You must take several steps to establish payroll for your small business successfully. So how to set up payroll for small business? First, it’s important to ensure you comply with all federal and state laws, including obtaining employee information like Social Security numbers and Form W-4s.
Getting your payroll process in place is key to employee satisfaction and compliance. Here are some tips to help you get started.
Decide on a Payroll Schedule
A lot goes into payroll processing: you must comply with minimum wage and overtime laws, calculate and administer taxes, and decide on a payroll schedule. This last one may seem small, but it can greatly impact your employees’ financial security and your business’s cash flow.
Your payroll schedule determines how often you pay your employees weekly, biweekly, monthly, or semimonthly. Each type has its benefits and drawbacks, but the choice ultimately comes down to what works best for your company’s needs.
Whether you go with a weekly, biweekly, monthly, or even quarterly payroll schedule, aligning with your cash inflows and outflows is important. If you will be paying bills, ordering inventory, or purchasing supplies in certain weeks, choosing a payroll schedule that aligns with those dates is helpful. That way, you won’t have to worry about running out of funds in the days leading up to your paychecks.
Create a Payroll Calendar
A payroll calendar is the recurring time frame businesses follow to process their employees’ wages. It includes information like employee pay rates, taxes withheld, and voluntary deductions. A payroll report also includes a list of business expenses, such as the employer portions of Social Security and Medicare taxes.
Using the right strategies, you can establish a payroll schedule that works for your small business. This is vital to improving the employer-employee relationship by providing transparency and predictability in paychecks. It’s also important for compliance with state laws.
A payroll schedule can be biweekly, weekly, or monthly. A biweekly pay schedule is the most common, as it is easier for both employers and employees to budget. It’s also more flexible, allowing you to compensate hourly and salaried employees. This is a great choice for small businesses with employees that need to use their wages throughout the year, such as seasonal or temporary workers. A semimonthly payroll is also an option, providing employees with payments twice a month or 24 times a year.
Gather Employee Information
When you start running payroll for your business, you’ll need to gather employee information for calculations like gross pay, taxes due, and deductions such as insurance and 401(k). This is essential to ensure that you are paying the correct amount of tax. Additionally, some states require that businesses provide employees with a detailed report of their deductions on their paychecks.
When gathering details on employees, ensure that you obtain the following information: their full name, job position, social security number, date of birth, residential address, and telephone number. Additionally, it may be beneficial to include an optional segment where employees can share their interests and preferences to boost employee satisfaction.
Once you have all of this information, it’s time to start processing payroll. This includes calculating employee hours, determining deductions and allowances, subtracting from gross pay to calculate net pay, and issuing payments. You’ll also need to submit federal, state, and local tax deposits and prepare filings for each employee, such as W-2s. Investing in a full-service payroll provider that can handle all these tasks is a good idea to simplify this process.
Select a Payroll Software
Payroll software automates many manual steps in processing payroll, making it more accurate. You can find payroll software online, through a payroll service provider, or at a local business supply store.
Choose software that offers a comprehensive set of features that will address your specific needs. Some of these include:
Look for a payroll solution that can handle contractor payments and employees paid off-cycle (such as bonuses, advancements, or final payouts). Additionally, ensure your software will allow you to set up recurring deductions such as taxes, health insurance, and retirement contributions.
Consider a solution that can integrate with other tools you use to create an HR workflow, such as time and attendance or financial management systems. This will save you valuable time and money by eliminating the need to input data manually.
Finally, look for a vendor that takes security seriously. Your employee information is sensitive, so you want to ensure your payroll software has the highest level of protection. For example, select a provider that uses two-factor authentication and complies with international security standards.
Set Up Your Payroll
The right payroll solution is critical for disbursing timely salary payments, handling tax filing, and ensuring compliance with labor laws. A few things to consider include whether the software can scale as your business grows, whether it accounts for overtime and PTO, and whether it can distinguish between independent contractors and full- and part-time employees (this is important as there are legal distinctions between the two that impact how much you withhold in taxes).
Prioritize running payroll on time — late payroll negatively impacts employee morale and drives up costs due to penalties for filings made after the deadline. Also, remember that some states require deposits for local and state payroll taxes, so check with your city and state to learn the specific deposit schedule.
If you’re ready to streamline your small business payroll processing, consider working with a full-service payroll provider. These companies handle everything from calculating net pay to delivering paychecks via direct deposit or checks. Some even conduct Social Security Verification and file new hire paperwork with the IRS for you, saving you valuable time to focus on your core business functions.