For many small-business owners, looking after finance and HR-related tasks such as payroll is a big pain and something that gets pushed way down the list of to-do tasks every week. However, even though you may find this part of being an entrepreneur a challenge, it is a vital element that needs to be done right. If one of your primary business stressors is handling payroll, then read on for some top tips you can follow today.
Obtain an EIN
Before you hire employees for your firm you should obtain an employer identification number (EIN) from the Internal Revenues Services (IRS). Also called an Employer Tax ID, your EIN is an essential number that is used when you pay workers, report information, and submit tax details and various documents to the IRS and state agencies.
If your business entity is set up as a corporation or partnership then you should already have been issued with an EIN. If not, contact the IRS directly for a number. You can call them or go online to their website to apply for this ID.
Organize Employee Details and Forms Correctly
Another one of the first steps you need to take when setting up payroll systems for your business is to organize all the relevant employee details and forms. For example, start by classifying each of your staff members correctly. You need to be clear about whether people need to be classified as employees (casual, part-time or full-time) or as independent contractors.
The difference between the two isn’t always easy to work out, so it’s best to contact the IRS for more information and assistance if you’re not sure. Keep in mind that, according to whether someone is an employee or a contractor, you may have to withhold different amounts of income tax, as well as treat Medicare and Social Security taxes differently.
You also need to be aware of paperwork that needs to be filled out for or by employees. For example, when new workers join your firm, they need to complete the Federal Income Tax Withholding Form (also commonly called the W-4 form). Employees must complete and return this form to you so that you know what the correct amount of federal income tax is that you need to withhold from their pay.
Pay and Report Payroll Taxes
Another important part of your payroll process is making federal tax deposits and providing payroll tax reports to the appropriate authorities. You should note that there are significant penalties issued by the IRS if you fail to pay your payroll taxes on time, so it is a good idea to make deposits each time you issue payroll so that you’re always caught up. As well, various payroll tax reports must be submitted throughout the year, so you should keep track of these deadlines.
Keep a Separate Bank Account for Payroll Payments
Next, it is worthwhile thinking about setting up a separate bank account where you can keep the funds for your payroll payments and taxes. If you keep a second account specifically for this money, you will ensure that you always have enough funds on hand to cover these required costs, and won’t accidentally dip into them to pay for other business expenses during the year.
Utilize Payroll Software
One way to take some of the headaches out of payroll is to utilize specific payroll software. There are a lot of different options on the market these days, all with different functions, costs, and pros and cons, so take the time to do some research. It pays to ask other entrepreneurs or accountants about the programs they use and recommend, to help you find the best fit for your needs. Many systems can take care of processes such as calculating payroll tax; generating employee payslips; and organizing information for end-of-year tax returns.
When choosing payroll software, make sure that you select an option that comes with comprehensive customer support. If technical glitches occur, or you have trouble using a program, it is important that you can contact someone at your provider via email, phone, live chat or other support. This will ensure that you don’t end up making late staff payments because of a system issue.
As well, see if the provider you choose for your payroll software has training courses (whether through videos, e-books, or in-person workshops) that you can take to learn how to use the program efficiently. This can not only save you time in the long run but also help to ensure that all aspects of your payroll are completed accurately.
Outsource Payroll Tasks
Lastly, if you hate having to take care of payroll-related tasks, don’t understand how to go about it properly, or simply don’t have the time or energy to do so, consider making your life easier by outsourcing this function to a specific PEO payroll service. Experts in the area of payroll always stay up to date on the latest laws and due dates, so they will ensure a payment or report is never lodged late or missed altogether, and that the numbers are correct without fail.