Managing your company’s payroll doesn’t have to be a nightmare. Some resources exist to help those interested in learning the ins and outs of payroll processing on their own.
Here, we’ll explain in detail what each step entails, so you can make an informed decision about what’s best for your company. This is merely an informative post, so please keep that in mind. If you need help with a specific issue, it’s best to talk to an expert.
Manually Calculating Payroll Taxes
The term “payroll taxes” refers to the federal, state, and local taxes that are withheld from an employee’s paycheck. They consist of the Income Tax, SSI, and Medicare. You need to know the current tax rates in order to figure out how much payroll tax you should be paying. For 2020, the rates for both Social Security and Medicare taxes are as follows: 6.2 percent for Social Security and 1.45 percent for Medicare. Each year a new set of percentages will be established.
To learn more about payroll processing and how to do it on your own, continue reading.
Guide to DIY Payroll Processing
Payroll processing in-house can save money, but it’s time-consuming and fraught with mistakes.
It’s possible to handle employee payments on your own if you’re knowledgeable about payroll taxes. However, before you dive in, make sure you have a firm grasp on everything you need to know about payroll to avoid the pitfalls that can lead to costly penalties.
In order to initiate:
First, have all of your staff members fill out a W-4 form. Form W-4, used to verify tax status and report exemptions, is required before employees can be paid. Payroll taxes are reduced for employees with more allowances or dependents. A new hire report must be submitted for every new employee. New hires in 2020 should use the updated version of Form W-4, which will be available on January 1, 2020.
The second step is to acquire or register for a Federal Tax ID for businesses. Your Employer Identification Number (EIN) will be required if you intend to handle payroll on your own. Like a personal Social Security number, the IRS requires all businesses and those who pay employees to have an Employer Identification Number (EIN). Here on the IRS website, you can submit an application for an EIN if you don’t already have one. The resources for employers in your state can tell you if you need a state EIN number as well.
Third, decide on a pay cycle. Employee pay dates, tax payment due dates, and tax filing deadlines are the next steps after registering for EINs, obtaining insurance (don’t forget workers’ compensation), and putting up posters around the office (read more about basic labor laws here).
In the fourth phase, income taxes are computed and withheld. Use the IRS Withholding Calculator and your state’s resource or a reputable paycheck calculator to determine the appropriate amount of federal and state taxes to withhold from each employee’s paycheck. It is also the responsibility of the employer and employee to keep track of their respective tax contributions at all times.
As a fifth step, you must settle your payroll taxes. Payment of federal, state, and local taxes, as appropriate, must be deposited at the appropriate times (usually on a monthly basis).
Lastly, Forms W-2 and Taxes must be submitted to the appropriate authorities. Finally, remember to submit your federal tax return to your employer on a quarterly basis (or as soon as possible thereafter) and any state or local tax returns that are required. Finally, at the end of the year it’s important to prepare your annual filings and W-2s.
Take into account that this is by no means an entire list of your duties as an employer. Review applicable federal and state regulations, or talk to an expert, for guidance on how to proceed with your business.
Choice 1: Outsource payroll
In sum, using a payroll service geared toward small businesses is a low- to medium-cost and trustworthy option.
If handling payroll on your own isn’t your thing, small business owners can save time and energy by using a payroll service.
Payroll services typically automate the payroll tax calculation and filing process with the IRS and state tax authorities. Square Payroll is a comprehensive payroll service that includes time tracking, direct import of employee hours worked, and direct deposit of wages.
The procedure is as follows:
Use of a Payroll Service and Its Methods for Handling Payroll
In the same vein as the do-it-yourself approach above, you will need to have your staff obtain or register for Taxpayer Identification Numbers and have them fill out Forms W-4 on behalf of the business.
To get there from here:
The first thing to do is to find a reliable payroll company. Use payroll software that lowers the possibility of mistakes and associated penalties if you are unsure of your ability to handle payroll on your own. Square Payroll is just one of many payroll processing services that offer convenient online payroll processing, complete with the filing and payment of payroll taxes and the reporting of new employees. The signup process is simple and fast, allowing you to immediately begin managing your own payroll.
Step 2: Include the staff. The payroll process cannot begin until all employees have been set up. Employees who are being paid for the first time can be added quickly, but if you’re switching payroll providers, you’ll need to add their previous pay stubs as well. Both require employees’ names, addresses, SSNs, and tax withholding information to be entered. If you want to use Square Payroll to make direct deposit payments to your employees, all you need to do is enter their names and email addresses.
The third step is to record time spent on projects and bring them in. Timecards and other wage records are required to be kept for at least two years by the U.S. Department of Labor. Keep in mind that the retention period may be longer in some states; research the laws in yours to be sure. Square POS allows you to keep track of employee time and easily import that data into a payroll system.
Fourth, process your initial payroll. All you have to do is hit the Send button!
Fifth, be sure to file and pay your taxes on time. The IRS recommends keeping tax records for seven years. Be sure to check the specific requirements in your state, as some may have longer retention periods than others. Square Payroll makes it easy to store tax documents in a central location.
Option 2: Employ a bookkeeper
In conclusion, hiring an accountant is the most costly choice, but it is also the most reliable.
Hiring an accountant is an alternative to learning how to process payroll in-house or through a third-party service. Accountants can handle payroll processing and tax payments and filings. Take a look at these five suggestions for finding the best accountant for your needs.