Running your own business means you get to run things your way and can recruit talents according to your liking as employees. You may be an expert in your industry, but not necessarily so in payroll accounting.
Your employee’s payroll is your responsibility, and whether you like it or not it still has to be done. From taxes to FICA and benefits, it’s a lot to think about for just one employee. This isn’t even putting overtime into consideration (if they’re eligible) … sigh.
No worries, this article will clear your thoughts and suggest a better, efficient, and modern way to manage your payroll!
When you hire an employee, he/she will need to fill up some forms. This includes the:
Determines the amount of payroll taxes you need to withhold from employee’s pay.
A form that validates and authorizes an employee to work in the United States.
Information on benefits, ie: retirement plans.
Tracking your employee’s work hours is important to ensure there are no errors with how much your employees receive on payday. Traditionally, businesses would use weekly time sheets where workers fill out or use paper time cards.
It’s 2018, and there are better ways to do it.
Time and attendance systems are software that allows employees to clock in and out via time clocks, mobile devices, and inter-connected computers. Data are often saved in a cloud storage, depending on the system you use.
These systems can be expensive, but the big pro is that you reduce the chances of having payroll errors, and these systems manage all time-related management such as employee attendance, overtime, plus many systems have integrated payroll software.
Payroll systems have evolved throughout time.
You could always stick to learning how to manually do so for each of your employees, but you’re bound to create errors in accounting and waste too much time going about it again and keeping updated with new laws and regulations.
Another method of doing so is outsourcing payroll management to another company. This method is a lot more expensive as you’re hiring professionals that understand and adhere to complex calculations and the latest laws.
Payroll software is a popular method of business use nowadays to manage employee payroll. Using a software is much more cost-efficient than outsourcing professionals to do the job, and the process barely takes a few hours.
A bonus to payroll software is that they automatically draw paychecks or direct deposits the employee’s account.
Running the Payroll
You’ll need to decide when to pay your employees. Depending on the nature of your business, you may be paying them on a weekly or a monthly basis. Either way, how you do it will depend on your payroll method.
Key the amount of time your employees worked and account for overtime, if they are eligible for that.
Non-exempt employees are required by the FLSA to be paid overtime if they have worked more than 40 hours a week. Exempt employees don’t have this protection.
Withhold the appropriate taxes that are agreed upon in the W-4 contract. This process is often automated when you use a payroll software and saves a ton of time!
Also, don’t forget to account for employee benefits! Employee’s voluntary contributions to health insurance, retirement plans, and whatever you provide them have to be handled by the payroll.
You have to make sure you’re doing taxes right if you don’t want to get in trouble with the IRS. Payroll software does a good job at filing taxes so you don’t have to go through the complications.
Generally, these are the taxes you will need to file on behalf of your employees:
Federal Income Tax
What the employee claims on Form W-4
State and Local Income Tax
Most states are eligible for local income tax and are independent of the federal income tax
FICA Tax – Social Security and Medicare taxes
Employer Taxes – You need to pay taxes on employee wages. FUTA tax is 6% of the first $7000 you pay to each employee per year.
However, employees normally receive a 5.4% credit for state unemployment taxes when they file Form 940, which reduces their net FUTA tax rate to 0.6%. You must deposit this tax on a quarterly basis.
Federal and state governments have specific laws on payroll record-keeping. A good payroll software would do this automatically for you, but it is suggested that you print hard copies and keep them in a secure area.
Ultimately if you run your own business, you ideally want to minimize the time spent managing your payroll and focus on activities that will help the business grow – like digital marketing strategies.