Dealing with Payroll for Small Business Owners
Single touch payroll is one of those essential tasks that small businesses must undertake, but it can be a confusing and time-consuming process. The basic principle is straightforward enough – calculate the gross monthly earnings of your employees, then subtract deductions to arrive at a net figure. Inevitably it isn’t as simple as it sounds, and you need to be aware of every detail and produce 100% accurate net figures. If you don’t yet have small business accounting software, here is how you can understand it.
Statutory payroll law states that the employer must retain this deduction and transfer the money to the relevant tax office. Statutory deductions include federal income tax, social security tax, Medicare tax (with an additional percentage for high earners) and state income tax. There will also be local taxes that come under the statutory umbrella, such as city and county taxes, plus school district, state disability and unemployment insurance.
Voluntary deductions are agreed with the employee and cover employment benefits such as health insurance, life insurance, retirement plans and stock purchase plans. It also includes any job-related expenses, for example, uniform, meals and union subscriptions.
Employer’s role in tax collection
It is essential that every employer keeps records of their payroll accounting and adheres to the law regarding tax deductions. It is the duty of the employer to deduct the correct tax amount from the employees’ wages and ensure that it is transferred to the right tax agency. To maintain comprehensive accounts of all monies dealt with, the employer must produce reconciliation reports, file payroll tax returns and include all payroll expenses in the company accounts and financial reports.
Taxes paid by the employer
In addition to the taxes an employee pays, the company must contribute to payroll taxes. These are payable in addition to an employee’s earnings and include social security, Medicare, federal unemployment taxes (FUTA) and state unemployment taxes (SUTA).
The importance of good record-keeping
Make sure your payroll accounting is kept meticulously recorded and up to date. Taxes need to be paid on time, and the mandatory forms filed when due. These forms include the annual federal unemployment tax return, the employer’s quarterly payroll tax return, the annual return of withheld federal income tax, and the wage and tax statements form. As well as federal requirements, employers also have to file reports with state and local agencies.
How do you run your payroll accounting
Large businesses can employ payroll experts or even entire teams to take care of all aspects of payroll. Small businesses often don’t have trained personnel, and with payroll being a crucial factor in running a legitimate business, the responsibility needs to be taken on by someone with the knowledge and abilities necessary to ensure that standards are being met. Small business owners often need to learn new skills, and this can often be facilitated by researching the topic on the Internet. For many needs, as long as you are careful to check that your sources of information are authoritative and reliable, then the knowledge you wish to obtain can be found quite easily. However, the skills required to run a well-managed payroll operation will not be so readily acquired using the same method. The intricacies of payroll and possible complications require professional training if you want to be confident you won’t end up in a payroll tangle further down the road.
Learning to run the payroll
The American Payroll Association runs courses on payroll, and offers virtual study options as well as having training suites in most major cities. The study can lead to Certified Payroll Professional (CPP) and Fundamental Payroll Certification (FPC) qualifications. It could be a good option if you wish to master the art of payroll for yourself or have a member of staff that is suitable for the role.
A less formal option might be to enlist the help of friends, family or anyone else who understands payroll and could help you with keeping records and doing tax returns to the required standard. It could be a good option if you only have one or two members of staff and limited resources. It cannot be stressed enough, however, that whoever you ask for help must be an expert, not just a buddy from the office next door who says he knows all about payroll! Make sure your adviser is qualified and can prove their expertise. Payroll is far too important to get right to trust it to just anyone.
Not learning to run the payroll
You may not want to spend your precious work time doing payroll, let alone learning about how to do it properly. If you don’t have the time or inclination to do it yourself, one option is to outsource. Outsourcing has become a popular choice for many discrete business functions and is a good way of getting aspects of your business taken care of professionally when you don’t have the skills or availability to do it yourself. If your business needs you to bring in sales leads and meet with clients in order to generate business, then that is what you need to devote yourself to. The business is likely to make more profits with you acting in your strongest role rather than spending time doing payroll, which could be accomplished more cost-effectively with outsourcing. Choose your outsourcing company carefully to ensure you get the highest standards of service. This option sounds expensive, but it needn’t be. It is perfectly possible to find a Cheap Payroll Service that will do a good job for you, so don’t assume it will be too costly.
The thought of tackling payroll may make you groan, or induce a headache as you contemplate the lists of tax percentages, welfare contributions and complicated calculations. The key message here is that payroll is vitally important, and it won’t go away. However much you might dislike it, it has to be done. Spend some time assessing which solution is most suitable for you, your staff and your company. Decide the method you want to use to tackle your payroll, put a plan into action, and then quit worrying about it.
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