For small businesses, growth is good. As a business grows, it is able to reach more customers. A solo entrepreneur is not exactly going to have an easy time handling all the responsibilities associated with running a growing business. New employees need to be hired. Once hired, their hours must be logged and their salaries paid at specified times.
Making sure payroll is made on time and accurately is a must. Employees are not going to have much faith in any employee who can’t meet payroll obligations as promised.
Employers might not know how to perform payroll duties. Two major options are worth considering: hiring an accountant or hiring a payroll service.
The do-it-yourself option exists does, of course, exist. A lot of responsibilities are required when attempted to perform all the various related tasks.
One Benefit to Doing It Yourself
The costs associated with running payroll operations on your own are obviously lower. No accountant nor payroll service receives payment for the work performed. A business owner who may be suffering from a limited cash flow might be more willing to go the DIY route. Whether or not this turns out to be the best decision ends up being revealed in time.
Absolute attention to detail is required. Employers must follow a series of vital steps in order to properly process payments and remain in compliance with local and federal laws.
Handling the Tax Duties
A business entity needs an employer identification number (EIN). An EIN serves a similar purpose that a social security number does. Unlike an SSN, an EIN is not issued in the name of a person but the name of a business.
Solo proprietors may file taxes under a social security number, but filing taxes under the name of a business requires an EIN. The EIN is also used for reference purposes when reporting income and withholding on behalf of an employee.
Documents do need to be filled out by the employee for taxes. A W-4 form logs all identifying information such as EIN, employee’s SSN, employee’s address, and also the number of deductions based on how many dependents the employee claims.
The Internal Revenue Service does provide a withholding tax calculator that employers can use to figure out how much to take out. Be 100% accurate when figuring out tax information or else things can end up being very complicated.
Commonly, taxes paid to the federal government, state, and local municipality are paid monthly. All the taxes taken out from the employee’s salary need to be submitted to the appropriate entities. Not doing so could lead to serious legal jeopardy. Take this as one reason why hiring a professional might be a good idea. Professional do not make gross mistakes that can lead to tax and, possibly, criminal troubles.
Tax forms and employee W-2’s need to be filed as well. Annual and quarterly due dates on any tax documents do need to be met on time.
(Information presented is for educational purposes only and not intended as a substitute for advice by a qualified professional.)
Drafting the Pay Schedule
Paying employees haphazardly is never a good idea. Taking an attitude of “Don’t worry about when you get paid. I promise you’ll get your money” with employees is going to lead them to quit — and for good reason.
Weekly or bi-weekly payments would be appreciated by employees. Setting a specific day of the week for payments such as every Tuesday or every other Tuesday gives employees a sense of certainty about when they will receive their funds.
Paying once per month is an option, but this might not be a great one. Employees who are left waiting until the 30th of the month to get paid might feel the strain of limited cash. Again, employees who are unhappy with a pay schedule may decide to seek employment elsewhere.
Working with a Payroll Service and an Accountant
Hiring a payroll service, one that charges a reasonable fee and is well-established as legitimate, hands over basic payroll duties to a company best able to handle the responsibilities. Payroll software may be included to help the employer transfer critical information to the service.
A professional accountant understands taxes and tax compliance. The chances of making tax mistakes decrease when an experienced accountant is handling things.
The DIY strategy comes with risks. Employers should weigh risks vs. rewards. Likely, outsourcing various responsibilities to those better capable of performing them might be a better approach.