As a business owner, you should know better than anyone that your staff is your bread and butter. You can’t run your company without them. That means you want to make sure they get paid on time and fairly.
If there are any hiccups in your payroll system, it could cause even the most loyal employee to raise a few eyebrows. The problem is learning how to do payroll.
Learning the ins and outs of payroll can be a bit complicated if you’re a newbie. That’s why we’re here to help you out. Check out this business management guide to learn how it’s done.
Apply for Your EIN
Before you start the hiring process, it’s important for you to get an EIN from the IRS. This is running a business 101. If you’re unfamiliar with what an EIN is, it’s a unique number that identifies you as an established business.
You’ll be using the number when you report information about your employees to the IRS. When you hand your worker’s their W2s at the end of the year, that number will be at the forefront.
You’ll be happy to know that you don’t have to worry about your EIN on top of all your other small business expenses. You can apply for one on the IRS’s website in a matter of minutes, and it’s completely free.
Check for Special Requirements
Most states see your EIN and will accept it for pretty much all tax purposes. Some places, however, have their own special rules that you have to abide by.
In states like New York and South Carolina, you’ve got to have a separate number on top of your EIN. It’s good to find out what you need ahead of time so you don’t end up getting in trouble later.
Another area where you need to do your homework is learning your state’s wage laws. It’s mostly the same wherever you go, but you do run into exceptions.
Are You Hiring Independent Contractors or Regular Employees?
You’re almost ready to begin hiring your first employee. Before you can start accepting applications, you’ve got to decide if you’re going to be bringing in independent contractors or regular employees. There is a difference.
Rules concerning unemployment, social security, and medicare vary depending on who you hire. That’s why it’s so important that you get it sorted out.
To decide who you’re planning on hiring, ask yourself a couple of questions. Do you want to be that one that decides when and where the employee works?
Do you want to control all the financial aspects of the job? Are you planning to provide all the equipment someone needs to get their job done?
Are you going to be offering benefits such as paid time off? Are you going to keep the hiree onboard long-term? If your answer to any of these questions was yes, you’re going to be hiring a regular employee instead of an independent contractor.
Get Your Employee’s Forms Out of the Way
Now it’s time to move on to the hiring process. During this onboarding stage, you’ll supply your new employees with forms that they have to fill out.
Two of these forms are a W4 and an I-9. The W4 allows you to calculate the employee’s tax withholding. The I-9 proves that the person you hire is legally able to work in the US.
You’ll need to make sure that all your employees fill out these forms correctly. If there’s anything unusual about either form, the worker won’t be able to receive their first check on time.
Decide on Your Pay Period
You’ve got two choices when it comes to picking your pay period. You can run your employee’s paychecks weekly or bi-weekly. We’ll tell you that the fewer pay periods you have, the less complicated running your payroll is.
That being said, you still have to abide by regulations in your state. After choosing your pay period, you can contact your state’s Department of Labor to make sure you’re good to go.
Choose Your Payroll Platform
It’s your job to make sure that your small business payroll is as accurate as possible. If you don’t feel comfortable running everything manually, however, that’s understandable.
Many business owners choose to use software to give them a hand or outsource their payroll to a different company. There are pros and cons of all three platform options.
If you’ve always been great at crunching numbers, you might be able to save a little money by handling your payroll on your own. We will say that no matter how much you love math, doing everything by hand can be more than a little tedious.
You’ll be wasting a lot of valuable time that you could be using to run your company. Employees also like being paid on time. If your math skills were to fail you and you make an error, it will put a halt to your payroll or get you into a heap of legal trouble.
If you’ve got a little more wiggle room in your budget, you can use software to calculate your employee’s payroll instead of doing everything by hand. The computer program will store your employee’s information and even account for payroll taxes.
Most of these programs also keep track of all transactions involving your payroll. It makes it way easier to stay on top of your records.
Out of all the options listed, outsourcing your payroll to another company is going to be the most expensive. If you have the cash to spare, though, the business you outsource to will take care of everything.
They’ll process the paychecks, do your employment and payroll taxes, and handle the tax deposits. You won’t have to lift a single finger. You can visit https://finvisor.com/ to learn more.
Things to Consider When Choosing Your Platform
Keeping the platform train going, there are a few things that you’ll need to consider when choosing which option you want to go with. You can’t outsource your payroll if you can’t afford it.
You also have to think about the number of employees you have and decide if you’re even confident enough to do everything by hand.
Your Confidence Level
If you have a background in accounting, you’re most likely safe to do your payroll by hand. Human error is still a thing, but you’ll be less likely to make mistakes.
Crunching numbers isn’t the only part of the process, though. If you think that you would get overwhelmed by the payroll management side of things, it might be better to let a computer or another person take care of it. Don’t put more stress on yourself than is necessary.
How much wiggle room do you have in your finances for a payroll system? If you’re working with a tight startup budget, there’s a good chance that you won’t be able to outsource.
Keep in mind that your time is money. You can’t run your business if you’re spending all your time processing payroll. It might be more cost-effective for you to at least spring for software of some kind.
The Number of Employees You Have
If you’re a small startup that’s only working with a handful of employees, it’s probably not costing you much to do everything by hand. You’re only spending a few hours during the week to get your payroll finished. That’s nothing.
If your business is more complex, however, the manual method stops being convenient. Doing calculations for hundreds of employees is too much to put on your plate.
Running the Calculations
If you are planning to do your payroll by hand, it’s important that you know how to run the basic calculations. You’ll need to crunch the numbers for gross pay, tax deductions, and net pay.
The first thing you need to figure out is your employee’s gross pay. To do this, take the employee’s hourly rate and multiply it by the hours that they worked. You’ll also have to factor in any overtime.
We’ll explain the math. Let’s say that you have an employee that works forty hours a week at twelve bucks an hour. This employee also worked five hours of overtime.
Forty times twelve is four hundred and eighty. Now, to add in their overtime, you have to decide how much you pay for that. For the sake of simplicity, let’s say that it’s 5 extra dollars.
You’ll do five times seventeen for a total of eighty-five dollars. Your employee’s total gross pay would end up being five hundred and sixty-five bucks.
It would be nice to be able to hand your employee their entire five hundred and sixty-five dollar check, but you’ve got to take a chunk out of it for state and federal taxes.
If your employee pays into a 401k or has health insurance through your company, that’s more money that you’ll have to withhold from them
This is where you have to pay careful attention to your employee’s W2. It will tell you how much money you’re supposed to deduct from every paycheck.
Your employee’s net pay is how much you drop into their bank account when the direct deposit goes through. To calculate this, you simply take their gross pay and subtract it from their tax deductions.
Track Your Employee’s Hours
You’ll notice that an important part of your calculations is your employee’s hours. You can’t figure out the worker’s gross pay without it. That means you need some way to keep track of their hours.
Using payroll software makes this process easy. Most programs come equipped with hour tracking. If you’re not using software, you’ll have to do things the old-fashioned way with paper timesheets.
Keep Your Worker’s Records Updated
Your employee’s records are crucial for payroll. If even a simple change such as a new address isn’t accounted for, an employee could miss out on one of their paychecks.
To this end, you need to make sure that everyone knows how to update their records. If you have a computer-based employee portal, teach everyone how to log into it. When someone updates their information, you should get a notification immediately.
Check Over Everything
Before you send your payroll off for processing, it’s important that you check back over your work. Make sure that all your payroll numbers match up.
Glance at your employee’s timesheets to see if there was any overtime you didn’t account for. In some states, tips that your employees get count toward their hourly payroll. Be sure that you’ve factored in all of those.
Run Your Payroll
The moment is upon you. It’s time for you to run your payroll and get it out of your hair. Well, until the next pay period, anyway.
Don’t wait until payday to approve your checks and direct deposits. It usually takes a few days for everything to process. If you put it off for too long, your employees won’t receive their money on time.
How to Do Payroll and Keep Your Employees Paid
If you’re a small business owner, you know how important it is to keep your employees happy. This means making sure everyone gets paid on time.
You’ve got to learn how to do payroll. It’s more complicated than it may seem. You can cut out some of the frustration by using software or outsourcing.
If you can’t afford that, there’s the old-fashioned pencil and paper method. Whatever you do, check over your paperwork more than once. It will make all the difference.
For more tips that will help you stay on top of your company cash, visit the finances section of our blog.