How to manage Payroll for Small Businesses
For small businesses with a team of 5-10 people, then you can do the payroll work on your own. Once someone hires their initial employees and review the payroll requirements, they need to figure out how to get the employees paid. There are 3 ways to approach the payroll processing for small companies.
- Do the payroll on your own.
- Use any payroll service or software.
- Hire an accountant.
Below, we will go through the pros and cons of each of the 3 ways step by step. This will help the owner to choose an option which will be best for their business. One can consult with a professional for more clarifications.
How to do the Payroll Taxes?
Payroll taxes are usually the federal, state and the local taxes carefully withheld from the employee’s paycheck by an employer. This includes Social Security, Income Tax and Medicare. So, in order to properly calculate what the payroll tax should be, one needs to know the present tax rates. The percentages of the social security tax and the Medicare tax rate are determined on yearly basis.
1. How to Process the employee’s Payroll yourself?
This is usually low cost but a lot of time-consuming and are more prone to errors.
If you’re a tax-savvy person, you can take a DIY approach to pay your employees. But considering all the payroll mistakes one can make, ensure that you are comfortable with the basics. And, make sure to know the in and out of tax details before you dive in.
Following are the steps to get started:
- Ask all the employees to complete a W-4 form. Inorder to get paid, employees should fill the Form W-4, This helps in documenting the filing status and also to keep track of any personal allowances. If there are more allowances or dependents for each worker, then very fewer payroll taxes are deducted out of their paychecks. Note that,a new hire report has to be filed,for each new employee added to the organization.
- Find and sign up the Employer Identification Numbers. Before one does the payroll themselves, they should have the Employer Identification Number ready.EIN is used by the IRS to identify any particular business entity and also for anyone else who pays employees. One can apply for an EIN on the IRS site or the specific country’s website. one might also need to get state EIN number. One can check with their state’s employer resources for further details on this.
- Choose the payroll schedule. Once you register your EIN, get insured and display workplace posters. Remember the three important dates-pay dates to employees, tax payment due dates and deadlines for tax filing. One can read more about the basic labor laws to get an understanding of this.
- Calculate and withhold the income taxes for each employee. When the time comes to pay for your employees, determine which are the federal and the state taxes that apply. Then withhold these from your employees’ pay. One can also use an IRS Withholding Calculator or some other reliable paycheck calculator. One should keep track of the employee and the employer portion of the taxes on the way.
- Pay the taxes. When it’s time to pay the taxes, submit all your federal, state and the local tax deposits. It can be done on a monthly basis or as applicable.
- File the tax forms and the employee W-2s. Lastly, make sure to send in the employer federal tax return, done every quarter. And, also send any of the state or local returns, whichever applicable. Finally, do not forget the annual filings preparation and the W-2s at the year-end.
Though this is not an exhaustive list of all the responsibilities as an employer, it differs according to the industry. So, to get advice specific for your business, go over the federal and the state requirements. Consult with a professional for more details.
3. How to process payroll with a payroll service?
Have all your employees fill the Form W-4 and register for EIN just like the above DIY method. Then, do the following steps:
- Choose a full-time Payroll Compliance Services. One can use the payroll software which reduces the risk of errors or fines if one can’t do it themselves. Many payroll services agencies like PITCS can handle your filings, payroll taxes, new hire reporting. All of these can be automated and done completely online. The sign up takes only a few minutes. So, one can quickly start doing their own payroll on the same day as they sign up.
- Add the details of your employees. Set up some time for your employees when you process their payroll. for new employees, it’s usually quicker. If you switched to a new Payroll outsourcing services, then you should add your current employees’ up-to-date payroll information. In either way, one has to enter the employee name, address, SSN and the tax withholding information. With PITCS, one can pay employees using direct deposit as well. We just need to enter the employees’ names and their email addresses, and they can enter the other personal information themselves.
- Track the number of hours worked and import them in the software. Employers are supposed to keep track of the wage records like timecards for maximum up to 2 years. Some cities might have longer retention requirements. Make sure to check these requirements in your place. One can track the time using PITCS software and import them to payroll.
- Process the first payroll run. Verify it once, then send and you are done!
- Keep track of the tax payments and the filings. The IRS might require tax forms to be kept and maintained for 3 years. Some states may have a longer retention requirement. Make sure to check these requirements priorly. Payroll management companies let you keep these copies of tax filings in the dashboard itself. Poonam IT Consulting Services is one of the best payroll for small businesses.
Using Payroll Compliance Services
This costs low-to-medium level and is highly reliable
If the above DIY method did not work for you, then try payroll services. Payroll Compliance Services in Bangalore makes it much easier and affordable for small business owners to pay their employees. This helps them to focus on their core business functions. The payroll services calculate the employee pay and taxes automatically. They can send the payroll taxes and the filings to the IRS. Also, they can send the state’s tax department for you. Coordinating with a full-service provider like Poonam IT Consulting services, PITCS, one can keep track of the hours worked. Then, they can import them directly to the payroll and finally pay the employees by direct deposit.
3. Hire an accountant
This is usually the most expensive option among the above two, but reliable
If you do not want to learn the payroll yourself or to use any payroll service, you should consider hiring an accountant. An accountant can process your payroll requirements and can make sure that your tax payments and filings are properly done. Check in your area an expert for payroll processing.