Payroll helps the world go round for any business that requires a team! However, the more people you bring on to that team, the more complex that your payroll becomes and that’s where things can get tricky for the Do-It-Yourself business owner. There are different ways that this can be handled. Some business owners like to do their payroll all by themselves, or through an in-house specialist while also using the help of software. Meanwhile, other business owners may elect to use a third-party service or company that is dedicated to the handling of all things that have to do with payroll.
But whatever method you choose, you’ll want to make sure you do your payroll right. Any mistakes can lead to costly penalties, which in turn can hinder your company’s progress. To help you along your way, we’ve created this handy guide to how to do your payroll!
How Do You Do Payroll?
If you have workers, then you’ll need to pay them regularly according to your type of pay structure, but payroll is more than that. You will need to calculate how much they’ve earned and account for the various taxes that may be involved. But you don’t have to handle the payroll process all alone. If you wish, you can hire an accountant or a dedicated payroll specialist to help handle the payroll process while making sure that no mistakes are made.
So, sure, you could do payroll all on your own. But as your workforce grows, so will the complexity of your payroll, and the chances for mistakes will only keep growing with that complexity. To manage payroll on your own will require a strong familiarity with payroll terms, the processes of payroll, and the laws that surround proper payroll. Even with some thorough studying, it’s estimated that about a third of employers have made or are making mistakes in their payroll—and those mistakes cost money, legal penalties, damage to the reputation of their own business, and of course, harm to the trust of their workers.
Doing Manual Payroll (By Yourself)
If you’re set on doing payroll all by yourself, you’ll need to personally calculate every employee’s wages and net pay individually while also calculating the various taxes and withholdings that each of them have. This is also affected by the classification of your employees (whether they are exempt or non-exempt).
Furthermore, you’ll need to then make and sign every paycheck for your workers and report all the payroll taxes to the proper tax organizations to ensure that everything is in proper shape. Finally, you’ll need to repeat this process every pay cycle.
The plus side is you know exactly what’s happening with every paycheck. The potential problem is that every mistake is yours to make, and there will be penalties for each incident.
Preparing for Payroll
If you’re going to take on payroll by yourself, you’ll need to get some things sorted out with the government first.
- Getting your Federal Employer Identification Number
- This is the number that will identify your business to the IRS. It is the numerical identity that will allow you to pay for your federal taxes, hire other workers, apply for your permits and licenses, and even open a business bank account. All of this will rest on this very important ID number for your business.
- Getting Your ID Number for Your Local and State Government
- Just like you did for the Federal business ID number, so must you get a state-based ID Number so that you can take care of your state taxes. It is also important that you investigate the nuances of your state and local area’s tax laws as every state and community is different.
- Make Sure to Report Your New Hires
- It is required by both federal and state law that employers report their new hires within 20 days of employment start. This also applies to those who have been rehired. Furthermore, some states may have a different timeframe and deadline, so be sure to investigate your specific state’s rules for reporting hires. Certain agencies may use this information for purposes such as ensuring that child support is deducted properly from a worker’s paycheck, and so it is important that new hire reporting rules are followed.
- Consider Workers Compensation Insurance
- Different states have different laws about Workers Compensation, and while some states even have Workers Compensation as optional (such as Texas), not having Workers Compensation can leave you open to certain legal challenges. Most states do require mandatory workers compensation, so be sure to look into your state’s Workers Compensation laws while considering getting that insurance coverage for the sake of your business.
Gathering Documents and Employee Information
Before you can pay your employees, you’ll need to first get the information to figure out how to pay them. That begins with looking into a few things:
- How Are You Classifying Your Workers?
- Will your workers be exempt? Non-exempt? Are you looking for permanent workers or for independent contractors like freelancers? These classifications will have an impact on your workforce’s wages and net pay, and it can have further effects on your taxes as well.
- What Kind of Documents Will You Need for New Hires?
- Before someone gets hired, you’ll need to make sure all the proper paperwork is filed. That includes W-4 and I-9 forms, as well as others that you may need to present depending on your company, your policies, and even the location in which the new hire is going to be working (such as a different city or state). Make sure to look up any and all forms that a new hire may need to fill out for your particular business, and make sure that they are all filled out when your new hire is getting on boarded to avoid any complications later on.
- How Will You Pay Your Workers?
- The biggest question that your employees might have on their mind—how should they expect their pay to come to them? You’ll have the options of direct deposit, traditional paper checks, or even a pay card of sorts. Consider your business and which of these may be best and most convenient for you and your workers.
Doing the Math and Calculating of Payroll
So, you’ve figured out the documents, the paperwork, and even how you want to pay your workers, but now comes the fun part: the math. Calculating your employees pay has several steps, with a potential multitude of factors to consider:
- Payroll Schedule
- This involves everything from pay dates to when tax payments are due, knowing all of these will keep your payroll running efficiently and on time, and it will help you avoid any potential legal pitfalls.
- Gross Pay
- The actual amount earned before any deductions. This includes regular hours as well as any overtime that may have happened.
- Net Pay
- What’s paid after deductions.
- Bonus Pay
- Are there any extra payments to go with the regular pay? These may come in the form of cash as well as non-cash bonuses, and they are all subject to taxes. Make sure to take Bonus Pay into account.
- Wage Garnishments
- Whether it’s child support or alimony, some employees may have some extra obligations that will be a portion of a paycheck to be given to a particular agency or organization. This may be required of you for an employee and following along with the legal order will help protect your business. But be sure to alert your employee that this is happening to their paychecks.
- Benefits, Contributions, and Coverages
- Whether there’s a retirement plan, life insurance, or even a health savings account, make sure to include these in the calculation of your employee’s paycheck.
- Deducting Taxes
- Federal income tax, federal employment tax, social security, Medicare taxes, local taxes, and more—all of these will have an effect on the paycheck.
All of these factors will play a part in what ultimately becomes a worker’s pay by the end of a pay period.
Manual Payroll Versus Outsourcing
Some business owners enjoy having the control that comes with manual payroll, but there does come a cost to that level of control. While you may save money at first versus what you’d spend by using a third-party, eventually your business will grow, and the cost of running payroll on your own can become astronomical. Some companies even spend tens of thousands of dollars in payroll duties. The situation could be improved with better technology and payroll systems to make for a more efficient process, but that usually isn’t the norm.
That’s where outsourcing your payroll could help. Having a third-party do your payroll not only saves you time, but it can save you on a lot of potential extra cost. You’ll also have real payroll professionals, whose expertise are dedicated to payroll and the laws surrounding payroll in your company’s area. All in all, outsourcing may be the more efficient route, especially if you have a large company.
Deliver on Payroll with Reliable Couriers
Whether you need regular deliveries of paychecks to another office location or you need to mail a final paycheck to a retiring employee, you can have your paycheck and payroll parcels shipped safely, securely, and swiftly with the help of Reliable Couriers. Our payroll delivery services are just one of our many 24/7 same day delivery services that can help ensure your company runs efficiently with your deliveries running on time. Give us a call at 888-415-1781 or visit us at ReliableCouriers.com to discover how Reliable Couriers can keep your payroll process running seamlessly, so that you can focus on the more important things in running your business!