From ensuring employees are paid on time to accounting for the correct amount of taxes, running payroll is a critical part of running a business. There are a lot of moving parts to consider when running payroll for a small business, so it’s no walk in the park for first-timers. Follow these steps to get a handle on the payroll process.
Step 1 : Formulate a general framework
You have to make some basic decisions up front : Will employees be paid weekly, biweekly, or monthly ? Salary or hourly ? Is there potential for tips, commission, or bonuses ? Try to visualize the breakdown of your first few issued paychecks, as well as any payments you’ll be distributing as your business grows.
Step 2 : Gather employee information
To start, have your employees fill out and submit a W-4 form. This form will supply you with the information you’ll need to properly deduct taxes and determine any other withholdings or allowances. Personal allowances often vary between employees, so you’ll need to verify that this information is as accurate and up-to-date as possible.
Step 3 : Get the necessary accounts in order
You’ll need to square away some preliminary items before you can start legally running payroll. Make sure your business has an Employee Identification Number (EIN) issued by the IRS. In addition, you’ll need an Electronic Federal Tax Payment System (EFTPS) account so you can pay your taxes. Requirements can vary, so make sure you check for any additional accounts necessary for your business.
Step 4 : Educate yourself on current tax rates and rules
Staying up-to-date on current tax rates, rules, and regulations is an integral part of the payroll process. When it comes to bookkeeping for your business, it pays to be by the book. Otherwise, you’re risking hefty fines and frankly, the very future of your business. Do your research or consider seeking out the help of a professional accountant to get you on track and keep your business compliant.
Step 5 : Calculate employee earnings
Now it’s time to start calculating your employees’ wages so you can pay them. For hourly workers, review hours logged alongside their hourly rate. For salaried workers, calculate their earnings for the given pay period. Factor in any additional earnings (tips, bonuses, commission, etc.) and all necessary taxes and other deductions.
Step 6 : Check your math
In life and in business, mistakes happen. But in your payroll filings, mistakes can be detrimental. When calculating employee wages, taxes, and deductions, go over the details with a fine-toothed comb. You won’t regret it.
Step 7 : Pay your employees
Here’s the most obvious step : Start sending out those paychecks through whichever distribution method you prefer. Some business owners prefer to pay their employees via paper checks, while others opt for direct deposit as a greener, paper-saving method.
Step 8 : Pay employer taxes
As an employer, it’s your responsibility to withhold the proper taxes from your employees’ checks. In addition, you will be responsible for your business’s own payroll taxes. Follow the appropriate avenues and at the appropriate frequency. Due dates can vary from weekly to monthly to quarterly, so make sure you have the requirements straight as to when they need to be reported to the proper government agencies.
Step 9 : Send out yearly W-2 forms
The W-2 form summarizes the wages earned and deductions taken out of each employee’s yearly income. You’ll need to send these out to your employees, who will use them to file their own year-end taxes, as well as the Federal and State governments.
Managing payroll for a small business is no small job – it requires a lot of time and a pretty comprehensive knowledge of the intricacies. Mistakes with employee wages can significantly impact not only your employees’ lives, but the health of your business.
With such high stakes, it’s worth checking out a payroll software solution. It’s a specialized field, and most small business owners’ time is better spent elsewhere. With a solid payroll software system, you’ll only need to make the big picture decisions.
Tips to manage your small business payroll like a pro
Payroll is typically the number one concern for many small-business owners worried about getting it right. With suitable software, getting payroll right shouldn't be difficult.
Tip 1 : Invest in the best small business payroll software
The right payroll system will automate the whole process for you, taking care of things like tax calculations, generating payslips for employees, keeping up with legislation, and providing information for end-of-year tax returns.
Tip 2 : Get professional support for your small business payroll software
If your small business uses payroll software and a technical glitch is preventing colleagues from being paid, getting professional support will help you avoid stress and embarrassment. So, always check that online or telephone support is part of the deal and available.
Tip 3 : Become a stickler for getting payroll right
Take time to set up your employee details correctly on your payroll software, such as start dates, up-to-date addresses, dates of birth, and so on. It's best to fix these issues now because they could lead to problems down the line.
Tip 4 : Invest in payroll software training for your small business
If you use payroll software, taking a short training course could help you save time and be more efficient. Sage runs flexible training, including online courses aimed at helping you get the most out of your payroll, time management, and HR software.
Tip 5 : Set up relevant notifications and alerts
Take the time to set up your payroll software, so it notifies you about important payroll and even HR dates and what you need to do next. This proactive measure will help you address problems with payroll before they arise.