Payroll is one of the most important tasks for small business owners.
However, it can also be one of the most confusing and time-consuming tasks. A standardized payroll process helps ensure employees are paid accurately. It includes tracking hourly wages, calculating deductions, and reporting taxes. It also requires following laws on retaining and disposing of payroll records.
Determine Your Payroll Process
Payroll isn’t just about paying employees; it includes a detailed documentation system that tracks employee hours, taxes, and deductions. While it’s possible to manage all aspects of payroll in-house, many small businesses outsource their payroll processing and remittances to an experienced provider. Your first step will be determining your payroll schedule and how you’ll pay employees.
It could be bi-weekly or every other week, and it’s important to ensure you comply with state regulations regarding pay periods. You’ll also need to decide how to track employee time, such as with a paper timesheet or an electronic time and attendance system. The best payroll for small business will help you make more accurate calculations and improve productivity.
You’ll also need to obtain an EIN (employer identification number), which is used to identify your business for IRS purposes. It can be done online through the IRS website.
Determine Your Payroll Needs
Running payroll is one of the most critical tasks you must manage as a small business owner. There are several factors that you must consider. The key to handling these responsibilities is creating and following a system that can help you track all the information involved. It starts with determining what payroll needs your business will have.
For example, you must decide how often you want to pay employees. It will depend on your state’s minimum pay frequency laws and what works best for your business. You will also need to determine the payment method you want to use. Some options include direct deposit, reloadable pay cards, and mobile pay through digital accounts. Lastly, it would help to familiarize yourself with federal, state, and local labor laws. These are always changing, and non-compliance can result in severe penalties.
Select Your Payroll Software
Payroll calculations are complex and prone to mistakes, but the right software can help you streamline the process. Look for software that automates payroll processing, calculates wages and taxes, and handles deductions to reduce manual errors. It would help to choose a solution that integrates with your other business operations, such as scheduling workflows and time-tracking systems.
It eliminates the need to consolidate data manually and saves you time. Small business payroll services should cater to contractors and employees, so check whether your chosen service supports this. It should also offer robust reporting and analytics to help you make data-driven decisions. Thanks to their free trials, you can test it before buying some of the top payroll software. Look for a vendor that takes security seriously and uses two-factor authentication to safeguard your data. The benefits and drawbacks of each software can also be learned through reading customer reviews.
Set Up Your Bank Account
Business bank accounts have more specific features than personal banking, such as restricting access to funds and limiting who can sign checks. They also give you a clean set of financial records for your business should you ever need them to apply for a loan or go public. Many business accounts include checking, savings, merchant services, and credit card accounts.
Regardless of the type of account, look for one that offers the basics and avoids flashy perks you may not use or need help paying for. A dedicated business account limits your liability, helps establish a company credit history, and simplifies tax preparation for you and your accountant. Accepting credit cards lets you connect your bank account to point-of-sale systems. These can be used to pay invoices and make in-person purchases.
Set Up Direct Deposit
Direct deposit is an electronic system that allows you to deliver employees’ paychecks directly into their bank accounts without using paper checks. You can set up direct deposit through your business bank or a payroll service provider, and the best payroll services typically offer this feature as part of their core services.
You’ll need your employees’ banking information, including bank routing and account numbers, to process direct deposits. You also need to have a schedule for when you plan to run payroll that gives you time to collect employees’ time and attendance sheets, review the data, and submit the processed payroll to your business bank for direct deposit by the deadlines you set. Your bank may charge fees for processing direct deposits, and your payroll provider will likely have its fees. Make sure to consider these costs when planning your budget.
Pay Your Employees
A lot goes on behind the scenes before your employees get their money. The preparation stage includes gathering necessary forms and information, determining your payroll schedule, and getting set up with your bank account, payroll tax deposits and a payroll service or software. If the payroll tasks outgrow what you can handle, consider hiring a full-time payroll manager or an accountant. These professionals can be part of your business’s team or an outside contractor.
They’ll have the experience to handle payroll quickly, accurately, and on time, and they’ll keep up with changing payroll laws. Ensure you’re up to speed on all the federal, state, and local labor laws. Staying compliant helps you avoid costly penalties and keeps your finances healthy. Then you can focus on building your business. To save time and minimize errors, use payroll software that calculates hourly wages, tracks employee hours, and allows you to pay employees via direct deposit or reloadable payroll cards.