No matter how many employees you have it is important to maintain all records accurately and keep them updated. With over 20 different kinds of employment records needed to satisfy federal requirements, this can seem a bit overwhelming. Fortunately, there are many programs and systems designed to streamline the process, meet the requirements, and keep your employees happy.
If your payroll system is not organized properly, it could result in unnecessary penalties from the IRS or late payments to employees. To keep things running smoothly and prevent problems, it is important to have a good payroll management system in place. Here are ten tips to help you manage your small business payroll more effectively.
1. Choose Hourly or Salary
For most businesses, salaries make payroll processing a lot easier. Salaried employees don’t get paid different amounts every paycheck, which allows the business to have a stable, predictable cash flow. This makes everything from budgeting to taxes easier. However, some businesses may need to pay some employees hourly, so if this is your business, you will need to incorporate those payout fluctuations into your payroll planning.
2. Establish a Payment Schedule
After determining whether to pay employees hourly or on salary, the next thing you’ll need to do is determine what schedule to pay them on. You could choose a weekly, bi-weekly, or monthly schedule. Bi-weekly is the most popular, but weekly can also work well. Monthly is the least popular of the three options. Ensuring all your employees are paid on the same schedule is the main purpose of establishing this routine. This creates a consistent and predictable plan for payroll processing.
3. Categorize Your Workers
It is important to properly classify your workers. You might hire full-time and part-time employees, independent contractors, and interns. It is important for tax reasons to classify each worker correctly. You can find more information about employee classification from the IRS official website at irs.gov.
4. Choose the Right Software
You will want to select a good state-of-the-art payroll management solution for your company. Ideally, this software will be cloud-based or at least cloud-integrated, so that you have access to it from anywhere. This will also help ensure that all relevant data is backed up off-site so that if anything happens to your company’s on-site computers, it will not affect your ability to handle payroll.
Ideally, your payroll software and your accounting software are integrated so that payments made to employees are automatically entered into your company’s books and documented appropriately. This organization method can also make tax season go a lot more smoothly, as good accounting software will be able to add that information into your various tax forms when the time comes to prepare and submit them.
The simpler your payroll and accounting system is, the easier your life will be when it comes time to manage these aspects of your business. If you have less than ten employees you may be able to design a system that allows you to do everything yourself. Another option is to have your accountant provide this service, and many of them do, simply because it is such an important aspect of your tax liability. You can also have a third party perform all your payroll functions or consider investing in a human resources task manager. Decide which option will make your life easier, so you can concentrate on growing your business.
6. Maintain Consolidated Records
If records and documents on your payroll are scattered all over the place, you won’t be able to find the data you need when you need it. Federal and state laws require employers to retain and keep track of employment records for specified periods. For example, W-2 and W-4 forms, tax forms, tax deposits, vacation time, and benefits are all important to track with accurate records.
7. Automate State and Federal Tax Payments
Some payroll software solutions allow you to automate the payments of state and federal taxes. This program can save you a lot of time and effort and help you to avoid late tax payments. It is a good idea to automate as many aspects of your business as possible because this will save you time and money in the long run.
8. Plan for Raises and Benefits
Employees who receive regular raises and benefits will be more loyal to your company and happier in their jobs. This planning leads to improved performance and boosts team morale, which in turn leads to higher productivity and a more successful company. If you can’t afford to give cash raises, consider tax-free options such as giving them free laptops or tablets, complementary upgraded health insurance coverage, or stipends for things like childcare. These considerations can help your employees to feel valued and cared for while still keeping your books balanced.
9. Determine the Need for Employer ID (EIN) Numbers
Some states require that employers obtain an EIN to process taxes. Generally, the majority of businesses and other entities have ID numbers already. If you don’t yet have one, you will need to apply for one through the IRS.
10. Establish and Follow a Budget
Just like with personal finance, a budget is also vital to successful business finance. When planning your payroll, be sure to account for wages, salaries, benefits, contract payments, and taxes. You will need to pay both Social Security and Medicare taxes if you have regular employees. Most businesses are also required to pay unemployment taxes as well. It is important to plan for these expenses so that none of them catch you off guard.
Preparation and planning can help you improve your business payroll management and reduce stress. With happy employees and balanced books, you can focus on the fun part of building your business. If you have any tips of your own to add that other small business owners might find useful, we invite you to share them here in the comments below.