For a small start-up business, the word ‘payroll’ is the one used to describe the process for ensuring employees get paid their salaries on time. Everything from working out salary levels and deductions for tax, to ensuring the company complies with tax regulations, comes under the heading of payroll.
It is impossible to overstate its importance to the running of a business. Payroll involves both accountancy and administration, but there are tools you can buy if you aim to do it yourself that will minimize the risk of errors.
Here we will look at the basics of setting up and managing payroll.
Setting It Up
Create a schedule
Organizing your business’s payroll can be a daunting task but it will become outright unachievable if you do not set a regular schedule. Employees need to be paid at the same time each month and any deductions for things like taxes also need to be paid regularly.
The schedule should have three main dates: payment dates, tax due dates, and tax return deadlines. The first step in setting up your payroll must be to put this schedule in place.
Form filling for new employees
If you are just starting up then all of your employees will be new and there are forms that they should complete for payroll purposes. The most important is the W-4 form that they must have filled out to receive their wages.
That outlines their status regarding personal allowances and tax deductions.
Securing records for all employees
To be able to set up efficient payroll processes for your start-up, you need to have complete records for all employees. That includes yourself, as the IRS will need your Employer Identification Number (EIN) to establish that you run a business for tax reasons. For some this can be challenging, if you find yourself struggling, you can always opt to outsource your payroll.
Managing It
Keep all records up to date
The status of your employees for things such as tax can sometimes change during their time working for you. For that reason, it is important that you update records as and when required in managing your payroll.
For example, the number of hours per week each employee works can change, and accurate records of those hours must be maintained.
Reconciling your payroll
What the term reconciling payroll means is conducting a comparison of the payroll total for your current accounting period with the data in the ledger to make sure they match up.
Failing to make these figures add up is one of the more common payroll errors committed by those who are not trained accountants. Options for preventing this include hiring one to your payroll staff and using accountancy software or the voucher checks provided by QuickBooks that are designed to limit the potential for mistakes when inputting figures.
Saving tax records
If you are starting up a small business, you will have to file a tax return each year and that will be impossible if you do not keep detailed records. Furthermore, many businesses also fail to store those records after the return has been filed.
That is a big mistake, as all payroll records – including those related to tax – should be stored for around five to six years. Not doing so can cause serious problems if your business is audited by the IRS.
Why Is Payroll So Important?
A business cannot function effectively without proper payroll processes. No small firm will survive for long if its employees are not being paid on time or if wages are calculated inaccurately.
This is equally true of the tax situation. The financial penalties levied on firms that fail to keep correct tax records, file returns by the deadline, or pay liabilities due will sink most small businesses.
Hopefully, this has given you a better understanding of what payroll is, how to organize it and why getting it right is so important.
