Doing Payroll for a Small Business
Doing payroll for a small business can be handled through a helpful program or can be done by the business manager.4 min read
2. How to Do Payroll Taxes
3. How to Process Payroll
4. How to Keep Track of Employee Hours for Payroll
Doing payroll for a small business can be handled through a helpful program or can be done by the business manager.
What Is Payroll?
After starting a business, once the first of your employees are hired, they will need to be paid. First, you'll want to look over the payroll requirements for the state in which you are doing business. Be sure to follow the rules and regulations laid out in your state's employment law to help avoid any future legal issues with your employees.
The process of paying employees and making sure that tax requirements are met is called "payroll."
Payroll can be handled one of three ways:
- Do it yourself.
- Use an online service.
- Use an accountant.
How to Do Payroll Taxes
Employment taxes include local, federal, and state taxes that the employer takes out of each employee's check during each pay period. On their paycheck, employees will see taxes withheld for things like:
- Social Security
- Income Tax
Tax rates can change from year to year and state to state, so workers and employers alike should stay up-to-date on the current tax rates in their area to be sure that they are paying and withholding the proper amounts.
How to Process Payroll
Processing payroll on your own can take up a lot of your time, but it is the most affordable way to handle paying your employees. Some business owners decide that not having to deal with possible payroll errors and issues is worth the cost of paying for a service or accountant. The do-it-yourself approach should only be an option for those who have a thorough understanding of the payroll process and requirements.
There are a few very important steps to follow when beginning to process your business's payroll yourself:
- Complete all W-4 forms.
- Obtain an EIN (Employer identification number).
- Pick a payroll schedule.
- Calculate and pay appropriate taxes.
- Submit all necessary payroll and tax forms.
Every employee is required to fill out a W-4 form. This documents their personal filing information and keeps track of any of their particular withholdings or allowances. Any time a new employee joins your team, they must complete a W-4.
EINs are like social security numbers (SSNs) for companies. Your business will need one to open a business bank account, file taxes, and more. It's fairly easy to obtain an EIN by visiting the Internal Revenue Service website. The most common EIN is a federal EIN, but some states require one as well, so be sure to check whether that's necessary for your business.
Some businesses choose to pay their employees monthly, while others pay bi-weekly. You'll need to decide what type of schedule works best for your company.
Each paycheck must have the right amount of federal and state income taxes withheld. If you are handling payroll yourself, you'll need to properly calculate and withhold these amounts. There are separate taxes owed by each employee, plus taxes owed by the business itself (depending on the type of business structure you run), so you'll need to make sure to keep track of all taxes. Miscalculated taxes can quickly lead to legal issues or having your business audited. Taxes should be submitted regularly, usually each month.
The employer tax return, which is most-commonly a quarterly requirement, should be filed on time to avoid any late fees. You may be required to file state and local returns and reports as well. Employee W-2 forms should also be filed. The W-2 reports what each of your employees were paid in the year and how much was withheld.
These are some of the basic aspects of the payroll process, but it's always a good idea to consult a professional when starting a new business endeavor, like handling payroll yourself.
How to Keep Track of Employee Hours for Payroll
Another basic piece of the payroll puzzle is keeping track of the hours that your employees work. You can pay workers properly for their time if you don't have an accurate representation of their hours worked. There are a few ways to track hours:
- Time cards
- Computer login tracking
- Electronic self-tracking (employees enter their own hours worked)
Finding some form of payroll software can be a huge help with the payroll process. Many programs have a tool that allows employees to track their own hours under the oversight of a manager. Each pay period, the hours are processed and put into the form of a paycheck automatically.
If you need help with doing payroll for a small business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.