you need to ascertain that all your payroll documents comply with the Internal Revenue Service (IRS) before filling out any required forms. This means you would also need to make sure that you organize your payroll for your small business. Doing these measures would help you to protect your company from IRS fines and penalties effectively.
You should also guarantee that your employees have an employee identification number (EIN) when running payroll. Make yourself familiar with employment and payroll compliance laws. The IRS provides information on their online website if you need additional assistance.
Regularly Audit Your Payroll System
Even with an automated payroll system for your small business, you should still regularly audit your records. This adds a layer of protection for your business, allowing you to avoid any issues. It would help you identify misclassifications and find any employees no longer working for you. Auditing could also spot accidental errors made by employees on their timecard entries.
If you use software, you should always remember that they are not a perfect technology. An online payroll for business would definitely make your job easier and faster, but do not rely on it entirely. Review the numbers and reports to check for accuracy and compliance.
You could also opt to hire the service of paycheck companies. They have systems that would ensure accuracy, and they guarantee to keep updated with the latest laws and regulations. Rest assured that these companies know how to run payrolls thoroughly and adequately.
As an employer, doing payroll for your small business could be a smooth and fulfilling experience when you consider the best practices. Setting up a good system, understanding and following wage laws and tax deadlines, deciding on a pay period and salary rates, creating a standard payroll policy and process, setting a budget, keeping records, securing your EIN, complying with the IRS, and regularly auditing your payroll are some of the best advice that would help you run a good payroll.