The Small Business's Guide to Running Payroll: Everything to Know

 Part of getting a small business off the ground involves keeping your employees happy. Here is a small business's guide to running payroll successfully.

 There are around 5.6 million employer firms in the US.

If you run a business that has employees, you'll need to set up a payroll system. Having an efficient payroll framework in place is crucial to the success of any firm.

If you're in the process of establishing a payroll system, or you're considering a change from your current approach, there are a number of things to take into account.

Read on to learn more about the ins and outs of running payroll.

What Does Running Payroll Involve?

Payroll is simply the method by which you pay your employees. In this day and age, however, it's a good deal more complex than that description makes it sound.

Firstly, many medium firms now employ a large number of workers. They may be paid at different rates, or even by different metrics (some might be paid by the hour while others receive a flat rate per month and so on).

Another complicating factor is taxation. Most businesses will have to deduct the federal and state taxes owed by their employees themselves before they issue their paychecks.

If you fail to do this, or do it wrong, you could face serious repercussions. The IRS is harsh in its treatment of mistakes in tax repayments, even honest ones.

The Payroll Process

There are a number of steps involved in the payroll process for employers.

The first thing to do is to differentiate between employees and independent contractors. The payment process for each is very different, as the latter is in charge of paying their own taxes.

You should then record the rate and structure of payment for each worker. Keep a record of the workers that occupy each payment plan.

Once this is all in place, you'll have everything you need to calculate your workers' pay each week or month. You'll have to calculate what you owe them based on the amount they work in a given period, as well as calculating the tax they owe on this amount.

The Features of a Pay Stub

A pay stub is a document, whether physical or electronic, that details the amount you're paying an employee. You produce pay stubs for each employee and issue them at the time of payment.

This can be a somewhat arduous process, especially with more frequent payments. For this reason, a lot of employers choose to use a paystub generator.
Pay stubs may vary slightly from one business to the next. That said, certain pieces of information must always appear on a pay stub.

Gross Pay

This is the amount that your employee earns before any deductions are levied. For instance, if your employee earns $10 per hour and works 40 hours in a given week, their gross pay for this period will be $400.

Your employee will never actually receive this amount in their paycheck.

Federal Taxes

These are the charges made by the federal government. They are the same in every state.

You must withhold the relevant amount of federal tax from your employees' payments each period and then pay the entire amount to the IRS at the end of each tax year.

There are several federal income tax brackets. The more an employee earns, the more income tax they will pay per dollar earned above a given amount.

State & Local Taxes

State taxes vary considerably from one state to the next. Some states charge no income tax whatsoever, while others levy significant percentages of employee wages.

Your municipality may also impose income taxes. 

You will have to do some research to find out exactly what your employees' liabilities in this area will be.

Voluntary Deductions

As an employer, you may provide employees with the option of making voluntary deductions from their paychecks. These might be health or life insurance premiums, savings programs, or retirement plans.

Net Pay

Every employee pay stub will have to publish a net pay figure. This is the amount of money an employee actually receives after all deductions have been levied.

The net pay figure should equal the gross pay number minus all deductions. If these numbers differ, there may have been some calculation mistake.

Paying Employees Weekly & Monthly

Unless your business works with some kind of piece-rate payment plan that reimburses workers at irregular intervals, chances are you'll be paying your staff on either a weekly or a monthly basis. Generally, the choice between the two is a matter of personal preference.

However, there are certain advantages to each approach.

Employees usually prefer getting paid weekly. More frequent payment makes money management easier and avoids the risk of running out of money several days before another paycheck. This is especially true of workers on lower incomes.

However, paying monthly may have advantages for employers in terms of liquidity. If your business frequently runs low on cash, monthly wage payments give you more of an opportunity to get funds in place without resorting to credit.

Monthly paychecks also involve less administrative work than weekly ones.

Payroll Solutions That Work

No matter what business you're in, running payroll is a key consideration. Nothing sows discontent among workers more quickly than irregularities in their pay packets.

To ensure that your payroll system works for you, rather than against you, you need to have a reliable protocol in place that you stick to. If there are major flaws in your approach to payroll, you shouldn't hesitate to make a change.

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