If you’re starting a small business, handling payroll can be confusing. Whether doing it manually or using an online payroll processing service, here’s a simple guide to help you get started. The key to processing payroll is ensuring all the information and documents are complete. Start by gathering the preliminary information you’ll need to process payroll.
Run Your First Payroll
You’ve been asking yourself how to do payroll yourself for your small business. If you’re handling payroll independently, it’s essential to prioritize getting everything together and done correctly. This includes being on time with each paycheck since late payments can cause employee frustration and even lead to them leaving your business.
You’ll also need the right tools, such as a payroll system or PTO tracking software. This will help you calculate employee hours and pay them accurately.
Finally, you must file the appropriate forms with the IRS and your state tax department(s). Take your time and review all the information before submitting it to avoid any errors or penalties.
Depending on the size of your business, you can handle payroll yourself or use a small business payroll service. If you choose to do payroll, it is recommended to take it one step at a time and consult an expert if you have questions. A good payroll service will save you time by handling all the calculations and filings so you can focus on growing your business.
Create a Payroll Schedule
A payroll schedule is a set of rules that dictate how often you pay your employees. It is critical to running your business and can impact employee morale, cash flow, and operational efficiency.
There are four types of payroll schedules: weekly, biweekly, semimonthly, and monthly. Each has its pros and cons. Some factors to consider are your state’s payroll frequency laws, the type of work you do, and your company’s financial needs.
A weekly payroll is ideal for businesses that rely on hourly workers and have fluctuating labor needs and income. It also helps streamline employee timekeeping and aligns payroll liabilities with your revenue cycle. However, it can burden the accounting process and require more time to enter paychecks into your payroll software. For these reasons, many small businesses use a monthly payroll schedule.
Set Up Employees
Payroll is the process of managing all payments to employees. It includes disbursing salary payouts, handling payroll tax filing, and ensuring employees get paid correctly and on time. As a small business owner, you can run payroll yourself or hire an accountant or bookkeeping service to do it for you. If you do payroll yourself, it’s essential to familiarize yourself with the basics of the process.
You’ll need to know what kind of employee you have, their corresponding pay schedule, and how often you’ll run payroll (weekly, biweekly, semiweekly, or monthly). You also need to be familiar with your state labor laws and understand the minimum wage in your area. Additionally, you may need to display labor law posters based on your location; use the Department of Labor’s Poster Advisor tool to determine the requirements for your area.
You’ll need to obtain an Employer Identification Number (EIN) and set up federal withholding accounts for your business. Depending on your local laws, you may also need to register for state withholding and unemployment tax accounts.
Set Up Payroll Deductions
Considering your business’s size and complexity, consider using payroll software that automates your processes. This way, you can reduce time-consuming manual steps and focus on value-oriented activities that help grow your business.
Before you can run payroll, you’ll need a system for collecting employee deduction information. This includes personal and job-related details, such as the employee’s pay rate and overtime eligibility, employment status (full-time, part-time, or contract), and tax withholding preferences.
Once you have the necessary information, it’s time to calculate payroll taxes. This involves determining the federal, state, and local payroll taxes you must withhold from each employee’s paycheck. It’s also essential to keep up with changing labor laws and filing stipulations that may affect your business.
Consider consulting a payroll or HR expert or small business accountant to get the most out of your payroll system. They can help you understand your responsibilities, recommend the best tax deductions for your business, and ensure you comply with all payroll-related regulations.
Set Up Payroll Taxes
The last but certainly not least step in setting up payroll for your small business is determining which taxes you’ll need to withhold from employee paychecks. To do so, you’ll need each employee to complete a W-4 form (Employee Withholding Certificate), which outlines how much federal income, social security, and medicare tax should be withheld from their paycheck.
You’ll also need to consider which state and local taxes your business will need to deposit and report. Your specific obligations will vary based on your location and number of employees. To better understand what’s required in your area, consult a small business attorney or accountant. Be sure to prioritize being on time with your payroll each pay period. Running late can upset your employees and cost you money in fines from the IRS. Setting reminders on your phone or calendar is also a good idea to ensure you can meet each deadline.