In 2017, the IRS assessed tax-related penalties to more than 5 million businesses. The penalties totaled close to $7 billion.
Most of those penalties are related to payroll issues. Small business owners struggle to understand the complicated tax system, pay employees on time, and meet payroll tax deadlines. On top of that, employers spend hours every pay period to process payroll.
If you’re looking for a simple payroll guide, you’re in the right place. Read on to learn the top tips to run small business payroll.
Create a Consistent System
The best way to process payroll is to create a system for payroll that you can stick to. Your employees depend on their paychecks for survival.
Most people live paycheck to paycheck and any payroll issues can have severe consequences for you and your employees. Your employees will lose trust in your and their business, and they’ll search for another job.
You need to set days as to when you process payroll. Many businesses choose to process payroll on the first and third Friday of each month.
They also have a policy on when employees have to turn in their hours to you. This should be written in your employee manual and communicated to employees on their first day.
The most confusing issue for employers is how to calculate deductions. The basic taxes that you need to know are FICA, federal income taxes, and state income taxes.
FICA taxes are Social Security and Medicare taxes. This is easy to calculate because it’s a flat percentage of 7.65%. Don’t forget that you pay an additional 7.65% in payroll taxes as well.
Federal income taxes vary because the amount withheld depends on the employee’s allowances, income, and tax filing status. You’ll need to check the withholding table from the IRS to calculate federal taxes.
State taxes depend on the tax laws of your state. Some states like Oregon have a progressive tax system, while other states don’t have an income tax.
Employees prefer to have their pay via direct deposit. You might think that after you set up direct deposit, you’re done.
Not quite. You still have to print out paystubs and distribute them to employees. There are tools that let you create a paystub hassle-free. You just enter your basic information and print it out.
You have to do your part to maintain payroll records, too. This is necessary in case of employee disputes about how much they should get paid or if your records are audited.
The Only Simple Payroll Guide You Need
Simple payroll can really be simple. You need to make sure that you have a system in place that minimizes the amount of time you spend on payroll.
A set system also creates trust with your employees, too. You have to keep good records and create employee paystubs so they have records, too.
If you enjoyed this article, be sure to take a look at the other business articles on this site.