If you're a small business owner, you probably don't know much about running payroll. In addition, most small business owners aren't aware of federal, state, or local labor laws. However, creating a payroll system and sticking to it will keep you compliant and up to date. If you're unsure how to run payroll for a small business, here are a few tips.
Do's and don'ts of running payroll for a small business.
While you may not need to manage large volumes of payroll, you
must understand the importance of running your own. If you fail to run payroll
correctly, you risk incurring penalties from the Internal Revenue Service.
Statistics show that the IRS penalizes one in three small businesses annually
for payroll errors. These penalties add up quickly, and you can't afford to
make mistakes regarding your company's finances.
First, it is essential to determine your budget for payroll.
Payroll expenses include taxes, social security, Medicare, and employment
taxes. While some small business owners treat payroll as a fixed expense, the
cost can go up or down with overtime, bonuses, and commissions. As such, you must
review your budget to ensure you are not overspending on the payroll. However,
staying within your budget for payroll is essential, as mistakes can lead to
significant penalties and fines.
Alternatives to running payroll for a small business
You can take advantage of several payroll alternatives that are
low-cost and reputable. Many of these services calculate employee pay
automatically and send payroll
taxes to
the state or IRS. Some of these services are complete; they track employee
hours and pay by direct deposit.
While this may be the perfect option for some small businesses,
Many smaller business alternatives include online payroll services and software.
It can automate small business payroll and HR processes, but its high price and
extra fees for year-end reporting can make it difficult for some companies.
Alternatives to running payroll for a small business can be a great way to keep
your costs low and maximize your profits.
Calculating employee's gross pay
You must calculate each employee's gross pay and deductions as
an employer. You should set aside some time each pay period to do this task,
but it can also be automated with a spreadsheet. The calculation is relatively
simple. Gross pay refers to an employee's paycheck before taxes and deductions.
The math is easy if you only employ salaried employees. However, it becomes
more complicated if you hire hourly workers or do not offer paid days off.
The gross pay for a single employee can be calculated by
dividing the total by the number of hours worked in a pay period. For example,
an employee making $14 an hour worked 55 hours the first pay period and 43
hours the second pay period. So, the total number will be 80 regular hours and
18 overtime hours. If you deduct these costs from the gross pay, you'll see the
employee's net pay, which will appear on their paycheck.
Setting up a payroll system
Setting up a payroll system for a smaller business may seem like
a daunting task. Depending on your knowledge and experience, you may be able to
do the calculations, but mistakes in the process can lead to costly fines.
Additionally, it's essential to keep records, double-check your data entry, and
be sure to file your payroll taxes on time to avoid any penalties.
Once you've got your payroll system, you should begin collecting the necessary information to get the ball rolling. First, ensure you get the data from the federal and state authorities. You'll also need to decide on benefits and set up a dedicated bank account. Once you've gathered this information, you can start setting up a payroll system for your small business.
