Should I Manage My Own Payroll?
A Simple Guide to Payroll
As a business owner or manager, you have many responsibilities. It can be overwhelming to wear the many hats required of you.
You have to take care of your clients and customers, upkeep your offices, manage employees. Between inventory, customer service, and employees it’s probably often challenging to keep up.
You might be wondering should I manage my own payroll or outsource to someone else?
While it might be nice to let someone else handle it, it’s one more expense for the business. Maybe you’re looking for a way to streamline how you handle your own payroll.
Read on to learn the things you need to handle and do to take care of your own employee payroll.
Should I Manage My Own Payroll?
If you’ve decided to work out a system to handle payroll yourself, there are few things to know.
There are basically three stages of payroll to be aware of.
First, you will have to do payroll preparation. Here you need to organize how you will handle payroll. Who will be responsible for it? How will you do it, on paper or digitally? Will you hand out paper checks or do direct deposit?
Next, you will actually pay the employees. This is the step where a paystub generator is helpful. Here you will calculate gross pay, deductions, contributions, and write out paychecks.
Once you have completed the payroll, you must do the follow-up data for paying the necessary taxes and contributions.
Let’s take a closer look at the steps you need to complete your own payroll.
Business Employee Identification Number
Before you can do any payroll your business must have an employee identification number or EIN. This is the business version of a social security number.
It is how the IRS identifies you as a business. When you pay your taxes to the IRS you will use the EIN.
There is no charge to apply to get an EIN which you can do directly with the IRS online through their website.
Employee Tax Information
When you hire an employee, you will be responsible for having your employees complete the W-4 and I-9 form.
This gives you as the employer the necessary information to complete payroll. In essence, it is your employees’ information that tells you how much in deductions for taxes you should remove from their gross pay.
You are responsible for submitting this information to the IRS.
If you have contract or freelance employees, they will be responsible for paying their own taxes. This means they won’t complete the forms.
You will instead provide them with the 1099 form at tax times showing the earnings they should be paying taxes on to the IRS.
Set Up a Payroll Schedule for Pay
All businesses are different. You can make decisions that work for you and your employees.
Some employers pay weekly, bi-weekly, or monthly. If you have union employees, sometimes their contract dictates the pay schedule.
You also need to decide how you will pay them and provide them information about their pay.
The laws vary from state to state whether you need to provide the employees with a pay stub. Make sure you know the laws of your state.
You could decide to provide them with a paper pay stub or a digital version. Again, check the laws of your state. You should also decide if you will set up direct deposit to employee accounts so you don’t have to write checks, or will you provide paper paychecks.
The first step to paying your employees is to calculate their gross pay. You do this differently depending on the type of employee you have.
If they are a salaried employee, you will take their salary and divide it by the number of pays you pay over the course of a year.
If the employee is an hourly employee, you will take their hourly rate and multiply by the number of hours they worked.
Also included in gross pay will be commissions, bonuses or paid leave that is due to the employee.
Deductions, Contributions, and Other Withholdings
Once you know the total gross pay of your employees, the next step is to calculate deductions. The W-4 form you collected from your employees helps you to know how much to deduct for federal and state taxes.
You will need to calculate things like social security tax and FICA too. If you require your employees to pay part of their health insurance, that is also a deduction.
If your employee pays into a retirement pension or 401K plan, this is also a deduction.
Deductions and withholdings are any of those things that get subtracted from the employees’ gross pay before you write them their paycheck.
If you contribute to their retirement plan, you would also want to calculate that now based on the gross pay.
Net pay is the amount the employee gets paid from you. It is their gross pay minus all deductions and withholdings.
Then you are ready to pay the employee. You need to decide if you will write them checks or their pay will be a direct deposit.
Withholdings, Payroll Taxes, and Record-Keeping
You might think you are done with payroll once you have written the checks for your employees. Actually, there are a few important steps that follow actually paying them
First, it’s critical that you are keeping good records of what you withhold and what you pay. At the end of the year, you will need to provide W-2 forms for your employees. Accurate record-keeping is a must if you are handling your payroll.
You also need to report to the IRS using your EIN numbers the taxes and withholdings you have gathered from your employees. Then, of course, you need to pay those taxes too.
Understanding the Payroll Process
Should I manage my own payroll? With the right organization system and program to help you manage your payroll, you’ll be surprised that it’s less complicated than you imagined. You’ll thank yourself for setting up a quality system and keeping careful payroll records.