How To Manage Your Payroll

Use these tips to help manage your small business payroll and remember, Decimal facilitates payroll and offers invoicing services in addition to online accounting services.

As with many services available to small business owners, you face a choice when it comes to payroll and payroll tax. You can hire someone to do it, or you can do it on your own. But what is the real cost of managing your small business payroll all by yourself? Let’s take a step-by-step look at it.

What are payroll taxes?

Payroll tax refers to the taxes withheld from and paid by business owners and/or their employees at the local, state, and federal levels. Payroll taxes fund different initiatives depending on the geographical area and, on the federal level, that includes Medicare and Social Security programs. In order to calculate the amount of payroll taxes, you need to know the current tax rate – at the local, state, and federal levels. These rates may change and may be subject to caps, on a yearly basis, so keep that in mind when exploring payroll options.

How to process your own payroll

Step 1: Find or sign up for an Employer Identification Number (EIN)

Prior to doing payroll yourself, your business will need to acquire an Employer Identification Number (EIN). This identifies your company on all federal forms (and on some state forms) in order to correctly track taxes, credits, and other important information. The EIN essentially acts as a Social Security number, or SSN, for your business. You may also need to get a state EIN depending on where you are located.

Step 2: Choose payroll schedule and calculate hours

After you register your EIN, keep three schedules in mind:

i.            employee pay dates,

ii.          tax payment due dates (when are taxes due to the authorities), and

iii.         tax filing deadlines (when do you have file forms to report taxes withheld and paid).

These are important dates for you and your employees and must be tracked meticulously in order to maintain accuracy. Also, make sure to calculate how many hours and/or days each employee works. This can be done manually or via software. Whatever option you choose, accuracy is vital as the number of hours worked and the amount paid per hour will directly impact the amount of income tax you should withhold from the employee’s paycheck.

Step 3: Have all employees complete a form W-4

The Form W-4 is a tax form that must be completed by every employee prior to starting work. The form is completed so that you, as the employer can withhold the correct federal (and other) income taxes from your employee’s pay. This form records filing status as well as any personal allowances the employee may claim; the more allowances that are claimed on the form, the lower the amount of tax that is withheld on every paycheck.

Step 4: Calculate and withhold income tax

Payday for your employees and payday as a business owner may be two completely different things. Unfortunately, as a business owner, a lot of work is required to make payday happen. You need to determine which local, state, and federal taxes to withhold from your employees’ pay. Make sure to keep track of the business portion and the employee portion of each tax category. You must also determine how quickly any withheld taxes are deposited with the local tax authorities – late deposits may result in interest and penalties assessed by the tax authority.

Step 5: Pay taxes and manage paperwork

When it’s time to pay your taxes, make sure to submit your local, state, and federal taxes. The scheduling of these payments varies depending on location but is often a monthly process. After submitting payment, make sure to submit the required documents where necessary. For example, business payroll tax returns are usually required to be filed with the IRS every quarter, but state and local tax returns may vary by location. Last but not least, don’t forget to prepare any required annual filings (for example, after the end of each year, every employer must file a Form W-2 for certain employees; Form W-2 is used generally to report income, social security, or Medicare taxes withheld from an employee’s wages).  

Payroll with Decimal: Hands-off and Easy

Decimal offers online accounting and bookkeeping services, as well as a personal bookkeeper to assist small business owners and answer questions. Decimal also helps facilitates access to payroll services with our partner network and technology partners.

Payroll and tax season can be very stressful, but with the right partners helping you prepare for them, it can be much easier. We know the deadlines, we know your business, and we help to take away the time-consuming drudgery of preparing all the numbers for this exercise. 

Decimal is here to help. Talk to us to learn more about how we can help your business! 

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