Are you a founder, and doing payroll is frustrating and hectic for you? Do not worry. You are not alone in this boat 40% of small business owners believe managing payroll and taxes is the worst part of owning their business.
According to IRS estimates, one-third of organizations make at least one payroll error a year. Consequently, they do not only have to correct these errors but pay hefty penalties, too.
In this article, you will see payroll tips for small business owners in detail.
Small business payroll
Doing payroll is difficult, tedious, and time-consuming for small business owners, but it is mandatory. According to the National Business Association 2013 Small Business Taxation Survey, 60% of small business owners manage their payroll internally, increasing the chances of errors and penalties.
Small business payroll services
Making a payroll is not an easy and time-consuming process. Therefore, it is recommended to get payroll services and invest in software so that you can have time to develop strategies for growing your business.
There are many service providers, such as OnPay, Gusto, ADP RUN, and many others, that provide economic plans suitable for small businesses.
Calculating payroll is a burdensome task because you need to include all the costs such as gross wage, yearly or hourly setup, employee-related expenses, overhead costs, federal income taxes, state, and local taxes, as well as other taxes mentioned in the W-2 form, and make sure that it complies with federal and state laws.
Apart from all these, employers have to deduct withholding charges. Hence, using a payroll calculator can simplify the process and reduce the chances of errors. There are various free calculators available online that allow you to calculate payments, such as TimeCamp, Paychecks, ADP, and Gusto.
Payroll Tips for Small Business
Following are seven tips to protect your business from IRS fines and to ensure that your employees are paid on time.
1. Get an EIN
Before making your first payroll, get an Employer Identification Number (EIN) to track the taxation of your business.
2. Decide Employee Status and Payment Schedule
Pay frequency and wage status are two key decisions that every small business should make.
Pay frequency is a set pay period for employees in a company. It can be weekly, biweekly, or monthly. No matter what your pay schedule is, keep it consistent and ensure that your employees are paid on time.
Employee status is how you pay your employees on an hourly basis or a fixed salary. Classify the employees accordingly and make sure that the wage is calculated correctly.
3. Set Up a Payroll System
Decide whether you want to do your payroll manually, hire a bookkeeper, or use software.
If you have a small business comprising one to two employees and you have an accounting background, you can opt for calculating manual processes. This can be cost-effective. However, you will be more prone to errors.
If you are not confident enough in your accounting skills, you can hire a professional to do it for you.
Payroll software combines the benefits of both. It is cost-effective as manual and time-saving, accurate and convenient as outsourced. Moreover, software offers storage of information and calculation of taxes too.
4. Track Time and Cash Flow
Track the performance of hourly waged employees to calculate their pay accurately.
Track cash flow to ensure you have enough cash at the time of payment. Manage vendor payments and outstanding customer balances so that you are not short of cash.
5. Abide by Wage Laws
Comply with state laws related to tax liabilities and labor laws to avoid incorrect employee pay calculations and penalties.
Cross-check the payroll process to ensure that employees are paid accurately and on time. Additionally, monitor tax deposits to make sure that deadlines are not exceeded.
6. Make a Payroll Policy
Establish a standard payroll policy before the first payment so that employees know when they will get paid and how wages are calculated. Moreover, also include policies related to bonuses, overtime payments, medical and house allowances, and leaves.
7. Maintain Employee and Payroll Records
It is recommended to store employees and their payment records for a certain time, as mentioned by state laws, in case government agencies need to access that information. For active employees, the disposal period is two years. Also, there are disposal laws for terminated employees.
Doing payroll as a small business can be a frustrating and problematic task for many. It is not only paying employees the amount you owe them in return for their services, it also involves taxes, deductions, bonuses, and many other factors.
However, with these tips for managing payroll as a small business owner, paying your employees will be easier than ever before. Investing in software, hiring payroll services, and using calculators can streamline the process and make your payment calculations more accurate, giving you time to work on your business.
What is the easiest way to do payroll for a small business?
For a small business, you can do payroll manually, hire an accountant, or get services. Though doing it manually is economical, a minor error can result in hefty fines.
Hiring an accountant can be very expensive for a start-up. On the other hand, subscribing to a payroll service is the most effective method for accurate and cost-effective calculations.
How much should I charge to do the payroll for a small business?
Pricing for payroll services varies depending on the company you choose. However, many payroll providers charge between $30-150 in monthly fees plus $2-15 per employee per pay period.
Moreover, additional costs depend on how often you pay employees weekly, biweekly, or monthly and whether you are using basic services or a full-service provider.
Can I do the payroll myself?
If you are tech-savvy, you can do it yourself, but it’s a time-consuming process, and the chances of mistakes are higher. To do it manually, follow these steps:
- Make all employees fill out the W-4 form to record their filling status and track their allowances
- Get an Employer Identification Number (EIN)
- Select your payroll schedule weekly, fortnightly, or monthly
- At the time of payment, calculate and withhold income taxes from your employee’s pay
- Submit your federal, state, and local tax deposits
By: Areeba Mandavia