7 Payroll Tips for Small Business Owners
As a small business owner, you have to decide between outsourcing payroll and doing payroll in-house. This is something that small business owners deal with every day, and there are pros and cons to each. With that said, here are seven tips for business owners to keep their payroll on track and in compliance with the IRS:
Properly classify workers
Make sure you properly classify your workers. Just because a worker agrees to be paid as an independent contractor doesn’t mean it’s legal. If the worker is performing the same services that are offered by your business, the person usually has to be classified as an employee. Like anything tax-related, there are exceptions to this. The IRS will have more information about this.
Make sure you have an employer identification number
As a business, you will need an employer identification number (EIN). You’ll need to supply your EIN to your payroll processing company. If your business is a partnership or corporation, you should already have an EIN. If you don’t already have this number, you’ll need to apply for one through the IRS.
Review data entry
Data entry mistakes can cost small businesses thousands of dollars each year. This could be as simple as imputing the wrong numbers or accidentally hitting the wrong key. These small errors can be costly, so make sure you review the data before and after you enter it.
Set your budget
When you set your budget, include the wages that must be paid and the federal and state payroll taxes. As a business owner, you’re required to match the Social Security and Medicare that is withheld from your employee’s pay, which is equivalent to 7.65% of the gross pay. Depending on the state in which your business is located, you may also be required to pay other employment taxes. Get those rates and include those percentages in your budget.
Know your labor laws
One of the most common mistakes small business owners make, is that they are unaware of the state- and nationwide labor and payroll laws. It’s important to have a system in place to ensure you’re following all laws and to keep up-to-date on any changes that will affect how you manage your payroll.
Remember that technology isn’t perfect
If you choose to do payroll in-house, remember that technology isn’t perfect. Payroll software is fantastic and will make your job easy, but don’t rely on it with full faith. Make sure to review numbers and reports to ensure accuracy and compliance. Hiring an outside payroll company eliminates this, as companies have systems in place to ensure accuracy. Payroll companies also make it a point to keep up with laws and changes, so you can rest assured knowing your payroll is being done correctly.
Ask your payroll company to automatically make tax deposits
If you’re outsourcing your payroll, ask your payroll processing company to automatically make the federal and state tax deposits for you. It will be one less thing to worry about, and you know you’ll be in compliance. Not keeping up with payroll taxes can get expensive very quickly.