Payroll processing for small businesses can be tricky, but with the right knowledge it becomes much easier. As a small business with employees, there are certain procedures you must follow in order to make sure that your employees are being compensated fairly.
The Basics of Payroll Processing
Payroll processing has three important aspects. The first is paying your employees each pay period. You will need to determine a pay schedule. Some companies choose to pay employees per job, per week, every two weeks, or twice a month. As long as you are able to agree on a set system which will work for the business and the employees, this is really at your discretion. When paying your employees you will need to calculate their wages and make sure that you are withholding the correct amount of taxes before issuing their paycheck.
The second aspect of payroll processing is paying payroll taxes. In addition to the payroll taxes that your business owes, you will need to pay the government for the Federal and State taxes that you’ve withheld from your employees’ paychecks.
The third aspect of payroll processing is filing taxes. You can file taxes monthly, quarterly, or yearly. Whichever schedule you choose, you will need to make sure that you do file the taxes so that the government has the correct information about your employees’ pay.
Common Problems with Payroll Processing
Checking your work or having an accountant double check your work is an important step. Errors are the most common problem with payroll processing. You will want to make sure that you are paying your employee the correct wages for the correct number of hours. It is just as important to make sure that you have correctly calculated out the taxes and health care benefits (if applicable). Software can help with this but you may consider getting an extra set of eyes to double check your work.
As a small business owner, it is your responsibility to stay current with payroll processing so you are able to meet all tax deadlines set by the Federal and State governments. By using the IRS.gov website or reminders within your payroll processing software, you can stay one step ahead and not miss any deadlines.
If you do happen to miss a deadline there will be a penalty. Missed deadlines can be a result of errors or forgetfulness. If you are working with an accountant they may assume responsibility for the penalty if the delay was their fault. An accountant can help you with your payroll processing to help lessen the chance of missing a deadline.
Payroll Processing Methods
There are five primary payroll processing methods. It is up to you to decide which method would work best for you and your company. Here are the details for each of the commonly used methods:
- Manual System – this payroll processing method is the most basic. It simply uses a pen and paper, calculator, and spreadsheet. It’s the most affordable system and offers a great deal of control. Some people are more comfortable with a manual system because they are familiar with the calculations and would prefer to do them themselves. The manual payroll processing system is the most work and the most time consuming because of the calculations. It also has the highest chance of errors.
- Payroll Software – Many companies use payroll software for their payroll processing because it still allows them all the control with less work. The calculations are done by the software so it is faster. You would need to learn the software and you would still be responsible for the bank deposits and reporting and filing taxes.
- Payroll + Accounting Software – This option still allows control over the payroll processing but because the systems work together, there is far less work. The data is transferred seamlessly between the programs so you do not have to enter the information in more than one place. You would still be responsible for the banking and learning both software programs.
- Accountant – Many companies choose to have a payroll accountant to manage all the payroll processing. This places the responsibility on another person which saves you time. The accountant is familiar with your business as well as with tax law and deadlines. This option does leave you with the least amount of control and can be costly.
- Full Service Payroll – With a full service payroll company managing your payroll processing they typically will assume responsibility for any penalties for missed deadlines. They will have direct access to your bank account to handle the banking for you. A full service payroll company will also handle all the tax filings for you. There is a higher cost for this service and depending on the vendor your amount of control will vary.
The important thing is to find the option that works the best for you and your business. Payroll processing is a very important part of running a business with employees and it is vital that it is done correctly so you can avoid unnecessary fees.