Managing payroll for companies of all sizes is essential. To effectively manage payroll for a small business, one should establish a clear payroll policy, accurately track employee hours, and use payroll software to automate calculations and tax withholding. This process involves regular monitoring for accuracy and considering employee benefits.
Payroll management ensures timely payments while maintaining proper record-keeping and staying updated on regulatory changes. Simple steps can help manage a small business payroll including choosing a payroll schedule, selecting payroll software, gathering employee information, a time tracking system and calculating gross pay.
Here are some tips that will help make payroll easier, more accurate and less hectic for small businesses:
Register For An Employer Identification Number
Before you start putting employees on the payroll, you will need an Employer Identification Number (EIN). Like your Social Security Number (SSN) is to you as an individual, EIN is a way to identify your small business for tax purposes.
EIN is needed before small businesses apply for licenses, file payroll taxes or even open a bank account. Depending on the location of your business you may need to get a state-level EIN on top of your federal EIN.
Decide Pay Schedule And Salary Status
As a small business owner, you need to make pay frequency and wage status two of the key decisions. Let us understand here:
- Pay frequency is also known as pay schedule. It is when you pay your employees and how often they get paid. Check federal and state laws to ensure you are meeting your area’s minimum payday laws. The most common payroll schedules include weekly, bi-weekly and monthly payments. No matter what your choice is, be consistent and pay on time.
- Salary status is how wages are computed. You can choose between paying an hourly rate or paying a salary. The right salary status is largely based on the individual needs of your small business as well as the employee’s position.
Understand Wage Laws
It is a must that your business or company is compliant with both federal and state laws. This means that you or another person in the organisation needs to understand what your legal and financial obligations are as an employer.
Ensure that you are paying the right employment taxes, the right local and state taxes and the right income tax per employee. Duble-check your payroll process to ensure employees get paid accurately and on schedule. Monitor your payroll tax deposits to ensure they keep to a regular schedule according to your tax liability.
Set Up A Payroll System
A payroll system can ease your work in many ways. It is any system that helps you calculate and manage your employee’s paychecks. Generally, companies have three options:
Manual
Some small businesses do payroll manually, mostly because of the cost savings. However, manual payroll is the most tedious and time-consuming process. It is most prone to errors.
Outsourced
Businesses can hire someone else to do their payroll. They will handle everything, from processing paychecks to handling tax deposits, payroll taxes, employment taxes, etc.
Software
Payroll software is one of the smart decisions companies are making these days. It combines the best of both worlds. It is cost-effective and controls manual work saving your time, and providing accurate and convenient decision-making.
Before diving into payroll software it is essential to understand business needs, budget and comparing systems online as there are many options available. Understand how payroll software works and offers everything your HR department or company needs.
Outline Payroll Policy And Processes
Before running your first payroll, it is important to establish a standard payroll policy. This ensures that everyone in the management, from HR professionals to management, is on the same page about how payroll systems work when the payroll period is and how much they can expect to take.
Take Help Of Time-Tracking System
A time tracking system is a great way to manage employee’s productivity and calculate their wages, especially if you are paying hourly rates. It is important to have a time-tracking system that is both easy to use and difficult to manipulate. There are many different timesheet solutions for accurate and informed payroll.
Keep Track Of Cash Flow
One of the greatest fears of any business owner is not having enough cash to pay their employees. If you are regularly short during the payroll period, take a look at your cash flow to identify the root of the issue.
It is necessary to monitor cash flow to help spot potential payroll issues like overstaffing or overpaying. On financially stressful periods, manage vendor payments or collect outstanding customer payments.
Maintain records and be informed about upcoming challenges. Take the help of payroll software, a smart system no matter the size of the business, from big to small.