How to do payroll yourself | Bargain hunting
You want to make sure all of your employees are paid correctly and on time. This is one of your main responsibilities as a small business owner. If you have a small team, doing your own payroll can save you money. Managing payroll yourself isn’t easy, but can save you the cost of hiring an accountant or third-party payroll processing service. If you don’t mind dealing with the paperwork, you can manage your own payroll by following these steps. Be sure to seek professional advice to determine if these are the right actions for you.
What you need to do your own payroll
Doing your own payroll mostly involves paperwork, which can be handled either with forms or digitally using payroll software. For each pay period, you must complete and file the correct forms. Otherwise, you could face lawsuits, court costs, or have to pay late fees and government-imposed penalties. Here’s where to start:
1. Get an employer identification number
If you plan to hire employees, you need an EIN for your business. Also known as a federal tax identification number, your unique EIN identifies your business to the IRS. If you don’t have one, you’ll need to apply with the IRS before doing the payroll yourself.
2. Ask each employee to complete a W-4 form
Every employee completes a federal W-4 form when they start a new job. They use it to report their filing status and any personal allowances. You will use these choices to calculate the amount to withhold payroll taxes from each cheque. For state and local taxes, states and counties have similar forms for employees in those areas. Check with the tax departments of those jurisdictions to find the correct forms and filing dates.
3. Decide on your payroll schedule
How often will you pay your employees? Establish and communicate payroll schedules for salaried and hourly employees with key dates: employee paydays, tax due dates, and tax form filing deadlines.
The IRS website maintains a useful list of major due dates for employment tax returns and filings, and individual state tax service sites list their tax due dates. respective laws and wage payment laws detailing how often and when employees must be paid, with legal and financial consequences for failure. comply.
4. Calculate gross pay and federal and state taxes
You will need to do calculations for each employee to determine what to pay them and what to withhold for payroll tax purposes.
- Calculate the gross salary you owe each employee. For employees, this is the amount of salary they receive on a bi-weekly (every two weeks), monthly or fortnightly (twice a month) basis. For hourly employees, it’s a little different. Hours are calculated based on work and absence hours or from timesheets they submit with total hours worked. For these employees, there is a rate for regular hours and a separate rate for overtime, which may vary by state. California, for example, requires overtime pay for a certain number of hours per week and sometimes per day.
- Calculate holdback. The IRS provides an online tax withholding wizard in the form of an Excel spreadsheet so that you can easily calculate the correct withholding amount, as well as the withholding for benefit premiums. You will likely withhold the same amount each pay period for salaried employees, but you may need to calculate this amount each pay period for your hourly employees. You will also need to contact state and local tax departments for information on their withholding rates.
- Other deductions. Sometimes employee benefit deductions like medical and dental can be paid before or after tax. How they are paid will affect the taxable salary base. Another consideration is paid time off (PTO), such as paid vacation or sick leave. Depending on their location, paid sick leave is required for many companies.
- Write paychecks or send the amount owed by direct deposit. The direct deposit offer may depend on your preferences and those of your employees, as well as state laws. If you offer direct deposit, it can be set up easily with your bank.
- Add up all your payroll taxes. If you keep track of payroll taxes for each pay period, it can make it easier to pay federal and state taxes and file paperwork. These payroll taxes include what you have deducted from your employees’ pay for Social Security and Medicare, the employer’s share of taxes owed for Social Security and Medicare, and your income taxes. withheld, as well as any withholding for employee benefit premiums, pension funds and garnishments if required. You will also need to make federal unemployment tax payments.
5. Never miss payroll taxes
It is important to pay your payroll taxes on time. They are due to the IRS monthly or quarterly, depending on your business. Federal and state tax agencies charge fees and penalties when taxes are not paid on time.
6. Fill out the right forms
Each quarter, you will need to file a federal income tax return. You will also have an annual return to file. At the end of each tax year, you will need to prepare W-2 forms for each employee so that they can file their tax returns.
Remember that independent contractors are different from employees. If you have contractors that you pay regularly, now is a good time to make sure you are following all the rules. It is important to ensure that legally you are not treating contractors as employees. Otherwise, you will need to complete the necessary paperwork and withhold income and payroll taxes from their checks.
Common payroll mistakes to avoid
Here are some best practices to avoid common payroll mistakes:
- Be sure to set reminders. You wear a lot of hats as a business owner. When prioritizing what needs to be done and what can wait, put payroll taxes and payroll taxes at the top of your to-do list. Setting lots of reminders in your calendar can help you stay on track and avoid paying fines or penalties from the IRS.
- Hire a small business accountant or payroll expert. Even if you’ve decided to do the payroll yourself, hiring a professional to help you set up the process can reduce your risk. Common errors, such as filing the incorrect holdback amount, are less likely when a professional has verified your process. Then you can be the manager on an ongoing basis.
- Keep excellent records. With good record keeping, you will be able to track any issues and resolve them faster. Most states require you to keep certain records for three years, but you must also keep detailed information for your own purposes.
Your bank can help you organize your accounts to help you manage payroll. Speak to a merchant banker and learn more about the resources available to you, including business banking and merchant services. Be sure to seek professional advice to determine if these are the right actions for you.
For Informational/Educational Purposes Only: The opinions expressed in this article may differ from those of other JPMorgan Chase & Co employees and departments. The opinions and strategies described may not be appropriate for everyone and may not are not intended to constitute specific advice/recommendations for any individual. . The information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and goals before making any decisions and consult with the appropriate professional(s). Prospects and past performance are not indicative of future results.
This article is not intended, directly or indirectly, to provide legal or tax advice. If you have questions about what may be legally required by federal or state law, you should consult an attorney and/or tax expert.
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