Small Business Payroll

Keys to Developing a Successful Payroll System

Deciding to hire an employee is an important step in the growth or setup of any small business. While the extra help is essential to the company’s productivity level, following improper payroll procedures can lead to serious repercussions. Here are some keys to develop a successful small business payroll system.

The first step in preparing a payroll system is to register as an employer. Many sole proprietors operate their businesses under their social security number, but businesses with employees must apply for and operate under an employer identification number. States require registration as well and will issue a separate state employer number.

Before employing someone, it is important to research federal payroll and hiring regulations. A business owner should also learn about the federal forms that need to be filled out, such as I9s and W4s, and the types of deductions that should be withheld, like income tax and FICA. In addition to these taxes, employers are solely responsible for paying FUTA, or federal unemployment tax. IRS.gov provides training tools with updated materials for new employers.

Most states require additional income tax to be withheld from an employee’s paycheck. Employers are also liable for state unemployment tax and administration fees. Information about new hires needs to be reported at the state level, although the necessary forms and recording departments vary from state to state. The state’s Department of Labor website can be a great source to answer many questions.

A benefits package should be decided on before setting up a payroll system. Companies frequently offer life, medical and dental insurance, and many pay a portion or all of the premiums for their employees. Other benefits like flexible spending plans and retirement plans are sometimes available as well. Comparing products from at least three companies will give a broad view of the possible plans available.

Some companies process payroll in-house while others outsource their payroll. The number of employees being paid, frequency of pay, and aptitude of the business owner or office personnel should be considered when determining the best processing option. Several software programs have been designed to meet small business payroll needs.

A complete payroll system goes beyond cutting paychecks. Filling out tax forms and filing with government agencies is required monthly, quarterly and annually, and late or missed filings can lead to fines, fees and in some cases jail. Organizing and utilizing an efficient small business payroll system can protect the business owner from unwanted consequences.