How to do payroll
Payroll mistakes can happen faster than you can imagine – if not professionally handled. Wait for a second! Think about your employees for whom their monthly income/salary is their only source of income. Think of what can happen if their salary is not paid accurately and on time.
Such irregularities can take a toll on the morale of the employees and ultimately affect your company’s productivity. That’s why as a manager you need to learn how to do payroll yourself. But do it with the right way to avoid payment irregularities.
Here is the gist…
Here is what you also need to keep in mind. Adhering to the various laws and regulations such as labor law, PF, PT, and other statutory compliance is also critical. Non-adherence with these laws can attract serious legal and financial consequences.
To make sure that your employees are happy and you are law compliant, you need to have a proper understanding of what payrolls are and how to run pay-out effectively. We will start with the basics of pay-out.
3 ways you can handle Payroll processing of your business: How to do payroll
- Become your own pay-out manager – do payroll yourself (Using Excel-based payroll management tool and payroll software)
- Payroll your business through payrolls services – we would recommend Square Payroll (Payrolls outsourcing)
- The last is to set aside remuneration for payrolls by hiring an accountant (Using pay-out software)
This blog post is for educational reasons only. For specific advice as regards what works in your own industries, be sure to consult with a professional.
Like we said – before delving into the three professional approaches to payroll management. Let’s deal with the basics…
What is Payroll?
Payroll is the number of employed persons a company pays salary on the agreed terms and interval.
Company’s/personal department Payrolls can be equated as the total amount of money a company pays to persons working for them.
What is Payroll Taxes and how to calculate current payroll taxes (Net Pay)
Payroll taxes are federal, state, and local taxes withheld from an employee’s paycheck by the employer. They include Income Tax, Social Security, and Medicare. In order to properly calculate what your payroll tax should be, you need to know the current tax rates. For example, the Social Security tax for 2016 is 6.2% and the Medicare tax rate is 1.45%. The percentages are determined on a yearly basis.
Payroll processing stages
There are basically three ways to process salaries paid.
- Pre-payrolls activities (Date entry or input)
- Payrolls calculation
- Post-payrolls processing
How to do payroll: Become your own payroll manager
Doing your salary payments yourself can be demanding and sometimes hard work to do. But, when you follow the below laid out guide it might be a little easier for you.
Approach #1: Employees W-4 form filling
Get all your employees to fill their w-4 form. This helps you to document their filing status and keep track of personal allowances. The goal is – the more allowances workers have, the fewer payroll taxes are taken out of their paychecks each pay period.
Tips: when you hire a new employee, file for a new track report.
Approach #2: Employer Identification Numbers
File for employer identification number (EIN) before you do payroll. EIN is like an SSN for your company. It is used by the IRS to identify a business entity. Also, as well as people that have employees they are paying. Do you want to get one – apply on the IRS official site?
Tips: sometimes you may need a state EIN number; visit or check the state’s employer helps for a detailed process.
Approach #3: Payroll schedule
Done registering for an employer identification number. Let’s help you with personal pay-out best practices. You should take note of three vital dates; your employee’s pay dates, tax payment due dates, and tax filing deadlines. . . . .
Approach #4: Net Pay calculation
When the payment day is due and you want to pay your employees. Verify which federal and state taxes to withhold from your employees. Pay by using the IRS Withholding Calculator and your state’s resource or a reliable paycheck calculator.
Tips: Remember to keep track of both the employee and employer part of the taxes as you proceed.
Approach #5: Pay taxes and file tax forms & employee W-2s
To start with – pay taxes, you need to submit your federal, state, and local tax deposits, as applicable (usually on a monthly basis).
Finally, be sure to send in your employer’s federal tax return (usually each quarter) and any state or local returns, as required. Least, remember to prepare your annual filings and W-2s at the end of the year.
Caution: This list of responsibilities is not all there is – there are still rooms for addition.