An effective payroll system can help your small business pay employees accurately and on time while avoiding costly IRS and state penalties.
When setting up a payroll system, decide which parts you want to handle in-house and which you want to outsource. When it comes time to run payroll, keep track of employee hours and update records regularly so that it can be an easy, accurate process.
Manage what in-house
If you’re the owner of a business, you’re responsible for making sure your payroll is accurate, but that doesn’t mean you should handle everything yourself.
Small businesses who are trying to navigate the legal seas of payroll can benefit from professional payroll assistance. You can get assistance with the most complex parts of the payroll process from certified payroll specialists, certified public accountants, and bookkeepers. The information you provide to the payroll provider, however, must be accurate and current even if you get outside help.
You can reduce the chance of making mistakes, save time, and automate certain payroll processes if you prefer to handle payroll on your own. There are many products available that can assist you with payroll tax filing and payment, but ultimately, it’s up to you to comply with these obligations.
Maintain accurate employee records
The payroll process depends on having up-to-date records. Although employee information is usually collected during onboarding, employees must also notify you of any changes to their information.
If an employee portal or paper form is used, ensure they know how to update their information. Your payroll system will need to be updated if there are any changes. A change will likely be notified to you automatically if your software includes an employee portal. You will need to manually update records if employees submit printed forms.
Observe changes in pay rates, deductions, and taxes, including simple changes like new addresses.
For compliance and to avoid penalties, consider payroll software with garnishment management services if you’ve received court orders for wage garnishments. Pay attention to the expiration dates for employees with temporary work visas, as employers are responsible for keeping employee records up to date without official notice.
Maintain an employee timesheet
The time an hourly employee spends at work must be tracked. The method you choose should show a complete record, regardless of the method you choose.
Some payroll products enable you to track time by integrating them with time-tracking apps or by adding time-tracking features. In addition to using paper time sheets, you can also use a time clock.
Payroll steps
For every payroll run, there are some core functions that must be completed.
Calculate the gross and net pay of employees
The first step to making deductions is to determine an employee’s gross salary or total earnings for the period. It includes salary and hourly wages, tips, commissions, overtime pay, bonuses, shift differentials, vacation pay, sick pay, and holidays.
After subtracting deductions from the gross pay amount, we can calculate net pay. A person’s take-home pay is also known as their net pay. .
Reconcile payroll
The process of reconciling payroll essentially involves verifying your work and ensuring your expected and actual payrolls are in line. Checking the current payroll against the prior period will also help you spot any anomalies. You should reconcile every pay period, before you file your quarterly taxes and before you send your employee’s W-2s.
Look into anything that is higher or lower than expected regarding employee pay rates. Employees who work shifts should check overtime hours and tips.
Process payroll
The next step is to approve direct deposits and prepare checks after reconciling the account. In some cases, direct deposits and checks may not be deposited into employee accounts until several days after they are made. There are some payroll products that offer same-day or next-day direct deposits, but others may require a little more time. It may be helpful to allow extra time for payroll processing until you know how long it will take.
Taxes and benefits
The employee and employer both contribute to Social Security and Medicare taxes (also called FICA taxes, or Federal Insurance Contributions Act). As a result of this, you will also have to pay a portion of FICA payroll taxes on behalf of your employees.
The majority of payroll software and payroll services calculate, file, and pay federal and state payroll taxes on your company’s behalf. Using the Electronic Federal Tax Payment System is free if you make deposits on your own. The amount of tax liability you report on your quarterly federal tax return determines how often you are required to deposit federal taxes. Different states have different processes for paying withheld state taxes.
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