Taking Care of Your Small Business’s Monthly Bills
Payroll is one of those things in business that is, well, just grunt work. There is nothing exciting or simple about establishing a payroll system, and nothing fun about issuing checks every two weeks or once a month.
No one said everything in business would be exciting and interesting, because as we have all seen, it certainly is not. But that doesn’t make mundane tasks like payroll any less important than more creative things, like launching a social media campaign. Both are equally needed to run a business.
Sure, there are a few downsides to setting up a payroll system, but they are easily outweighed by the benefits. The cons are these:
- Setting up and then running the system (usually) is fairly complicated. There are a lot of forms and rules to comply with (see below.)
- It is not inexpensive. Whether you outsource it or do it yourself, it will take time and money.
The major benefit to having a payroll system is that it allows you to run your business like a business. The nitty-gritty details of operations are proof that you are on the right track, and that alone is the best reason to establish a payroll system.
The actual process should look something like this:
1. Get your EIN: If you don’t already have an IRS Employee Identification Number, it is time to get one. It is akin to the Social Security Number for your business, and if you are going to have employees and payroll, then you must have one so that you can report your numbers to the government. Get yours here.
2. Get your employee documents in order: Some of your folks will likely be independent contractors, some may be hourly employees, and others will be salaried management.
You need to withhold taxes from employees, and they will need to fill out a W-4, give you their Social Security Number, and fill out an I-9, employment eligibility form. You do not need to withhold anything from contractors, but they should fill out a 1099.
3. Factor in the rules: Are you required to pay certain folks overtime pay? Are you matching 401(k) payments? How are health care premiums handled? What about paid time off? What taxes need to be withheld?
4. Set up your system: Essentially, you have three choices. You can…
- Do it yourself, manually. This is the most challenging way because you will have to calculate withholdings and payroll yourself, by hand. This is where mistakes can be made. Similarly, you could have a staff member do this, but he or she would face the same issues.
- Buy software: There is a lot of great software available, and additionally, many banks offer online payroll software systems. This is likely to be your most affordable option.
- Hire a payroll service: Outsourcing payroll has been a tried and true solution for many years.
5. Establish a pay period: Weekly, bi-weekly, or monthly.
6. Report: You need to report withheld taxes to state and federal authorities.
7. Keep great records. Period.