How to step up a payroll process for your business?
Setting up a small business payroll can become very stressful if carried out in an unsystematic manner. One mistake can cost you a tough time with the tax department. Also, the process is based on your business type and the number of employees you have.
We provide you a complete guide to set-up payroll for your small business:--
Planning for small business payroll
When you set-up your business, taxes and the complications associated with payroll is probably not the first thing that comes your way. But payroll is a critical part of the management and financial side of entrepreneurship. Before this process becomes a burden, it is important to start planning for your small business payroll. First of all, you need to understand whether you need a payroll or not. For instance, you need not have a payroll to pay daily wages.
A payroll system comes with 3 important components;
- Paying the workforce – Paying the right amount and scheduling it in the right way is an important factor for employee productivity and satisfaction. This component includes; tracking working hours, processing withheld taxes, issuing paychecks, and crediting the amount directly to the employee’s bank accounts.
- Preparing and paying the payroll-related tax – It is important to submit those taxes to the relevant authorities and government that is deducted from your employee’s salaries.
- Filing Taxes – Filing taxes is no doubt a time taking task for every business owner. You can file taxes monthly, quarterly, and on a yearly basis; subject to the size and flexibility of your business.
Methods to set up your payroll process
1. Manual – Companies that have a handful of employees prefer to do it manually. For effective results, you need to create a spreadsheet to track the employee’s work hours, then calculate the taxes and proceed with the paycheck process. Besides, you need to calculate and file payroll taxes manually. This process is suited for small businesses that have limited employees in their company. You can very well opt for the manual process if you are a finance savvy company with up-to-date information on tax deduction.
- Pros- The manual process is a cost-effective and a good fit for your business if you have complete control over your employee’s earning and tax filing.
- Cons- This process is time-consuming with the potential chance of errors.
2. Hire an Accountant – If you want to set-up an in-house payroll process then an accountant is a great help for your business. You can hire a full time or a part-time accountant for your small business payroll process; depending on the size and the number of your employees working.
- Pros – You can save your energy and time which will allow you to then focus on other important things to grow your business. Because the accountant has adequate knowledge of filing taxes and the process involved, there will a chance to have fewer errors.
- Cons – This option gives you minimal control on your financials. It is a bit costly for a small business that is keen to minimize expenditures.
3. Install a Payroll Software – The purpose to have payroll software is to automate the process of paying your employees. This process includes; computing the employee’s benefits, filing the taxes, preparing their pay slips, regulatory compliances and all other functions related to small business payroll. The correct payroll software will help you set-up your business and employee information on the fly. Invest time to set-up the right payroll software to save money and efforts.
Small business Payroll software helps you to speed up the payroll process and lets you keep a good control on your business financials.
- Pros – Small business Payroll software takes away the worries that come with the payroll process. You can start processing the payroll at the click of a button. It provides accurate tax calculation and regular updates. Most of the payroll software comes with a one-time price and data security. The software gives you complete control over your process, saves time to focus on the other important aspects of business growth.
- Cons – Like any other application, payroll software also requires learning and understanding of the procedures. It is important to train your staff on how to use the software.
4. Outsourcing the payroll – Outsourcing the payroll process is like having a virtual accountant who is responsible to take care of your payroll tasks. Outsourcing the payroll is all about submitting the right information and a timesheet of your staff to your service provider; they will calculate and pay your employees. The service provider will prepare and file the taxes to the relevant authorities. The outsourcing small business payroll service is ideal for an organization that has a large number of employees.
- Pros – Outsourcing the payroll process can eliminate the possibility of errors and delayed payments that can later attract penalties. As they are the experts in the payroll process, their process will be accurate and efficient.
- Cons – Communication between the service provider and the employer is critical to avoid the errors. It is also important that your service provider is up-to-date with the employee’s information and state tax laws.
The common payroll issues
To avoid heavy penalties and fines, you must never make any mistakes. Let’s discuss the common problems a small business payroll faces.
- Doing payroll manually when you have a large workforce
- Setting-up the payroll process incorrectly
- Inexperienced payroll processors
- Miscategorize workers
- Ineffective time records
- Untimely payroll processing and miscalculation of overtime
- Failure to issue the right form to your employees
- Failing to file the tax timely
Best payroll practices
Small business Payroll is one of the most important components of your business. It is a great tool for cost-cutting and efficiency if you follow the best payroll practices that include:-
- Customization of paying methods according to type of employee and the kind of work he does.
- Integrate your small business payroll with the HR System and Accountants.
- Let the employee choose their preferred payment method; weather by cheque, cash or direct deposit.
- If you have multiple office locations, make sure you process the payroll from the main office to have complete control over your financials.
- If your small business payroll process has become a burden for you then this is the right time to outsource it.
- Make sure you keep a note of tax deadlines to avoid penalties and interests.
- Do a proper classification of your independent contractors and employees.
- Issuing the tax forms before time to avoid any delay on your small business payroll.
- Make sure you do a regular backup of your payroll data.
- Train your employees with the updates regularly on using the payroll software.
- To avoid any error in tax filling, double-check the entries in the software.
- Conduct regular audits to ensure a smooth working process.
- Understanding of the small business payroll process, tax deduction process, and tax filing process.
Setting up the right payroll process is one of the key components of any business. The right payroll for small business will save you time, money, efforts, and also help you to grow your business exponentially.