7 tips for small business payroll processing
As a small business owner, you need to constantly keep a close eye on your money. This will help ensure that you can buy more products, cover payroll, and ultimately grow your company. And one area where your business could benefit is from your payroll processing system. Let’s look at why.
Without the right payroll system, you and your employees might be spending more time than necessary on payroll management and other expenses associated with payroll. Also, you need to ensure that you pay your employees on time and accurately, and that the associated taxes and deductions are correct.
It helps to have a fully-staffed and knowledgeable human resources department to handle your payroll services, but you need to make sure when you run payroll that you're handling it in the least time-consuming way possible while at the same time the most accurate. This article provides seven tips for managing your company's payroll processing to help you become successful as a small business owner. But first, let’s look at what payroll processing is.
What Is payroll processing?
Payroll processing encompasses the entire process of ultimately getting your employees their paychecks. This includes calculating their pay based on their hourly or salary rate, federal income tax, state tax (if applicable), retirement and health insurance deductions, and more. The payroll schedule must be consistently met on time and the paychecks must be accurate; and in order to achieve this, you need to have a robust payroll processing system in place.
Why Is payroll processing important for a small business?
Here's a look at a few other things to consider regarding the importance of payroll processing for your small business:
Errors can financially impact a small business
Processing payroll properly is essential for a business
Let’s look at 7 tips to assist you and your small business achieve effective payroll processing.
7 tips for effectively managing payroll processing at your small business
1. Register and maintain an employer identification number
A way to identify your small business for tax purposes
Required to open business bank accounts
2. Properly classify all workers and gather necessary documents
Check with the IRS about employee classifications
- Salaried employees
- Hourly employees
- Independent contractors
It's essential that you check with the IRS guidelines to verify employee classifications and that you have each employee classified correctly. You can face a host of fines and penalties if you have an employee misclassified.
Categorize employees as salaried or hourly
When you have employees on your payroll, it's essential that you categorize them as either salaried or hourly. With salaried employees, they get paid for 40 hours per week even if they work overtime or miss a few hours, depending on state laws. An hourly employee has a specific hourly pay rate, and timekeeping is essential because they get paid overtime if they go over 40 hours in a workweek.
Collect all required tax documents from your employees
You need to keep a copy of your employees’ Form W-4 on file in case you're ever audited by the IRS or state tax authorities. Good recordkeeping will make a potential audit go smoother.
Begin collecting employee information at the time of hire
When you're onboarding a new employee, it's essential to collect all required documents at that time. This includes the forms of identification required to prove citizenship, such as a driver's license and social security card. They also need to fill out their W-4 for tax withholdings.
3. Understand and follow required wage laws
There are federal minimum wage laws as well as other laws that govern overtime pay. These laws vary by state and city. New laws are created each year and existing laws may change annually that affect the wages you're required to pay to your staff. As a part of managing payroll, you need to keep up with all of these changes.
Know what your legal and financial obligations are as an employer
As a small business owner, you have a legal and financial obligation to your employees, such as maintaining unemployment tax and workers' compensation insurance. These obligations can change, and you need to make adjustments when necessary. This is especially true when it comes to processing payroll and ensuring your staff gets their paychecks on payday in the correct amount.
4. Set and follow a budget
Determine the payment method and schedule you would like to follow
Should include required wages that must be paid as well as state and federal payroll taxes
5. Determine your preferred payroll system
Could be manual, outsourced, or completed with software
Document system and payroll policies in the employee handbook
6. Perform regular payroll audits
Ensure compliance with state and federal regulations
Confirm pay rates for all employees
Confirm tax rates are correct
Maintain employee and payroll records
7. Get help to manage the complexities of payroll calculations, management, and compliance
Payroll processing is one of the most important tasks a small business owner needs to handle. From payroll taxes to correct pay rates, the payroll process is complex. You need to be on top of your game to handle it correctly, and the 7 tips listed in this article should help you.
Heartland is the point of sale, payments, and payroll solution of choice for small businesses that need human-centered technology to sell more, keep customers coming back, and spend less time in the back office. More than 750,000 businesses trust Heartland to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.