Many entrepreneurs are shocked to discover that payroll is more than just writing checks. There are regulations and requirements. To fill out forms. Complex tax laws. So on. It can be overwhelming to get it all in place.
This is partly due to the serious consequences of making mistakes. Take a deep, relaxing breath. Payroll for small businesses is easier than you might think. This article will show you how to set up payroll management system so you can return to running your business.
Setting up Payroll for Small Businesses
It is always easier to break down large projects into smaller tasks. This guide will show you how to manage payroll for small businesses.
- How will you process your payroll
- Set up the necessary accounts
- Collecting information about employees
- Setting up a payroll schedule
- How will you pay your employees
- Employer taxes: Withholding and submission
- Employer taxes
- Selecting a payroll provider
- Payroll management
- Keep records
- End-of-year tax forms
This article is intended for businesses. Laws and procedures may differ elsewhere.
Three Options to Process Payroll
How will you pay your employees? This is a crucial decision. You can do your payroll by yourself, with pen and paper, or hire an accountant.
Although it may seem the easiest and cheapest option, there are hidden costs. This takes up much more time and energy than you would otherwise need to manage your business. You might also make mistakes that could lead to unhappy employees or even legal problems. It may be the best option for small and simple businesses.
An accountant offers the expertise and experience that do-it-yourselfers don’t have. This is a good option for small businesses with complex payroll needs or business owners who need someone to handle their payroll. An accountant will likely cost more than other options.
More small businesses are choosing payroll software because of its ease of use and affordability. This is the main option, but there are many other options that you should consider.
Setting up necessary accounts
What is payroll for small businesses? It would help if you had more than a bank account to make payments. The following information is required to set up payroll for a small business.
Employer Identification Number (EIN) from the IRS
Electronic Federal Tax Payment System account to pay federal taxes online and over the phone.
Numbers of IDs for employers in state and local governments are required
Your state’s Labor Office website outlines the details for your state’s unemployment insurance account (SUTA).
Report to State New Hires
State worker’s compensation insurance account
To determine if additional requirements are required for your industry or location, it’s a good idea to consult a financial professional.
Collecting Employee Information
Once your business accounts are set up, these forms and details will be required for each employee or contractor.
Address and full name
According to law, it doesn’t matter if they are a worker or an independent contractor.
Social security number (or EIN) from IRS for employees or contractors
Information about employee tax withholding from Form W-4 (withholding for independent contractors is not usually necessary)
Rate of pay and other earnings, such as tips or sales commissions
Whether their earnings are subject to garnishment
What employee benefits have they selected that are subject to withholding
Information about direct deposit bank accounts (if you are using this method of paying your employees)
When setting up payroll for your small business, the first step is determining whether overtime wages are exempt.
The majority of employees are not exempt. Non-exempt employees are not required to be paid a salary. However, you can decide to pay non-exempt employees hourly or a salary. For assistance, contact your local Wage and Hour Division.
Choosing a Schedule for Payroll
Every employee loves payday. You have the option to decide how often payday occurs within certain limits.
Employers pay their employees weekly, biweekly or twice a month. Consider which schedule is most convenient for you, your cash flow, and more useful for employees in managing their budgets. Payday should be set up a few days before each pay period closes. This will allow you to add up hours and calculate withholdings.
Some states have specific restrictions on pay dates and pay periods. Before you make any decisions about your payroll schedule, check with your state labour agency.
How to Pay Your Employees
Small business payroll doesn’t have to be about writing paychecks. These are just three ways you can pay your employees.
- Direct deposit
- Cash
Many employers prefer direct deposit, but it may be better for employees or your company in certain circumstances. Direct deposit is not an option for some workers who don’t have bank accounts.
Submitting and Withholding Employee Taxes
You and your employees must ensure that you withhold the correct amount of tax from each employee’s gross wages, report the information on government forms, and submit them according to the deposit schedules. Good will do all of this for you.
- Three types of tax must be withheld:
- Income taxes – State and local
- Federal income tax
- FICA tax
- Here are some basics.
Local and state taxes: Rates vary greatly from one area to the next, and some areas may not have local or state taxes. To find out about the deposit schedules and withholding requirements, check with the state and local governments where you do business.
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