How to Do Payroll Right and Save Time
One of the most important jobs of any small business owner is to decide how to do payroll the right way. Finding a system that works for you and your business can be a challenge. A lot of factors need to be considered, including payroll taxes, timecards, and timely delivery of paychecks. Your employees expect you to pay them on time—and so does the government. Mistakes can result in everything from low retention to a dreaded audit.
That being said, small business owners ultimately have several options for how to handle payments, and the best one will depend on your specific needs. While a lot of owners manage payroll themselves, tools like payroll software (not to be confused with a payroll service) can make the process easier. Not everyone can afford a personal accountant. Although that is certainly an option for some owners, most new businesses won’t have the financial bandwidth for that right away. This leaves it up to owners to make tough decisions and pick a tool that will define their businesses for years to come.
What Goes Into Doing Payroll the Right Way?
Hint: it’s not just about paying your employees. That’s arguably the most important part, but it gets complex fast.
It’s also about managing W-4s, W-2s, federal, state, and local payroll taxes. You need to keep track of hours worked—including overtime. Additionally, a certain amount of each employee’s paycheck will go towards benefits. Having a system that allows you to keep all of these functions in one place can be a major time saver. And if you own a business, you know that time is money.
First you need to apply for an employer identification number. This will allow you to accomplish your next step—the processing of employee tax information. Next you have to calculate gross pay, choose a payroll schedule, then calculate withholdings and deductions. That is where things can get especially complicated and hairy, especially if you have more than, say, five employees. Remember that mistakes could have consequences when it comes time to pay either your workers or the IRS. An accountant’s entire job is understanding federal regulations and local laws, and while taking that on yourself is possible, it’s important to understand just how much work it is.
Payroll Software Offers the Best of Both Worlds
While payroll is certainly something you can do yourself, you should always be asking yourself if you have to be doing it yourself.
Let’s assume a $15 minimum wage for yourself. Every hour you or an employee spends on payroll has a cost associated with it. With popular services like Gusto starting at $25 a month and automating huge swathes of the process, you may ask yourself why you were ever slogging through it by hand in the first place. If you or someone else spends more than two hours on payroll a month, you aren’t being as cost-effective as you think you are. More than that, you might wonder what other things you could be doing to maximize profit in the time it takes to do your payroll every week.
At the end of the day, software is often the happy medium between having a tax professional on retainer and managing it all by hand—with all the human error that could come with it.
How You Do Payroll Will Affect Your Business Years Down the Road
The needs of your business will change over time, but a strong foundation is key to success.
Keep in mind—the number of employees you have should be a big factor in whether you try to handle payroll in-house or pay for management software. You also want to be thinking about how many employees you could have. Payroll is complex, and the consequences for messing it up could be steep for both you and your employees. Best case scenario, it’s a big headache. Worst case scenario, it costs you your business.
When deciding on a payroll management system, you may want to consider how you hope your business will grow year over year. It may be totally doable to manage things like hours for three employees, but the same process could quickly become overwhelming if you suddenly expand and hire 10 more people.
It can be hard to justify extra expenses when you’re just starting out. Most businesses don’t break even for 3 to 4 years. However, it’s easier to commit to one tool, learn it, and stick with it. While it may seem like more up front, the extra cost can actually save money down the way.
You buy clothes your kids will grow into, so why not your business?
Every day, we are looking at the top payroll software solutions that have helped hundreds of thousands of businesses just like yours. Check out our reviews to compare plans across the industry.