Payroll can be one of the most confusing aspects of owning your own business. Staying on top of new regulations and payment schedules can be tedious, but it is necessary in order to avoid any correspondence with the federal and state governments.
How the Payroll Process Works
Payroll includes everything involved with paying your employees. From employee management to submitting the payroll, all your bases will need to be covered. Payroll can be a time-consuming process due to the federal and state regulations surrounding taxes. Payroll taxes, including social security, Medicare, federal withholding, state withholding, and unemployment, all need to be remitted by a certain date by filing the correct forms. Other deductions like health insurance and retirement contributions also need to be accurately taken out. Your employee’s take-home pay will be determined based on the payroll taxes and deductions you calculate. Once you figure out your employee’s net pay (gross pay minus deductions), you will then need to either send the payroll for direct deposit or cut manual checks.
Setup Employees Immediately
The first way to ensure you stay on top of federal regulations is to ensure you set up your employees promptly. There needs to be a clear distinction between employees and independent contractors since they are both taxed differently. Determine if the candidate will report directly to you and work a set schedule. If that is true, the candidate will be an employee. However, if the candidate is performing a one-time job and sets their own schedule, they will be paid as an independent contractor. Set up the classification immediately in your software to avoid any confusion.
Know Your Cash Flow
The next payroll practice to implement is to know your cash flow. Your cash flow is all the money coming in and going out of your checking account. Be sure you know how much cash you have available to avoid bouncing your payroll. Not only will employees be upset, but you will also incur bank charges. Avoid this by keeping track of any checks written, performing monthly bank reconciliations, and checking your account before the payroll is processed. Keep in mind that payroll usually has a two-day lead time, so be sure the cash is in the account before the actual pay date.
Keep Track of Deadlines
Just like cash flow management is critical, so is keeping track of payroll deadlines. Payroll often times comes with a set payment schedule and a lead time. Ensure you have all the required information, such as time worked, well before the pay date. This will help you pay your employees accurately. Keeping employee morale high revolves around accurate pay. One way to help you keep track of deadlines is to set reminders and notifications. A quick reminder never hurts.
Use Direct Deposit
Another payroll practice to consider implementing is utilizing direct deposit. You can pay your employees in two ways: direct deposit or through paper checks. When you use paper checks you run the risk of employees losing their checks or forgetting to cash them. This creates issues since you will have to put a stop check order and issue another check. Direct deposit eliminates this problem and allows employees to receive the money on payday with fewer issues.
Process Payroll Online
Direct depositing your employee’s checks can easily be set up with the assistance of an online payroll processor. Many accounting software programs, like QuickBooks, have a payroll function within the software. This allows you to keep all of your accounting data with your payroll records, creating seamless integration. Moreover, online payroll processing calculates the withholding taxes automatically for you, taking any guessing out of paying your employees. These software programs usually update for the latest tax updates, taking the burden of constantly researching new guidelines off of you.
Create an HR Handbook
Another beneficial payroll process is to create an HR handbook. This will allow your employees to see all of your HR and payroll rules so there are no questioning policies. Policies, like payment schedule, offered benefits, sick and vacation time and termination rights should all be included in this handbook. This also helps with any payroll-related lawsuits since you clearly stated your rules and regulations when the employee was hired.
Keep Organized Records
Keeping organized records is also a crucial practice to implement. Employee information and paychecks should all be kept for 3 years in case of an IRS or state audits. Other records including employee address, full name, and social security number need to be on file before the payroll is processed. This information will be used to file year-end tax forms and issue paychecks. This information can be kept in online payroll software. The information should be accessible on the cloud in case the original papers get lost.
Safeguard Your Online Data
Utilizing payroll software to process payroll or direct deposit wages can be extremely beneficial, but be sure you are safeguarding your data. There are many different types of scammers looking for access to your bank account. Be sure you are only processing payroll through legitimate websites and are not opening any suspicious emails. Furthermore, keep your passwords a secret and do not share them with unauthorized users. Moreover, fraud within an organization is also a threat to your business. Be sure to check over employee hours and year-to-date pay on a regular basis to identify any anomalies.
Summary
Payroll is an area of running your business that relies on accuracy and timeliness. Payroll needs to be processed on time to avoid unhappy employees. Deductions and tax withholding also need to be 100% accurate, calling on the need to implement payroll practices that will ensure a solid payroll function. It will take some trial and error to figure out the best way to handle payroll for your business, so don’t be afraid to make mistakes. If you still feel uneasy about processing your own payroll, there are many accountants that will be more than happy to help you out.