How To Do Payroll: A Step-By-Step Guide

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The candidate of preparing payroll can be frightening to anyone who ’ s never done it before. And while there are a diverseness of payroll software and services on the commercialize today to make the payroll process easier than always, you besides have the option to process payroll in-house. however, anterior to making that commitment, it ’ south authoritative that you learn precisely what the employee payroll serve entails and what you, as an employer, are ultimately responsible for.

At a glance: How you can process payroll yourself

  • Step 1: Have necessary information such as EIN and state tax I.D numbers
  • Step 2: Set up a payroll bank account for direct deposit and tax remittance
  • Step 3: Collect completed tax forms (I-9, W-4, W-9) from employees and contractors
  • Step 4: Choose a payroll schedule (weekly, bi-weekly, etc.) and timekeeping system
  • Step 5: Collect time cards or timesheets and calculate gross pay
  • Step 6: Calculate all necessary deductions and pay employees
  • Step 7: Calculate tax reports and remit required tax

How to do your own payroll

It ’ s not always easily, and it ’ s sometimes confuse, but yes, you can complete payroll in-house. The succeed steps will guide you through the stallion procedure, from preliminary tasks to processing a payroll .

Step 1: Have your EIN and state tax ID numbers ready

In ordering to process payroll and the necessary payroll taxes, you will need to have both an Employee Identification Number ( EIN ) and your express tax ID numbers handy. Your EIN is used to pay federal income taxes, while your state ID is used for department of state taxes, unemployment taxes, and to provide your submit with new employee information. If you ’ re an existing business, you should already have these numbers. If you ’ re a trade name new clientele, you will need to have these numbers before you hire any employees .

Step 2: Set up a payroll bank account

While you should already have a business deposit bill set up, it ’ s a good theme to open a second account for payroll and payroll taxes. This is the report that your employees would get paid from whether they have aim deposit or you pay them with a check. This would besides be the account that you would remit your payroll taxes from. While you can surely process and remit taxes from your main bank report, for better record-keeping purposes, it ’ sulfur well to have two disjoined accounts .

Step 3: Collect completed tax forms from employees

Your employees are required to complete the follow forms prior to your paying them :

  • I-9
  • W-4
  • W-9 (for contract employees)

The I-9 must be completed no later than the employee ’ randomness inaugural day of employment. The W-4 should besides be completed on your employee ’ sulfur first day of employment, but you must have the completed form in hand before you begin to process payroll. If you hire contract employees, they must fill out a W-9, which you will need in regulate to provide them with a 1099 at the conclusion of the year .

Step 4: Choose a payroll schedule and timekeeping system

You have many options available when it comes to choosing a payroll schedule, though some are better suited to hourly than salaried employees .

Pay Frequency

Number of Pay Periods Annually

Best Suited For

Weekly

52

Hourly employees

Bi-weekly

26

Hourly employees

Semi-Monthly

24

Salaried employees

Monthly

12

Contractors

Be sure to choose the agenda that works best for you because it can prove difficult for both you and your employees should you change the agenda later. You besides need a timekeeping system for your employees. This can range from an antique time clock to a spreadsheet, or an automated on-line timekeeping system. besides keep in thinker that flush if your employees are all salaried, you may hush need to track their meter, depending on the requirements of the state where your commercial enterprise is located .

Step 5: Collect timesheets and calculate gross pay

once the payroll period comes to a close, you will need to collect and review timesheets. once this is accomplished, you can begin to calculate gross pay. In orderliness to calculate gross pay up for salaried, excuse employees, you will take their annual wage and divide it by the number of payroll periods in the year. For exercise, if Sara ’ s annual wage is $ 50,000 and she is paid semi-monthly, you would use the follow calculation to arrive at her crying yield : $ 50,000 24 = $ 2,083.33 Calculating payroll for hourly, non-exempt employees is a short unlike, since you besides have to take likely overtime into circumstance. Let ’ s take a expect at John. John is paid bi-weekly and he earns $ 15 per hour. Remember that if an hourly employee works more than 40 hours in a single week, any hours worked over 40 indigence to be calculated as overtime hours. If John worked 45 hours his first base workweek, and 40 hours his second week, his entire count of hours worked would be 85 for the pay time period. You would calculate John ’ s gross pay as follows :

80 x $ 15 = $ 1,200 ( regular hours ) 5 adam $ 22.50 = $ 112.50 ( overtime ) Gross Pay = $ 1,312.50

Step 6: Calculate all necessary deductions

By law, employers are required to withhold the follow deductions from your employee ’ randomness checks :

  • Federal income tax withholding based on W-4 information
  • Social Security and Medicare taxes (FICA)
  • State tax withholding
  • Local tax withholding, such as city or county taxes

You would need to check with your state to see if you are required to withhold any other payroll taxes. To calculate web pay, you would need to refer to the W-4 that your employee provided you, using that information to calculate federal tax deductions based on IRS yield tables ( PDF ). Let ’ s go back to Sara. Remember, her gross pay is $ 2,083.33. Sara is unmarried and claimed 0 deductions on her W-4. therefore, her federal withhold is $ 250.00. following is FICA, which combines Social Security and Medicare taxes. FICA is presently taxed at 7.65 %, with Social Security taxed at 6.2 % of wages, while Medicare is taxed at 1.45 %. That makes Sara ’ south FICA deduction 159.37. Sara lives in Texas, where there is no state income tax, sol here is how you would calculate her paycheck :

Gross Wages

$2,083.33

Federal Tax Withholding

$ 250.00

FICA

$159.37

Net Pay $1,673.96

If Sara lived in another state with income tax, that would besides need to be deducted from her assay. Once you ’ ve account net pay, you ’ re ready to pay your employees, either by lead deposit or by check. Make sure that you schedule your give run to ensure that the direct deposition will be in your employee ’ s bank account on the scheduled pay up date .

Step 7: Calculate and pay all payroll taxes

Calculating and remitting payroll taxes is one of the chief reasons why business owners turn to payroll software and services. As an employer, you ’ ra creditworthy for preparing a report and remitting requital for a variety of taxes withheld from employee checks, adenine well as your share of any taxes due including :

  • Payroll taxes to the IRS, which include both federal withholding as well as the employee and employer portion of FICA. Both income taxes and FICA tax payments are due either semi-weekly or monthly, depending on how much you owe. You will be notified of your payment schedule by the IRS.
  • Federal Unemployment Tax Act (FUTA) is paid to the federal government, which funds state unemployment programs. FUTA payments are due quarterly.
  • State Unemployment Tax Act (SUTA) is a tax collected by your state that funds unemployment. These payments are also due quarterly, but check with your state to make sure.
  • Any city, county, or local taxes, as determined by the location of your business.

As an employer, you are besides creditworthy for filing IRS Form 941 quarterly, which reports the sum union withhold tax and both employee and employer FICA tax. You will besides need to file IRS Form 940 – employer ’ sulfur Annual Federal Unemployment Tax ( FUTA ), per annum. You will besides need to check with your state to determine what state forms are required .

Should you use payroll software to run your company’s payroll?

Are you feeling a small submerge proper now ? If so, you may want to consider using payroll software to manage payroll, racetrack taxes, and pay your employees. There are plenty of benefits to using payroll software or services including :

  • Reduced workload: Using a payroll service, all you typically need to do is enter pay information for each employee and the software or service does the rest.
  • Reduction in mistakes: Though mistakes can still be made, the number of payroll errors drops dramatically when you use payroll software.
  • Calculation and filing of all payroll taxes: This is the number one reason why small businesses turn to payroll software or services to manage their payroll. All you need to do is provide the service with the appropriate tax ID numbers, and it does the rest. For instance, payroll software providers such as RUN Powered by ADP and Paycor include complete tax calculation and filing with all of their small business plans.
  • More free time: Instead of spending hours and hours running payroll, completing reports, and remitting tax payments, you can spend that time growing your business.

Yes, you can do payroll yourself, but there is a better way

flush the smallest businesses can benefit from using payroll software to process payroll. The services provided are well worth the often minimal monetary value. For the smallest businesses with no room in the budget for payroll software, be certain to check out Payroll4Free, a completely absolve payroll software that will besides calculate and remit payroll taxes for a small monthly fee

source : https://www.peterswar.net
Category : Finance

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