The least interesting part of every small business owner's day is balancing the finance books, filling out paperwork and going through the motions of fulfilling the payroll. Yet, it's also one of the most important parts of running a business.
Here is everything you need to know to keep your payroll in order week-by-week:
How do you set up payroll?
Payroll is the total amount of money your business will be paying its employees over a set period of time. So, the first step of the process is obtaining your employees and setting their salaries. Then, you need to decide how you’ll manage payroll on a week-by-week and month-by-month basis.
What are the options for managing payroll?
There are many different ways for a small business owner to set up and manage payroll.
- The old-fashioned way: Managing the books, paychecks, tax documents and more via tangible spreadsheets, with nothing more than a pen and calculator. This gives full control over the process, but is also very time-consuming.
- Third party: Employ an accountant to handle your books, or subscribe to a payroll service that offers similar assistance.
- Software: Opt for payroll software that automates much of the process and helps to identify necessary tax withholdings. With payroll software, businesses are able to keep the payroll process in-house without needing to manually enter every piece of relevant data.
What are the tax implications of your payroll?
Employers have to be sure they're in compliance with the various state and federal tax laws relevant to their business. You have to be mindful of any tax that references your employees' wages and other compensation, such as tips. As an employer, you'll need to withhold a specific amount from each paycheck for federal income, social security and Medicare taxes, at the least. You can search through the numerous different taxes you'll need to pay – it's dependent on your state of residence, among other things.
You'll also need to file the necessary payroll tax reporting forms (like Schedule H and W-2 forms) at the end of the tax year – in addition to employer taxes, which are different from the payroll taxes you withhold and pay to the government. Once you have all your paperwork in order, you will need to file with your local, state and federal agencies within the established timeframes.
Depending on how you handle your payroll, these needs might be fulfilled by an accountant or payroll service on your behalf – but it's something that all business owners need to keep in mind year-round.
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