Practical Tips for More Efficient Small Business Payroll Management

Small Business Payroll Management

If you have employees, you also have payroll responsibilities. In addition to properly compensating your employees, you must withhold certain taxes and maintain accurate records. Understanding your obligations and setting up a consistent system can prevent costly errors and potential legal complications.

Manage Payroll In Three Key Phases

Payroll management can be broken down into three stages:

  • Pre-payroll – This involves collecting and verifying payroll information, such as timesheet and taxpayer details. To run payroll, you need to capture hours worked, salary adjustments, deductions and benefits, and changes to personal or tax information.

Tip: Give yourself enough time to assess employee tax documentation, hours worked and other details. Without payroll automation software, you could spend up to five hours calculating wages and taxes prior to payday.

  • Payroll processing – Calculate the employee’s gross pay, minus any contributions to benefits or retirement plans. At this stage, you must also withhold part of each employee’s wages for taxes, including federal income tax, Social Security and Medicare tax, and any applicable state or local taxes.

    Refer to the employee’s Form W-4 and the IRS federal income tax withholding tables to determine how much federal income tax to withhold from the wages.

Tip: Schedule regular data reviews to ensure information, such as addresses, last names and hourly wages, remains correct. Involve employees in checking this information.

  • Post-payroll – Organization and recordkeeping are integral to seamless payroll management. Resolve any paycheck issues and properly store payroll documentation for four to six years. Typically, this includes compensation details (such as rate of pay or overtime pay) and timekeeping records.

Tip: The IRS requires you to keep specific employment tax records (such as W-4 forms) for at least four years after taxes were paid.

File Payroll Taxes Each Year

Use the Form W-2, Wage and Tax Statement, to report to the IRS how much you paid in wages and how much you withheld in taxes for each employee who receives a salary, wage or other form of compensation from your business.

Mail each employee a copy of his or her W-2 by January 31 of the year following the reporting period. The due date for filing the Form W-2 with the Social Security Administration is also January 31. For the fastest and easiest way to deliver and file a W-2, use an online e-filing service like efile4Biz.

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