Small business payroll is a highly regulated area involving everything from employee personal information to federal governmental legal requirements. This is an area of business that, if not done properly, can reap harsh consequences. Implementing the best payroll accounting software for your type of business, having a set payroll processing sequence and understanding the payroll tax rules and regulations that exist—all combine to assure one's success in handling this area properly, effectively and efficiently. Timeliness and adherence to details are imperative.
Things You'll Need
- Payroll forms and publications
- Payroll accounting system
- Payroll bank account
- Payroll accounting checks
Determine pay period. Is your payroll processed daily, weekly, biweekly or monthly? Develop a monthly schedule and stick to it. Distribute a calendar with both the pay period ending date (date that employees need to have time cards in) and pay date stipulated on it.
Develop internal payroll forms such as sick leave requests, vacation requests and leave of absence requests. Order IRS forms and publications. Essential payroll-related forms to order from the IRS include Circular E, a publication that contains everything the small business owner needs to know about payroll and the taxes involved, W-9 for employee withholding amounts, 941 (quarterly tax return) and 940 (annual tax return).
Purchase payroll accounting software specific to your type of business; for instance: service oriented, manufacturing, retail, hospitality or medical. Each program will have facets geared toward your area of specialty in an effort to make the payroll process operate as efficiently as possible.
Open a payroll bank account. Having a bank account specifically for payroll will help with record keeping by segregating the firm's financial operations from payroll. It also can be used to track payroll taxes. Also set up electronic filing for payroll taxes now.
Order payroll checks with your firm's name and address on them, once you open your payroll bank account. This can be done through your financial institution or an outside source. Be certain the checks comply with your accounting software program.
Give each new hire a W-9, determine their rate of pay and inform them about how to submit their hours to payroll. Is it via time card or time sheet? Stress the importance of submitting the information on schedule to the payroll person.
Input employee data. Once you have received all the employee payroll submissions, start inputting the hours, sick leave, paid and unpaid leave, deductions such as child support and garnishments into the payroll accounting software. There will be a payroll report that summarizes the information. Double-check these figures to ascertain correctness of data you inputted.
Determine payroll taxes. Once all your employee payroll data is inputted, the payroll taxes will be calculated. Your accounting payroll software will calculate this amount, including the employer's matching share for FICA. Verify these figures by reading your Circular E and calculating the amount manually.
Print and distribute payroll checks. Printing your payroll checks also involves the step of posting transactions to the payroll accounts. Verify the information has posted correctly. Hand out the checks when ready.
Submit payroll taxes. To avoid any penalties and potential interest, it is advised to electronically submit payroll taxes to the IRS upon completion of the payroll processing. Check with your state and local governments for their submission requirements.