Farwah Jafri | June 11 2021
Small business owners juggle a variety of different tasks on a daily basis, including growing their business, engaging with clients and other stakeholders, employing and overseeing workers, and managing independent contractors. In the midst of all of this, they often lose track of balancing other key aspects of their business, the most important of which is payroll.
When you are in the process of expanding your business and operations, the payroll function continues to become more complex and time-consuming. If you’re tormented by the question of how to manage payroll for a small business, we have worked out this comprehensive step-by-step guide for you.
Before studying how to manage payroll in detail, it’s better to make sure you’re up to date on the fundamentals. Payroll is a highly important instrument in ensuring a business grows efficiently and consistently. Contrary to popular belief, payroll involves more than just paying your staff. It also covers a variety of other aspects, such as adherence to federal and state regulations and paying your taxes on time.
To ensure that payroll processes continue to run smoothly, small business owners need to make a handful of important decisions that are as follows:
Before making any decisions regarding selecting a payroll provider for your small business, it is important that you first register as an employer and receive a unique Employer Identification Number (EIN). Every business is given a unique nine-digit number known as an EIN by the IRS to be able to identify it with ease. Consider EIN to be the equivalent of a Social Security Number for your businesses.
You will need an EIN if your business does any of the following:
The second step to learning how to manage payroll for a small business is to know about registering for the Electronic Federal Tax Payment System (EFTPS). The EFTPS is the primary method to make tax deposits for businesses. Enrolling for the EFTPS, which you can do on their website, is required before you can pay your very first tax. Taxes can be paid either for free via direct deposit or for a charge by credit card.
Your employees’ pay period and payment methods can be structured in a variety of ways. Payroll payments are frequently made on a weekly, semi-monthly, or monthly basis. Despite the fact that each employee prefers a certain pay schedule for their convenience, you should always base your payday selection on your cash flow and other aspects that make the payroll easier for you as an employer.
Before you can start monitoring and figuring out how to manage payroll for your business, you’ll need to gather some important information on your personnel. Form W-4, also known as the Employees Withholding Certificate, must be completed by all your workers. This form is used to estimate the amount of payroll taxes that will be withheld from the employee’s paycheck.
All new recruits must also complete Form I-9, or Employment Eligibility Verification, in addition to the W-4s. After the new employees are done verifying their employment, the employer then must review and certify their verification on Form I-9. In a nutshell, both parties must complete the I-9 form.
Workers’ compensation is a sort of insurance that covers medical costs and expenditures incurred as a result of a workplace injury. This insurance is required in most US states and is paid for by the employer, however the cost varies from state to state. The average workers’ compensation rate in the United States is 1.85 percent of the employer’s salary.
After you’ve registered with the IRS and all applicable state authorities, you’ll need to decide on a payroll system for your company.
There are three different models to pick from:
Manual payroll processing entails administering and managing payroll by yourself. It is, without a question, the most cost-effective of the three methods, but it is also the most time-consuming. Most business owners already have enough on their plates without adding payroll taxes, documentation, and processes to the mix. Mistakes are unavoidable, and they can result in IRS fines. We don’t advocate doing your own payroll unless you’re a small business owner who also happens to be a payroll expert. Of course, if your company expands, you can engage a payroll manager or an in-house accountant to handle the payroll.
Conducting payroll through software is becoming a more and more popular solution for figuring out how to manage payroll. There are several software programs available that can help you get the job done, ranging from desktop applications to online payroll systems. There are several advantages to adopting online payroll services, but one of the most essential is the adaptability it provides. These systems may be utilized in-house or by experts, allowing business owners to stay on top of their payroll at all times.
When selecting a payroll software, consider your organization type, the number of employees you have, and most importantly, your budget. You will then have to filter the best suited option from a range of features, plans, and prices considering your requirements. Payroll software can appear to be a bit expensive at first, but the peace of mind that comes with well-organized payroll is well worth the investment.
The fourth and probably the most hassle-free solution is outsourcing your payroll to an online financial management service. Outsourcing saves you time and allows you to concentrate your resources completely on other elements of your business. If you go with this option, we recommend conducting a lot of research and identifying payroll companies that specialize in your industry. Monily delivers accurate, efficient and compliant payroll management services at extremely affordable rates so you can grow your business at your own pace.
Payroll responsibilities do not end with you learning how to manage payroll, paying your employees and all the associated taxes. Recordkeeping is an important payroll stage that covers a wide range of different aspects. If your payroll information has to be evaluated by the Department of Labor, the IRS, or a state agency, the federal and state governments have requirements on how long you should retain your payroll info.
Employee timecards, for example, must be kept on file for at least two years, while payroll data (such as pay stubs) must be preserved for three years. Employee information must also be kept on file, according to the rules. These documents of information contain the employee’s name, social security number, the total number of hours they worked each week, the total amount of payment that was made to them during the period, and so on.
Whether you perform payroll in-house, outsource it, or use a software solution, it is critical to find a solution that balances your company’s demands, expenses, and time equally. Look no farther than Monily if you’re seeking a reliable payroll partner.
Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.