You want to make sure all your employees are paid correctly and on time. It’s one of your main responsibilities as a small business owner. If you have a small team, doing your own payroll can save you money. Handling payroll administration yourself isn’t easy, but it can save you the expense of hiring an accountant or third-party payroll processing service. If you don’t mind taking care of the paperwork, you can manage your own payroll using these steps. Be sure to seek professional advice to determine if these are the right steps for you.
What you need to make your own payroll
Doing your own payroll usually involves paperwork, either on forms or digitally using payroll software. You must complete and complete the correct forms for each payment period. Otherwise, you may have to pay legal exposure, litigation costs or late fees and penalties imposed by the government. Here’s where to start:
1. Get an employer identification number
If you plan to hire employees, you will need an EIN for your business. Also known as a Federal Tax Identification Number, your unique EIN identifies your business to the IRS. If you don’t have one, you’ll need to apply through the IRS before you can make payroll yourself.
2. Have each employee fill out a W-4 form
Every employee fills out a federal W-4 form when they start a new job. They use it to communicate their application status and any personal allowance. They use those choices to calculate how much will be deducted from your paycheck from each paycheck. For state and local taxes, states and counties have similar forms for employees in those areas. Check with the revenue departments in those states for the correct forms and filing dates.
3. Determine your salary schedule
How often do you pay your employees? Set up and communicate a payroll calendar for both salaried and hourly employees with key dates: employee pay dates, tax deadlines, and deadlines for filing tax forms.
The IRS website lists important employment tax reporting and payment dates, and individual state Department of Revenue sites list their own tax due dates and payroll rules detailing how and when employees must be paid, with legal and financial consequences for failure. To celebrate.
4. Calculate the total payment and federal and state taxes
You’ll need to do some calculations for each employee to determine what to pay them and what to deduct for payroll tax purposes.
- Calculate how much total pay you owe each employee. For salaried employees, this is the amount of salary they receive every two weeks (bi-weekly), monthly or semi-annually (twice a month). For hourly workers, it is a little different. Hours are calculated based on the timesheets you enter in hours and off hours or total hours. For these workers, there is one rate for regular hours and a separate rate for overtime, which may vary by state. California, for example, requires overtime pay for certain hours per week and sometimes per day.
- Calculating the deduction. The IRS provides an online Tax Withholding Assistant in the form of an Excel spreadsheet so that you can easily calculate the correct payroll deduction amount and withhold premiums for benefits. For salaried employees, the same amount can be deducted each pay period, but you may need to calculate this each pay period for hourly employees. You’ll also need to contact any state and local revenue departments for information about their deductions.
- Other deductions. Sometimes benefits like medical and dental can be paid pre-tax or after-tax. The way you are paid affects your taxable wage base. Another consideration is paid time off (PTO), such as paid vacation or sick time. Depending on their location, many companies require paid sick time.
- Write paychecks or send the amount due by direct deposit. Whether you offer direct deposit may depend on your and your employees’ choice, as well as state laws. If you offer direct deposit, you can easily set it up with your bank.
- Total all your payroll taxes. If you keep track of payroll taxes for each pay period, it makes paying and filing federal and state taxes much easier. These payroll taxes include deductions from your employees’ paychecks for Social Security and Medicare, the employer’s portion of Social Security and Medicare taxes and withheld income taxes, as well as any benefit payments, pension funds, and garnishments. It is required. You also need to pay federal unemployment taxes.
5. Never miss paying payroll tax
Paying your payroll taxes on time is important. They are due to the IRS monthly or quarterly, depending on your business. Federal and state tax agencies charge fees and penalties if taxes are not paid on time.
6. Submit the correct forms
Every quarter, you need to file a federal payroll tax return. You will also have an annual return to file. At the end of each tax year, you need to prepare W-2 forms for each employee so they can file their income taxes.
Remember that independent contractors are different from employees. If you have contractors that you pay regularly, it’s a good time to make sure you’re following all the rules. It is important to ensure that you are not legally treating contractors as employees. Otherwise, you’ll need to fill out the necessary paperwork and withhold income and payroll taxes from their check.
Common salary mistakes to avoid
Here are some best practices to avoid common payroll mistakes
- Make sure you set reminders. As a business owner, you wear many hats. As you prioritize what needs to be done and what you can expect, put payroll and payroll taxes on your to-do list. Setting multiple reminders in your calendar can help you stay on track and avoid paying fines or penalties with the IRS.
- Hire an accountant or small business payroll professional. Even if you decide to do the payroll yourself, hiring a professional to help with the process can reduce your risks. Common mistakes, such as entering an incorrect deductible amount, are less likely when a professional reviews your process. Then you can become a continuous leader.
- Keep good records. With good record keeping, you can track down any issues and resolve them quickly. Most states require you to keep some records for three years, but you should keep detailed information for your own purposes.
Your bank can help you organize your accounts to help you manage payroll. Talk to a business banker and learn more about the resources available to you, including commercial banking and merchant services. Be sure to seek professional advice to determine if these are the right steps for you.
For Informational/Educational Purposes: The opinions expressed in this article may differ from those of other employees and departments of JPMorgan Chase & Co. The views and strategies described may not be suitable for everyone and are not specific advice/recommendations for any individual. . Although information is obtained from sources believed to be reliable, JPMorgan Chase & Co. NOR ITS AFFILIATES AND/OR PARTNERS DO NOT GUARANTEE ITS COMPLETENESS OR ACCURACY. You should carefully consider your needs and objectives and consult with the appropriate professional(s) before making any decisions. Views and past performance are not guarantees of future results.
This article is not intended, directly or indirectly, to provide legal or tax advice. If you have questions about what is legally required under federal or state law, you should consult an attorney and/or tax professional.
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