You want to make sure that all of your employees are paid correctly and on time. It is one of his main responsibilities as a small business owner. If you have a small team, doing your own payroll can save you money. Handling payroll yourself isn’t easy, but it can save you the cost of hiring an accountant or third-party payroll processing service. If you don’t mind handling 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 primarily involves paperwork, which can be handled with forms or digitally using payroll software. For each pay period, you must complete and submit the correct forms. Otherwise, you may face legal exposure, litigation costs, or have to pay late fees and government-imposed penalties. Here is 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 for one through the IRS before you do payroll yourself.
2. Have each employee fill out a W-4 form
Every employee completes a federal W-4 form when starting a new job. They use it to report their marital status and any personal assignments. He’ll use those elections to calculate how much to deduct in payroll taxes from each paycheck. For state and local taxes, states and counties have similar forms for employees in those areas. Check with the revenue departments of those jurisdictions to find the correct forms and filing dates.
3. Decide your payroll schedule
How often will you pay your employees? Set up and communicate payroll calendars for salaried and hourly employees with key dates: employee pay days, tax due dates, and due dates for filing tax forms.
The IRS website maintains a helpful list of key employment tax reporting and deposit due dates, and individual state revenue department sites list their respective tax due dates and wage payment laws detailing how often and when employees should be paid, with legal and financial consequences for non-compliance. to comply.
4. Calculate gross wages and federal and state taxes
You’ll need to do some math for each employee to determine how much to pay them and what to withhold for payroll tax purposes.
- Calculate how much gross salary you owe each employee. For salaried employees, this is the amount of salary they receive biweekly (every two weeks), monthly, or biweekly (twice a month). For hourly employees, it’s a little different. Hours are calculated based on work start and end times or the time sheets they submit with total hours worked. For these employees, there is a regular hourly rate and a separate overtime rate, which can vary by state. California, for example, requires overtime pay for a certain number of hours per week and sometimes per day.
- Calculate withholding. The IRS makes an online Withholding Tax Wizard available in the form of an Excel spreadsheet so you can easily calculate the correct amount of payroll withholding as well as premium benefit withholding. You’ll likely withhold the same amount each pay period for salaried employees, but you may need to calculate it each pay period for your hourly employees. You will also need to contact state and local revenue departments for information on their withholding rates.
- Other deductions. Sometimes deductions for benefits, such as medical and dental services, can be paid before or after taxes. How they are paid will affect the tax base of the salary. Another consideration is paid time off (PTO), such as paid vacation or sick time. Depending on your location, many businesses require paid sick leave.
- Write paychecks or send the amount due via direct deposit. Whether you offer direct deposit may depend on your preferences and those of your employees, as well as state law. If you offer direct deposit, it can be easily set up with your bank.
- Add up all of your payroll taxes. By keeping track of your payroll taxes for each pay period, you can make paying federal and state taxes and filing paperwork much easier. These payroll taxes include what you deducted from your employees’ pay for Social Security and Medicare, the employer’s share of taxes due for Social Security and Medicare, and your income taxes withheld, as well as any withholding for premiums. of benefits, retirement funds and garnishments if necessary. You will also need to make federal unemployment tax payments.
5. Never stop paying payroll taxes
It is important to pay your payroll taxes on time. They must be paid to the IRS monthly or quarterly, depending on your business. Federal and state tax agencies collect fees and penalties when taxes are not paid on time.
6. File the right forms
Each quarter, you will need to file a federal payroll tax return. You will also have to file an annual return. At the end of each tax year, you will need to prepare W-2 forms for each employee so they can file their income taxes.
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’re following all the rules. It is important to make sure that you are not legally treating contractors as employees. Otherwise, you will need to complete the necessary paperwork and withhold income and payroll taxes from your checks.
Common payroll mistakes to avoid
Here are some best practices to avoid common payroll mistakes:
- Make sure to set reminders. You wear many hats as a business owner. When you’re prioritizing what needs to be done and what can wait, put payroll and payroll taxes at the top of your to-do list. Setting plenty of reminders on your calendar can help you stay on track and avoid paying penalties or fines with the IRS.
- Hire an accountant or small business payroll expert. Even if you’ve decided to handle payroll yourself, hiring a professional to help set up the process can reduce your risks. Common mistakes, like submitting the wrong amount of withholding, are less likely when a professional has examined your process. So you can be the one in charge on an ongoing basis.
- Keep excellent records. With good record keeping, you’ll be able to track any issues and address them more quickly. Most states require that you keep some records for three years, but you must also keep detailed information for your own purposes.
Your bank can help you keep your accounts organized to help you manage payroll. Talk to a business banker and learn more about the resources available to you, including business banking and business services. Be sure to seek professional advice to determine if these are the right actions for you.
Informational/Educational Purposes Only: The views expressed in this article may differ from those of other JPMorgan Chase & Co. employees and departments. The views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. person. . The information was obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not guarantee its completeness or accuracy. You should carefully consider your needs and goals before making any decisions and consult the appropriate professionals. Past performance and prospects are not guarantees of future results.
This article is not intended, directly or indirectly, to provide legal or tax advice. If you have questions about what might be legally required under federal or state law, you should consult an attorney and/or tax expert.
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