Payroll and Tax Services - A Guide for Small Business Owners

To start a small business of your own is a great experience - after all, you get to be your own boss and decide how to run things. However, having your own business means taking care of a hundred and one things, which can prove to be a challenge at times.

For instance, you have to hire more workers as your business expands in order to ensure the smooth running of your operations. When you do that, it becomes necessary to know how to run payroll and tax services for your organization, especially if you do not wish to hire someone else.

Generating your company’s payroll involves various payroll taxes which you will have to withhold and deposit, among other things. This blog has been written as a guide to help you manage payroll and make many decisions regarding the same. 

How to Manage Payroll and Tax Services for Small Business Owners

For every small business owner, there are certain steps that will greatly help in handling payroll efficiently. These have been explained below -

1.    Collecting information related to payroll

2.    Choosing the payroll system that works best for you

3.    Using the chosen system to run payroll

4.    Handling payroll tax services

5.    Maintaining payroll records

1. Collecting Payroll-Related Information

It is important to know how to set up when attempting to manage payroll for your small business. For this, you require information of both - the employer and the employees - before you can proceed:

Employer Information Required - An Employer Identification Number or EIN is compulsory to obtain before you start hiring employees. This EIN is sent along with other documents that you later send to the IRS and state agencies, including tax returns. For Federal taxes, it is important to register for an Electronic Federal Tax Payment System or EFTPS account. You can conveniently pay your taxes over the phone or online post registration.

Other details include -

●     Verifying if you require Employer ID numbers for your jurisdiction

●     Registering for the ‘new hire reporting’ account for your state

●     Deciding how frequent you will pay your employees - monthly, semimonthly, biweekly or weekly

●     Determining the mode of payment for each employee - cash, paycheck, direct deposit or payroll card

●     Collecting bank account information in case of direct deposit

●     Choosing between salary and hourly wages for employees and deciding which employee is exempt or nonexempt from overtime wages

Employee Information Required - There are certain details that are mandatory for your employee to provide before they can start working for you. These include the following -

●     Form W-4 - Withholding Allowance Certificate

●     Form I-9 for new employees - Employee Eligibility Verification

●     Information related to the benefits you are offering them as an employer, such as how much money they want to be allocated to their accounts for retirement plans (for example).

2. Choosing the Payroll System that Works Best for You

You need to select a way to manage payroll based on the time you can afford to give to this task. The three main ways of doing this are

●     Doing it by hand - It is a cost-efficient but quite error-prone method to do payroll. You hold accountability for calculating the exact amount of taxes to withhold and sending those taxes to their respective agencies in a timely manner. This method may, therefore, seem rather cumbersome to handle while managing your business at the same time.

●     Outsourcing it - When you outsource payroll, you are definitely saving a lot of time. The same cannot be said about money, however. Not only is it the priciest option but also one where you get the least amount of control. There are two ways of outsourcing payroll - either hire an accountant to handle the withholding and deposit of taxes or use payroll and tax services that manage every aspect of payroll for you.

●     Using software to do it - Payroll software is not as expensive as outsourcing payroll but is time-saving and precise. This makes it the perfect middle ground between manual tax management and hiring a PEO or Professional Employer Organization. In case you are considering buying one for your business, comparing the number of features and support you will get for its cost is important. Don’t forget to check the software reviews before you decide!

3. Using the Chosen System to Run Payroll

Once you have decided and selected a payroll system, you have to follow the next step - running payroll. No matter what you have chosen, the process remains the same - insert the number of hours worked by your employees, overtime wages along with the respective tax amounts for the given pay period. Once the correct values have been entered, select the payment mode and make the payment.

4. Handling Payroll Tax Services

Since you may not be a tax expert, you need to know how to manage taxes while generating your company’s payroll. These involve the following kinds of taxes -

●     Payroll and Income Taxes - Withholding, depositing, and reporting these taxes are essential:

○     Federal income tax - You need to consider the number of personal allowances claimed by the worker on their Form W-4 and whether they have claimed for tax exemption.

○     State, local income taxes (if enforceable) - The location of your business determines if you have to withhold any state or local taxes. Each of these differs from region to region.

○     FICA tax (Social Security, Medicare) - The Federal Insurance Contributions Act tax consists of Medicare and Social Security which is paid by the employer and the employee.

●     Employer taxes include those paid on employee wages -

○     FUTA (Federal Unemployment)

○     SUTA (State Unemployment)

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5. Maintaining Payroll Records

It is vital to keep payroll records for each employee and understand what to do with them as a business owner. These include necessary documents like

●     Form W-4

●     Wages before and after tax

●     Number of hours that were worked per week

The payroll records of wages that you have paid to your employees need to be retained for a minimum of three years, whereas time-card records have to be maintained for two years at the least.