As a small business owner, you know you have to look after various HR and finance tasks, but you probably find yourself pushing these things to the bottom of your list and concentrating on bigger-picture activities instead.
However, even if this side of being an entrepreneur is your least favorite, it’s something that shouldn’t be delayed or neglected. In particular, being efficient and on-time with payroll is vital, no matter the size of your business. By following a few steps, though, you can reduce your stress around this topic and get things done more quickly.
Request an EIN
Businesses must request an Employer Identification Number (EIN) from the Internal Revenues Services (IRS) to legally bring workers on board. Also known as an Employer Tax ID, this EIN is the number used when you submit employee related documents to the IRS and state agencies, and when you pay your staff members and provide tax information.
You will have been issued with an EIN when you set up your business partnership or corporation. If you have a different kind of business structure, or for some reason never received your EIN, contact the IRS for a number.
Organize Employee Information
The next step is to get all employee information in order. There are various pieces of information you need for this. For example, work out how to classify workers correctly. You must be clear about whether people will be classified as casual, part-time, or full-time employees, or working as independent contractors.
If you’re not sure which option is correct, contact the IRS for advice. Determine classifications accurately as the amount of income tax you withhold from payments differs between employees and contractors. Social Security and Medicare taxes are treated differently, too.
Once you’ve sorted the classification issue, organize a W-4 Form for each worker. Officially called the Federal Income Tax Withholding Form, this paperwork is usually filled out by or for employees. It shows employers the level of federal income tax to withhold from pay.
Pay Attention to Payroll Reports and Taxes
Payroll involves not just paying employees but also reporting information about payments to the appropriate authorities. In particular, you must provide payroll tax reports to the IRS (due at various points throughout the year), and make corresponding federal tax deposits.
The government agency issues hefty penalties if you fail to pay these taxes on time, so it’s best to submit deposits as you issue payroll.
Set Up a Special Payroll Account
Something many business owners do to ensure they never get stuck in a situation where they can’t pay staff members is set up a separate payroll bank account. This account will be where you keep all the allotted business funds for both payroll payments and related taxes.
By keeping the money separate, you’ll know you have the necessary funds on hand at each payment point during the year, and won’t be tempted to dip into business savings to pay for other expenses.
Use Helpful Software
To reduce the time you spend working on payroll, use helpful software. There is a multitude of specific payroll programs on the market now to choose from, most of which are affordable. They all have different costs, features, benefits, and downsides though, so do your research to find something that will suit your current and future business needs.
Payroll tech systems can handle processes such as organizing end-of-financial-year tax returns, calculating payroll tax, and generating employee payslips. Many programs come with training courses to help you learn how to use them best, too, which is handy.
If you’re worried about doing payroll tasks yourself because of the chance of errors, or because you dislike the job or don’t have the time to devote to this area, keep in mind that you can instead outsource payroll tasks to trusted HR consultant firms. Companies that work on this subject day in and day out stay up to date on the latest laws and payroll deadlines and are usually more efficient than business owners. As such, the investment should be well worth it.
Payroll can be a stress-inducing and time-consuming element of running a business, but the more organized you are, and the more you understand what’s required, the better. Follow the steps listed above, and you should feel more in control of this critical business area.