Are you trying to figure out how to do payroll taxes and take care of payroll in-house? Read this article to learn the best tips for doing payroll.
How would you like to save time in your busy schedule? You can start by simplifying the process of payroll and payroll taxes. Business owners spend about 21 days each year on these two tasks alone.
Think of what you could do with that time. You could take an extended vacation across Europe or you could focus on getting more customers to your business.
That time can be spent on other things, which means you need to learn how to do payroll in a way that will reduce your time spent on it. Read on to learn the top tips on how to do payroll that will save you time.
- Keep a Consistent Time
Your first decision in doing payroll comes down to when you’ll pay your employees. Will you pay them every week or every other week? You should set up your time before you hire your first employees.
If you do need to make changes to your payroll timing, you’ll want to give your employees advanced notice at least a month ahead of time. Your employees have bills and financial obligations, too. They often live paycheck to paycheck and any disruption in cash flow can be stressful.
With enough warning, your employees can prepare and get ready for the financial changes.
- Collect the Paperwork from Employees
You should have certain forms from your employees when you hired them. Some of these forms are necessary to do payroll. The forms you should have on file include a job application and/or resume, Form W-4, an I-9 Form, and local and state tax withholding documents.
The form you’ll need for payroll purposes is the W-4 form because it shows how many allowances the employee takes. The more allowances, the fewer income taxes are withheld.
Ideally, you’ll want to have paper copies filed, and an online version of the W-4 form that you can refer to without digging through your filing cabinets.
- Use a Separate Bank Account for Payroll
Businesses have money coming and going every day. There are various expenses that you need to pay on top of payroll. This can get confusing for accounting purposes and opens the doors for mistakes.
You want to keep a separate bank account just for payroll and payroll taxes to avoid confusion and mismanaging your finances.
- Look at Different Payroll Systems
There are different ways to manage and process payroll and payroll taxes. You could manage them using manual methods like Excel spreadsheets or even a piece of paper. There are easier ways to process payroll.
A paycheck stub generator is an easy way to process payroll. All you need to do is enter the information and print the paycheck stub or save it as a PDF file.
There are other accounting programs that have a lot of other features including payroll. Some of these programs automate payroll tax payments for you as well.
- Know How to Calculate Income
Income is fairly simple to calculate. Gross income equals the hourly rate times the hours worked in the pay period. Salaried employees are a little different. Just take the annual salary and divide by the number of pay periods.
- Understand All Deductions
This is the area that is most confusing for business owners. The number of deductions that need to be withheld can vary depending on location, the gross earnings, and benefits plan.
The easiest deductions to calculate are Social Security and Medicare taxes. These are a percentage of gross earnings, and they are consistent across the board for employees who make less than $200,000 a year.
The first $137,000 that an employee earns pays 6.2% in Social Security taxes. Anything over $137,000 is not subject to Social Security.
Medicare taxes are a different story. Employees pay 1.45% up to $200,000. They’ll pay another .9% in taxes for anything over $200,000 a year.
Federal tax withholdings are more complicated because we’re in a progressive tax system with many ways to file taxes. Your best option is to use the IRS withholding tables to calculate how much federal income tax is withheld.
Other deductions that you need to consider are health plan and retirement contributions and state and local taxes.
- Don’t Forget About Payroll Taxes
The fun doesn’t end when you print out the payroll checks or deposit funds into your employees’ bank accounts. You still have to pay the IRS payroll taxes and unemployment insurance.
This needs to be done on a monthly basis. If you have a large payroll, you may need to do this semi-weekly. You need to pay the amount you withheld from employees’ checks for Social Security, Medicare, and federal income taxes. You also have to pay your share of Social Security and Medicare taxes.
You’ll have to pay federal unemployment taxes, in the amount of 6% of the employee’s gross earnings until you reach the maximum of $7,000 per employee.
The IRS has an online system called EFTPS that lets you may your payments online instead of sending a check. At the end of each quarter and each year, you have to reconcile the amount you paid to in payroll taxes and report that to the IRS.
How to Do Payroll Fast
You want to be able to do payroll fast, but you do want to be so fast that you make simple mistakes. Learning how to do payroll starts with your system.
You have to choose a consistent day and time to do payroll and have all of your necessary documents organized. You also need to use tools that will help you speed up the payroll process.
When it comes to payroll taxes, you want to be sure to include your share of payroll taxes, your employee’s share, and pay unemployment insurance as required.
Once you have your system in place, you’ll be able to get through payroll in no time. Check out the home page of this site to discover more technologies that will make your life easier.
