Payroll is an essential aspect of running your business, but it can be a challenging one, too. That’s why our Sidekick Accounting experts share some of these best practices to help make payroll management easy and keep your employees happy.
1. Start with an Employer Identification Number. An employer identification number (EIN) is a must-have for any business, partnership, or corporation. Chances are you already have one if you’re in business, but if you’re starting out you’ll need to apply for an EIN through the IRS.
2. Determine Your Payroll Budget. Your payroll expenses will grow as your business grows, which is why a budget is critical. Remember that business owners must match Medicare and Social Security that is withheld from each employee’s pay. Medicare, for example, is equivalent to 7.65% of gross pay. Your payroll budget should account for these costs, as well as any other federal and state payroll taxes. You may also have to take other costs into consideration beyond fixed payroll costs, such as commissions and benefits.
3. Decide How You Will Pay Employees: Salaried or Hourly? With the same amount for each pay period, salaried employees are certainly simple to manage from a payroll standpoint. But a salaried employee option might not be the right approach for your business operations. Hourly employees are more to manage, as you’ll need to calculate their hours for each pay period. Fortunately, there are ample timesheet solutions available that help streamline the clocking-in-and-out process for your staff.
4. Establish a Payroll System. Start by determining the frequency or pay schedule that works best for your small business operations, whether that’s weekly, bi-weekly, or monthly. Whatever you decide, keep it consistent so your employees are always paid on time. Once that’s established, you’ll need to decide which of the three payroll system methods is best for you: 1) manual, where you enter all payroll info by hand; 2) outsourced, where you hire someone else to manage and process all of your payroll functions; or 3) software, where you benefit from the cost-consciousness of manual plus the accuracy and time-savings of outsourced. In fact, there are several accounting software options out there that effectively help you manage payroll and other financial aspects of your business.
5. Know the Labor Laws You Must Follow as a Businessowner. Understanding your legal and financial obligations as an employer is critical to running a healthy business. As a busines owner, you must be able to pay the proper federal employment taxes (i.e., FICA or Federal Income Contributions Act taxes), state taxes, and local taxes for every employee. Make sure your payroll process pays each employee on time and accurately, and that your payroll tax deposits are made regularly to keep pace with your tax liability.
6. Double-Check Your Data Entry. When it comes to data entry and payroll, remember that mistakes cost money. Make sure you review all your data, as wrong numbers or inadvertently hitting the wrong key could add up to thousands of dollars lost annually for your small business.
7. Accurately Classify Your Employees. As a small business owner, it’s important to properly classify your staff. A staff member may agree to be paid as an independent contractor, but that doesn’t mean it’s legal. If an individual is performing the same services as your business offers, they usually have to be classified as an employee. You can certainly have employees and contractors, but make sure that both are abiding by federal and state tax laws.
8. Monitor Your Cash Flow. No business owner wants to live the nightmare of not having enough cash to pay employees. If you notice you’re short on funds during payroll periods, review your cash flow. Taking a closer look at your cash flow will help you spot potential payroll issues like overstaffing or overpaying. If you’re up against a financial challenge, try to delay a vendor payment or collect outstanding customer payments before resorting to extreme financial measures like delaying wages or reducing an employee’s hours.
9. Directly Transfer Payroll Taxes. The best way to stay on top of your tax liability as an employer is through a direct transfer. Have payments go directly from your business bank account to a government account so you can avoid delaying any tax payments or incurring any penalties.
10. Hire Out Your Payroll Services. Many small business owners handle their own payroll process, but it can often be a costly and time-consuming task. If you consider that time is money, hiring a professional payroll manager is well worth the investment. This expert will handle all aspects of employee compensation, taxes, and even unemployment and workers’ compensation, so you can do what you do best—grow your business.
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From payroll to taxes and every accounting service in between, Sidekick is here to help your business be successful! We offer solutions for any size business or budget—contact us to schedule a no-obligation consultation at your convenience!