This post will cover how to learn payroll management for small businesses and include our top 5 tips for managing small business payroll in 2022. Direct deposit is a key item to automate, as it allows employers to seamlessly deposit an employee’s wages without having to write checks. Automating payroll makes it easier to keep accurate records and follow any tax and labor laws. After you’ve calculated each employee’s pay, you’ll want to issue printed paychecks or direct deposit into their banks. According to the Society for Human Resource Management, about 18% of small businesses with revenue between $10 million and $20 million don’t use direct deposit. Anyone who works for you needs to be made aware if you’re switching payroll companies, or if there will be other changes in how to access employees’ paychecks and pay stubs.
Payroll will run a lot smoother if you have the correct documentation on file for your employees. This means that you need every employee to complete a Form W-4 that documents filing status and records their personal allowances. Once you have established the basis of your payroll system, you will also need to apply for an EIN (Employer Identification Number). Without this number, you won’t be able to summit withholding taxes, so you must apply for it ahead of time. Fortunately, there are ways to streamline and manage payroll so that these things don’t happen. If you want to learn how to manage payroll like a pro, read on as we walk you through the essential elements of a reliable payroll system.
- This will help your staff develop a better understanding of how your procedures work and give them clarity on your payroll policies.
- Remote work is more prevalent than ever, with nearly 60% of employees being able to work remotely at least part of the time, according to a recent McKinsey survey.
- If you have any questions, please contact us and financial advisor with gladly answer any questions that you might have.
Among the many items on small business owners’ to-do lists, payroll tasks can be particularly important and complex ones. However, there any many risks and costs to handling these administrative responsibilities on your own, perhaps most significantly the time they can take away from your already-busy workday. If you think the time is right to reexamine how your business handles payroll, learn more about how to get started with a third-party provider. You may also want to compare payroll services to find a solution that can work best for your business. If you manage benefits such as health insurance or retirement plans through a payroll service, it might also be able to make payments to those providers for your business. Or, if you’re managing benefits in-house, you’ll have to make benefit payments on behalf of your employees.
Business Information Needed
Depending on how these are tracked originally, this could be done in a number of ways like Google Sheets or Excel, or even pen and paper. Either way, you’ll need to make sure employee hours are verified and approved by their manager. As a small business, you’ll have to file taxes based on your payroll. For example, at the end of the year, employers have to complete Form W-2, Wage and Tax Statement. This government form is so you can report wages, tips and other types of compensation paid to an employee. Additionally, make sure you’re keeping robust payroll records and keep every step documented.
- If cash is tight but you know you want to manage your payroll with software, check out our best free payroll software.
- From the gross pay, you’d subtract payroll taxes and other deductions, like benefits.
- You may also want to compare payroll services to find a solution that can work best for your business.
Enacting modern, organized practices for payroll will help your business run more smoothly and take away some of the headaches of payroll management. Benefit programs, payroll taxes, PTO…there are a lot of other variables tied into running payroll, and if you get it wrong, it could become much more costly. The last thing a business wants is to be in the middle of a lawsuit for breaking sydney a payroll law. That said, businesses should have payroll staff or use a professional payroll service that is up to date with payroll laws. Automating your payroll is essential to saving time and increasing efficiency. By streamlining payroll and benefits, you can import time clock data, make correct payment calculations for each remote worker, and process the right deductions.
This can include documentation such as a W-4 for employees or W-9 for independent contractors, an I-9, federal and state withholding forms, direct deposit forms, and more. Besides being current in the legalities of payroll, which can change frequently, a payroll management company can improve efficiency in other significant ways. Once an EIN is assigned to you, it becomes your employer tax ID, and you can use it when filling any business tax forms. Even if you are not setting up payroll immediately, you still need to have an Employer ID Number for different transactions. A payroll policy is not a legal agreement between a business and its employees, so it should not read like one. Ask an employment law expert to review the document and make sure everything’s in place before sharing it with your workers.
Share a payroll calendar
For paper records, you can typically store them yourself or at a storage site. For electronic records provided by payroll software, back up the files on a separate device or platform. Contributions to Social Security and Medicare taxes (known as Federal Insurance Contributions Act, or FICA, taxes) are paid by both the employee and the employer. That means you’ll also need to pay the employer portion of FICA payroll taxes to match your employees’ contributions.
Understand compliance, taxes, and penalties
You’ll also need to make sure that you have an employer identification number (EIN). You will also most likely need a state tax number from the state’s tax assessor. Most businesses are required to file IRS Form 941 (Employer’s Quarterly Tax Return) every three months. The filing deadlines are generally at the end of January, April, July, and October. However, if the filing deadline falls on a public holiday or a weekend, then the due date will be the next business date.
Payroll software
Look at customer reviews of the payroll companies you’re considering to make sure you will be able to reach someone for help if you run into issues. One of the policies you’ll want to design is how your business manages paid time off, overtime and other types of non-mandatory leave. Your handbook will be unique to your business, but there are free and paid online resources available to help you shape it.
However, you need an Employer Identification Number (EIN) for processing payrolls. This article will show you how to set up payroll for your small business. It’s up to you to channel the money to all the right recipients by the agreed dates. Make sure you understand when the money is due to each party, and transfer it on time. Payroll involves calculating employee pay, deducting things like tax and retirement contributions, then distributing money to all the right people by the right dates.
External benchmarking compares salaries against industry competitors, offering insights into market trends and bolstering competitiveness. Hybrid benchmarking combines both internal and external data to create a comprehensive view of salary structures. “DIY works when you have a small team, but it gets unmanageable as you grow—not just because it’s time consuming, but it opens up room for error,” says Lanai Moliterno, CEO and founder of Sozy. Do-it-yourself payroll is often the go-to choice for those running a store as a side gig, and for small store owners with no plans to grow and expand. Instead of assuming your employees fully understand how payroll works (and that they’re happy with it), openly ask for their feedback and questions.
Organize employee records and documents
These companies also can handle hosting online portals for employees. Creating a secure online portal where employees can access information about their paychecks, withholdings, benefits, and more goes a long way to reassure employees about their pay. It can also be a good way to have FAQs answered so employees can help themselves to the information when it’s convenient for them.