If you own a business, small or large, you will find that you need to handle payroll. Whether you want to or not, payroll is something that cannot just be skipped over and you must take care of it.
Often, business owners find it easier to have their accountant or financial department handle their payroll for them because a lot goes into it. For example, if you pay an employee $10 per hour, you cannot just multiply $10 times the number of hours worked and pay the employee that number. You need to subtract taxes and the like.
Below, we will go over different tips, ways, and steps you can take to make the whole payroll process easier for your business.
Payroll Preparation is the Key to Success
One of the first things you need to do is make sure that your payroll is ready when it comes time to start handling it. You cannot do payroll for your company if you do not have all of the W-4s in hand and how much each employee makes.
If you are new to the business world, take some time and start organizing all of your documents. If you handle payroll in house, make sure you deliver the proper paperwork to that department in a timely manner.
If your payroll is handled outside of your company, you need to make sure that you hand over the right documents on time so that your employees can be paid accordingly and without being late.
You Need a Payroll System in Place
After you have organized and gathered all of the paperwork for your payroll, you will now need to get a payroll system in place. This system needs to be accurate and reliable as your employees count on you to pay them.
A good payroll system will include the employees names and positions, how much they make, hours calculation, system for writing checks, and a system for distributing those checks. The more thorough your system, the less likely there are to be problems.
Calculate the Taxes Right
The next thing you want to do is make sure that you are calculating your taxes right. Since you need to set aside and pay for social security and Medicare, you need to know that you are withholding the right amount and sending off the payments in a timely manner.
In addition to calculating your taxes, make sure you keep a payroll record that includes how much was paid.
Methods for Calculating Taxes
If you are unsure of how to calculate the withholding amount for taxes, you will need to practice and speak with an accountant. To help you out, we will go over some of the basics so that you can get an understanding.
Calculating Federal Income Tax
To calculate federal income tax, you need to take a look at the employee’s W-4 form, which was filled out upon hire. This form will let you know the number of deductions the employee wants to take.
You will then need to look on the IRS federal income withholding sheet and locate the amount of pay, deductions, and status of the employee. You will then have the number that you need to withhold.
Social Security and Medicare Tax Withholding
Social security and Medicare tax withholding is one of the easier numbers to figure out as it is a set percentage by the IRS. For example, the about that needs to be withheld is 15.3 percent. The employee does not pay the entire amount and they only pay 7.65 percent and the employer pays the remaining 7.65 percent.
You want to make sure that you do deduct the right amount throughout the year so that your employees do not have any surprises and you are not caught off-guard with a large tax bill at the end of the year.
It is important that you make sure you are always withholding the right amount of money from your employees’ paychecks. If you do not, you and the employee may be fined.
If you need help figuring out the amount of taxes you need to take out or how to manage your payroll effectively, speak with your local tax agent. He or she will be able to point you in the right direction or handle all of your taxes and payroll for you.
Cheryl Panattoni Forensic Accounting and Tax Inc