If you are a small business owner and just started recruiting new employees, you may find it troublesome to make your payroll.
As your startup becomes more and more busy focusing on the ‘bigger picture’, like creating an impact and generating higher incomes, things as prevalent as making payrolls might get ignored.
Without the correct tools and proper payroll advice, the process of making payrolls can be complex, difficult and seemingly impossible.
Also, payroll mistakes can go totally unnoticed!
Imagine the employee whose only source of income is his salary. What if his salary is not paid accurately or gets delayed?
Such irregularities hugely impact the morale of the employees and may end up making your business less productive.
Mistakes in the payroll may bring hefty penalties to your company if you are caught in the IRS audit.
Maintaining a good payroll not only helps you to be free from IRS penalties but also ensures trust within the company.
In fact, precisely made payrolls may even help you save some tax!
Having said that, here are a few basic payroll tips for small business owners that will simplify payroll making by a huge extent:
1. Verification of compliance with the IRS
As an employer, you must comply with the labor laws of your state and provide payroll accurately and on time.
Some of the IRS’s compliance laws are as follows:
➜ Proper classification of your employees
➜ Assuring that your business has an Employer Identification Number (EIN)
➜ Knowing about the labor laws, etc.
You may visit https://www.irs.gov/ to get more info, in case you have more doubts related to compliance issues.
This is a very basic and must follow payroll advice.
2. Classify Your Employees Properly
The most important payroll advice for small business owners is to classify workers correctly.
It may sound simple but it is very easy for you to unintentionally misclassify your workers, a mistake that may have huge tax implications.
Needless to say, tax penalties can put a serious dent on your company’s bottom line.
If you are not sure about how to categorize your employees, you may fill in the IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax, and send it to the IRS to know the correct category of your employees.
3. Establish a proper Payroll Budget
Your payroll expenses will grow along with your company’s growth. So, setting up an approximate budget for the payroll will simplify things.
Take care of the following points while preparing your payroll budget:
➜ Include wages that must be paid
➜ Include state payroll taxes
➜ As an employer, you need to withheld Social security and Medicare taxes that are 7.65% of the gross pay and submit the amount to the IRS.
➜ Include other employment taxes that vary with the location of your
business
➜ Include variable costs like commissions and benefits also along with the fixed costs.
Invest your time and sit down with your accountant to prepare this budget and try to keep the expenses as low as possible.
This payroll advice may be time-consuming but the results are truly rewarding.
4. Ensure Accurate Data Entry
Many small businesses do not follow this payroll advice and end up paying huge penalties imposed by the IRS.
Always remember that technology isn’t perfect.
Even if you have a software that prepares payroll for you, make sure you review all the numbers and reports by yourself.
You may also employ an accountant to audit your payroll.
Even the slightest typo in employee names or filling the wrong box or entering a wrong number may result in losses of hundreds of dollars.
5. Maintain Transparency Regarding Salary and Delays
This payroll advice for small business improves the productivity of a company by many folds.
Have an open and transparent communication regarding any delays in salary payment.
Mention the proper reason for the delays to your employees and try your best to make sure that the compensation due is made on time.
Try to convey to your employees how much you care for them.
The best payroll advice for a new employer is to keep your talented workers happy.
Stay ahead of all their queries and try reaching out to them before they reach out to you!
Related Article: Common Payroll Mistakes
6. Keep Proper Records
A piece of important payroll advice is to know what documents you must keep with you and for how long.
As a small business, you may be prone to make mistakes in your payroll and thus be subjected to an audit. So, you need to be prepared for that.
The period for which you should keep a document depends upon the action, expense, or event which the document records.
Although you must keep the records until the period of limitations for that tax return runs out, it is advisable to keep the records for at least 4 years.
You may keep both hardcopies and softcopies of the records.
You can visit: https://www.irs.gov/businesses/small-businesses-self-
employed/how-long-should-i-keep-records to know more regarding this.
7. Outsource your Payroll if possible
Making in-house payroll may be tedious and may end up consuming a lot of your time. So, if you value time as money, you may consider outsourcing your payroll from a payroll company.
This is a valuable payroll advice for small business since these companies know each and every crux of making payrolls. Their specially designed tools may even detect certain frauds.
Outsourcing your payroll will help to reduce the direct cost of processing payrolls while providing you more accurate payrolls.
So, those were the 7 payroll tips for small business. But they may vary according to the nature and size of your business. Always consider consulting with your business accountant for payroll advice that is most suitable for your business.
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