What's The Best Way To Do Payroll For A Small Business?

What's The Best Way To Do Payroll For A Small Business?

What's the first thing that comes to mind when you hear payroll? Number crunching? Headache-inducing calculations? That's not too far from reality, but there's more. Payroll is a complex process that involves establishing your business as an employer, paying wages, managing taxes, and other financial procedures.

On the other hand, as a small business owner, you probably have many other responsibilities as well. And while you may have a lot of experience and detailed knowledge in your profession, you may not have the expertise, time, or energy to handle all payroll operations. With all that in mind, what's the best way to do payroll for a small business?

To answer the question, we first need to see what expert payroll services entail and how it's done. Ready? Then let's get started:

What Does Payroll Entail?

Payroll can vary based on different factors, including your employees' contract type, the specific business and industry you are working in, and your region. This is what the general procedure looks like:

#1 Setting Up Your Business as an Employer

Before doing anything else, you must submit the necessary licenses and meet the legal requirements as an employer. Apply for a Federal Employer ID Number (EIN), and set up an account in the Electronic Federal Tax Payment System. You can do this online, by fax, mail, or by phone. However, the online application is usually processed much faster, sometimes instantly.

You will also need a separate payroll bank account from your personal or business account for transactions. Next, determine your state's business regulations and check to see if you need to purchase workers' compensation insurance. It's mandatory in most states.

#2 Payroll Forms

Once you've established your business as an employer, it's time to take care of the employees. The standard procedure starts with obtaining relevant tax information from them, including a W-4 and an I-9 form. If you've hired freelancers or contract workers, ask them to fill out the 1099 form to report non-employment income to the IRS.

You also may have to submit W-2s and I-9s depending on your business type. These documents ensure that legal information about an employee's work status is recorded and define your legal status as an employer.

#3 Scheduling Payments

Next, you need to decide what schedule (weekly, biweekly, semiweekly, or monthly) you want to pay workers. The payment schedule is usually based on a mutual agreement between you and your workers. However, set the schedule as early as possible.

#4 Collect Time Sheets, Review & Approve

Once the initial formal procedures are completed, you must calculate the correct amount to pay your employees. You must factor in variables such as gross pay, taxes, deductions for insurance premiums, and other benefits. 

This stage is the most time-consuming. Organizing employee timesheets, tax deductions, withholdings, benefits, etc., requires meticulous calculations. Take your time and review payments to make sure nothing is missing.

#5 Making Payments

Once you've done all the calculations and subtracted the deductions from the gross pay, you'll have the net payment rate for each employee. Set up an automatic payment process based on your predetermined payment schedule to help employees plan their expenses.

You'll also need to take care of taxes and pay benefit providers - every month. Employees can receive their paychecks in a variety of forms, most often either paper checks or direct deposit.

#6 Keep Payroll Records

An honest, clear, and organized payroll record is crucial to keep track of your financial progress and business transactions. Plus, federal labor law requires you to document certain data for each pay period. Therefore, keep all payroll documents, including timecards, pay stubs, reductions/increases in payments, overtime, etc.

It's much easier to upload an online record and attach it to each employee's entry. Always keep a secured backup copy of your database. If you're keeping physical documents, as well, ensure their safety.

An organized payroll system will also help you look up documents when there are discrepancies between actual and expected payments. In addition, a well-structured payroll system makes it much easier for you to deal with the IRS, should an issue arise.

#7 Do Year-end Payroll Tax Reports

The year-end payroll report is the careful and verified review of your financial information during the fourth quarter of the calendar year through the first quarter of the following year. Annual payroll tax forms—W-2s and 1099-NECs—must be given to employees and to nonemployees by Jan. 31 of the year following the tax year.

To complete payroll year-end, you must submit these forms to the IRS and SSA to assess tax liabilities. To ensure your records are clean, follow this checklist:

  • Verify all employee & company information
  • Verify wages, taxes, & benefits
  • Order your w-2S
  • Manage paid time off
  • Decide end-of-the-year bonuses
  • Update your compliance posters
  • Update payroll information
  • Deliver w-2S/1099S to employees
  • File your w-2S/1099S
  • File tax forms 941, form 940, & form 944

What's the Best Way to Do Payroll for Small Businesses?

As you have noticed, it's not impossible to do payroll yourself. But it's incredibly difficult to handle all the formal and legal procedures, financial transaction calculations, and document storage and organization on your own. Remember that your primary responsibility is to run your business. You need all your time and energy to be focused in that direction.

Hiring a finance and accounting expert is the most effective way to handle payroll. At Haro CPA, we offer comprehensive payroll solutions to small businesses. We ensure full compliance with laws and regulations regarding timely response to financial requirements and an accurate, organized record.

With our team on your side, you will always have an answer to all your financial questions. We use state-of-the-art accounting and financial tools and software in combination with a team of professionals trained to cover your bases.

We have provided financial and payroll services to small and large businesses for more than ten years. We know the ups and downs along the way and understand your concerns. Reach out to us today for a quick consultation.

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Our Company specializes in accounting and tax preparation services for a wide variety of clients. We are specialize in tax return filling and tax planning for indivduals, Bookkeeping and financial statements for small business, Corporate tax return filling.
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