As a small business owner, you have a wide range of responsibilities to make sure everything runs as smoothly as possible. Many small businesses start as “one-(wo)man-shows”. As you continue to grow and develop, you will inevitably hire your first employee. While this is an exciting step in any business, it can come with several legitimate concerns. One of these is payroll.
Every business asks itself at some point if it is worthwhile to outsource payroll or to do it inhouse. Having an effective payroll system for small business is critical. In this post, we will discuss how to do your own payroll. As always, if you do decide to do payroll on your own, it is important to consult a professional to make sure that you are following local, state and federal laws.
What is Payroll?
Technically, payroll is the list of employees in your company that receive a salary. Today, it is common to refer to payroll in relation to the money that each employee receives. Payroll may even relate to a specific department within the company. It is critical to set up a well-functioning payroll system for small business to ensure that your employees get paid on time and that you are following all regulations and laws.
We recommend advocating a specific person to handle payroll for all employees. This can be you, the business owner, or another employee that you trust within your business. This person will be responsible for knowing how to do payroll, being a contact person for other employees, making sure payments are made on time, etc. This person will also handle small business bookkeeping in many cases. Most business owners choose to set up payroll for their small business themselves at first. Over time, as the company grows, they will often move the responsibility to another team member.
How to Set up Payroll for Small Business
There are many steps to make sure that you are setting up your payroll correctly and effectively for your small business. It doesn’t matter if you are doing payroll for one employee or 50, these steps are essential.
You must understand your legal responsibilities as an employer. This includes paying your employees on time, withholding and paying the appropriate taxes and more. If you don’t do this correctly, the penalties can be severe.
Don’t forget that as a small business, it is critical to make sure all of your business insurance policies are up to date and relevant. When a business starts to grow and hire employees, this is essential.
Payroll software: There are many online payroll services for small businesses available today. We highly recommend using one to stay organized and make sure you are taking care of all of the requirements when handling your payroll.
What should you look for when choosing the best online payroll service for your business? The best payroll solutions for small businesses offer a wide range of features, depending on the needs of each company. Most will calculate benefits for you, to limit the chances of mistakes, comply with federal standards, payroll distribution, mobile apps and more. Prices for software range from several to hundreds of dollars a month, according to your needs.
Documentation: All new employees must fill out certain documents required by the IRS. It is important that you have employees deal with this paperwork before they begin working. These forms include a W-4 form which indicates how much tax to withhold for each employee, an I-9 form which shows that an employee is eligible to work in the United States, and other local and state forms depending on local regulations and requirements. Employees should also fill out an application form including relevant details for payment (bank account for direct deposit, etc.).
Establishing a payment method: You’ll have to decide how you want to pay your employees, from which bank account and more. Often, small company payroll is transferred by direct deposit into the employee’s bank account. We recommend opening your own business bank account if you don’t have one yet. This makes tracking expenses, taxes and payments much easier.
The Ins and Outs of Paying your Employees’ Salaries
Once you’ve set up the payroll system for your small business, it’s time to pay those employees. If you’re wondering how to do payroll yourself, we’ll outline the basic steps for you here.
First, you’ll have to calculate each employee’s gross salary. If your employees are paid hourly, it’s important to have an effective time tracking system in place. If their salaries are global, you’ll also have to check to make sure everything is in order or pay overtime if necessary.
From the gross salary, you will deduct all necessary taxes (federal, state and local), social security, health insurance, dental insurance and anything else that is standard in your company. Once removing all deductions, you will have the net salary for each employee. This is the amount that you pay them, either by check or direct deposit, according to your preference.
The Next Steps After Paying Your Small Company Payroll
You may think that your small company’s payroll ends after your employees receive their paychecks. Unfortunately, this is not the case.
Once you’ve paid your employees, you need to transfer the relevant funds to the appropriate places. You’ll need to transfer funds (for all of your employees together), to the IRS, state or local governments, Social Security and Medicare, health care companies, and other relevant institutions. Make sure to submit payments regularly and according to relevant regulations.
After doing your payroll, you’ll also have to submit quarterly and yearly reports to the IRS. You’ll have to show the amounts you’ve withdrawn from your employees as well as documentation of the amount you’ve transferred to the IRS.
Do Your Own Payroll – Worth It or Not?
In this post, we’ve described how to do payroll for a small business. While some small businesses decide to outsource the work, it is certainly possible to keep it in-house and save some of your hard-earned money.
Growing your company can be exciting and overwhelming. There are multiple challenges that small businesses have to deal with when expanding. Payroll can seem overwhelming at first, but by following our guide, we’re sure you’ll be doing your payroll with ease in no time. There are many payroll solutions for small business out there, making the process easier. Good luck!