How to Manage Payroll for a Small Business

Learn how to simplify the process and keep your projects and your business… Running a business requires you to have a handle on a whole host of things. Having a payroll administrator can help you keep all things payroll-related straight. We want to make the internet a better place for entrepreneurs, business owners, and anyone else who’s as do or die as we are. Once you’ve designed a clear and transparent policy, make sure all your employees have access to it. It’s also important to update it on a regular basis in line with any changes to the law.

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  • Prior to joining the team at Forbes Advisor, Cassie was a Content Operations Manager and Copywriting Manager at Fit Small Business.
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  • There is always the potential for human error with a manual payroll.
  • Comparing the current payroll to the prior period can also help you spot anything out of the ordinary.

Having a third party handle that could impact your business culture in a way you may not intend. The final option is a third-party payroll provider that handles everything for you. You’ll never have to worry about adding employee information into the database or making sure you process payroll on time in your software because the provider will handle all of it without you. Costs range from $40 per month and up plus additional fees per employee. Many companies will require you to contact them for a quote, as they will tailor their services for your unique needs.

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You would need to check with your state to see if you are required to withhold any other payroll taxes. Your EIN is used to pay federal income taxes, while your state ID is used for state taxes, unemployment taxes, and to provide your state with new employee information. In order to process payroll and the necessary payroll taxes, you will need to have both an Employee Identification Number (EIN) and your state tax ID numbers handy. However, prior to making that commitment, it’s important that you learn exactly what the employee payroll process entails and what you, as an employer, are ultimately responsible for. When internal management handles payroll, the time-intensive work takes time away from every other aspect of operating the business — namely, revenue-producing pursuits.

  • However, you need an Employer Identification Number (EIN) for processing payrolls.
  • Some payroll products offer same-day or next-day direct deposit, but others may need longer than that.
  • This makes it much easier to create accurate paychecks so that you can stay compliant and build a happy, motivated, and productive workforce.
  • And after two payment-related issues, 49% of workers will update their resumes and start looking for new jobs.
  • Most businesses are required to file IRS Form 941 (Employer’s Quarterly Tax Return) every three months.

The federal government requires that all businesses file a W-4 and I-9 form with the IRS for each employee. The I-9 form is proof that an employee is a U.S. citizen and has the right to work in the United States. The W-4 form supplies the information you’ll need to calculate taxes for each worker. The first four steps don’t require much from you, the manager, other than a bit of research and making sure everyone has their forms turned in.

Document payroll processes

Then, at the end of each pay period, you simply review the data to make sure it’s correct and edit as needed. Depending on the tax laws in your state, you may have to file state income taxes for your employee(s) too. In this case, you need to apply for state withholding and what is absorption costing unemployment tax accounts. Some local governments assign separate ID numbers to businesses for payroll tax filing, so find out if these terms apply to you. The IRS estimates that approximately 33% of all employers make payroll errors, and those mistakes can be costly.


Use the IRS Withholding Estimator to determine how much in federal taxes you must withhold for each employee. Check with your state tax assessor’s office to determine the right amount to withhold for state taxes. Taxes are usually paid monthly, so collect them, set them aside and make payments as required. By following these tips, you will be well on your way to set up a payroll management system that will benefit your business. There are so many things to think about like marketing, sales, operations, finances, that it can be difficult to keep track.

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You can even produce your own payroll reports — both digital and hard copy — and manually export them in a variety of formats for easy transmission to a third-party payroll processor. From the moment your employees clock in, their data is available and ready for processing. And at the end of the pay period, all it takes is a few clicks or taps to produce the numbers you need. It requires a lot of information and decision-making prior to even onboarding your first employee. Before paying employees, you need to establish a payment schedule, such as weekly, bi-weekly, monthly, or any other time period that makes sense for your business. When getting ready to manage payroll, it’s smart to establish your company’s payroll policies and processes.

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And without the right technology tools to help payroll management run smoothly and formalize your processes, your focus is taken away from strategic activities that help grow your business. Fortunately, many payroll solutions offer built-in standard reports that employers can use for their recordkeeping purposes. With Zoho People, for example, it’s easy to store and manage employee documents from within one centralized platform. However, if you’re not using payroll software, you’ll need to use the Electronic Federal Tax Payment System (EFTPS) to deposit federal taxes. Although your payroll solution can do this for you, it’s a good idea to get a handle on how gross wages are calculated. In a nutshell, a PEO is responsible for the payroll obligations that are normally handled by an HR department, including the calculation and payment of salaries and employee taxes.

Depending on which provider you choose, you may still be the one pushing through the payrolls, but overall, PEOs will take most of the HR and payroll functions of your business off your plate. The Equal Pay Act requires employers to pay all genders similar wages for similar work. The jobs need not be identical, but they must be substantially equal in skill, effort, responsibility, and working conditions.

The last step is making sure both your employees and the appropriate government agencies are paid on time correctly. A timekeeping system is a great way to manage your employees’ productivity and calculate their wages, especially if you’re paying hourly rates. It’s important to have a time-tracking system that’s both easy to use but difficult to manipulate. There are many different time sheet solutions, including systems that integrate right into your payroll system for even more accurate information across the board. Double-check your payroll process to ensure that every employee gets paid accurately and on schedule.

We’ll break down the process and important considerations to keep in mind. If you do not manage payroll properly, payroll errors can lead to employee frustration, wasted resources, and, in some cases, IRS penalties. If you want to reduce stress, regain lost time, and manage payroll like a pro, take a look at our payroll services.

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