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Employee Payroll: Feature Article
Employee payroll can quickly consume most of your time if you haven't considered outsourcing to a third party. If you have the time to use payroll software, you can save a lot of time in processing employee payroll. Employee Payroll includes the following: deductions, bonuses, wages, salaries, and all the other financial records of a company. Usually companies will establish their paydays to be weekly, bi-weekly, or monthly. You rarely find a company that wants to pay their employees on a yearly or quarterly basis.
Employee payroll can be done in-house with payroll software or you can outsource your payroll. There are benefits and disadvantages to both types. If you have an HR department or accounting department, they are probably already processing employee payroll. In order to process your employee payroll, you need to have the following items:
- The number of hours each employee worked
- The payroll time period (weekly, bi-weekly, monthly)
- The amount you are paying the employee (hourly rate, salary, or per item amount)
Usually you will have some type of time clock system in tact. There are time card systems that allow employees to log into the computer program and clock in; this eliminates the need to use punch cards or time sheets. Having your time automatically entered into the computer will eliminate the amount of errors that can occur from you adding them up.
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Employee payroll will require that you are up to date with the latest payroll tax laws for your state and federal government. If you have employees who work out of state, you will need to comply with their state laws as well. The rates for Social Security and Medicare are always changing, and you are required to pay them. You are required to pay other taxes as well and if you offer benefits such as dental, medical, and retirement to your employees, you will need to deduct this amount from their paycheck.
Helpful Resources: Capital One Capital One provides third-party payroll services for small and medium sized businesses. This web site talks about different aspects on how to establish your employee payroll with them and how it works. Department of Labor Cost of Payroll Payroll Companies Payroll Processing ADP Payroll Software IRS |
When you are establishing your employee payroll, you need to make sure you have an account with the necessary funds to complete the payday transactions. Your employees can file a lawsuit against you if you bounce their paychecks. Having a third-party payroll company will eliminate your risk of bouncing payroll as they will monitor your account and help you maintain positive cash flow. Payroll is the largest expense for most companies, so this is one check you better not bounce.
Some small businesses still do their accounting on paper ledgers or on Excel files. Other companies have taken a step into the "now" and have purchased accounting software like QuickBooks. You should have some form of accounting software to help you properly manage your books. Most accounting software programs offer some type of payroll software. You should consider adding on payroll software if your accounting software allows it. Having the two programs together will allow you to properly manage your books and keep them in check with your payroll. Keep in mind that you need to be able to manage both the accounting program and the payroll program and teach this to another individual who will dedicate their time to it. If you already have a person on staff that is in charge of payroll, obtain their opinion about what payroll software you should purchase or talk to them about outsourcing your payroll. There are several things you need to consider about employee payroll, some of them include:
- Payroll Laws
- Cost of processing employee payroll
- Time of processing employee payroll
Payroll Laws
When you are working with your employee payroll, you will have to be familiar with employee payroll laws. It is a requirement to withhold a designated amount of money from each employee's paycheck to pay the Federal and State governments, Medicare, Social Security, and Unemployment. Each employee must complete a Form W-4 that will allow you to calculate their Federal tax withholding amount.
The taxes that you pay per employee must be matched and paid by the company. The taxes include: Social Security, Medicare, Federal and State Unemployment Insurance, and State Disability. The Federal Unemployment Tax is paid only by employers to help cover the administrative costs that are associated with individual state programs. Some states also require employers to pay a portion of their income to State disability programs.
You must research your business type with the IRS as the payroll tax due dates vary for different business types. Your business could be on a weekly or monthly schedule and failure to pay your taxes could easily result in large fines with the IRS. The amount you pay to Social Security and Medicare will be found on IRS publication 15. Each state will have a different unemployment tax rate and it will vary depending upon the number of past employees that are collecting unemployment. It is wise to hire a payroll accountant to take care of your payroll needs since the employee payroll tax laws are complex.
Cost of processing employee payroll
The cost of payroll processing varies depending upon the company you hire and the services you include. A basic payroll service should cost around $0.80 - $2.00 per check, plus a base account fee. The base account fee will include the cost to establish your employee payroll and to set up the pay period time table and tax filing requirements. Most companies will charge you an additional fee for direct deposit, but it is usually cheaper than printing and mailing the paychecks. Having direct deposit and tax filing added onto your account will jump your cost up to about $4.00 - $ 9.00 per check.
Some companies will charge you a monthly subscription that will take care of all your payroll needs such as: direct deposit, tax filing, W-2 generation, report personalization, online log in, and other features. You can find a payroll software program with monthly fees for about $14.95 - $60 a month. Most of the monthly subscriptions allow you to log in 24/7 and you can even set up a page for your employees to log in and view their current and past pay stubs.
Time of processing employee payroll
Establishing your employee payroll can take a lot of time. If you are a new company, you will be required to file your payroll with the IRS and with your state. This process alone can take a few days. Once you have established your payroll, you will need to become familiar with the latest payroll tax laws, and if you haven't done payroll before, this can take several weeks to learn.
You must also obtain all the personal information from each employee and have them fill out a Form W-4. The Form W-4 is needed to help you determine how much to withhold from their paycheck. Each time you have a new employee, you have 20 days to report them as a new hire to your state. If you do not have Workers Compensation insurance, you will need to purchase it as soon as possible. It is a Federal requirement to have this insurance in the result that an employee could be injured on the job.
Once you have everything set up with your computer program, you will be responsible for calculating payroll. Each employee will have a different amount, as some could be hourly and others could be salaried or paid per item. You must calculate their appropriate amount according to the Form W-4. Calculating the payroll can take several hours. You must also remember to file your payroll with the IRS and with the state and pay your taxes. Failure to pay your taxes on time will result in a fine from the IRS and you could lose business or personal assets. You must also remember to fill out your W-2s at the end of each tax year and give them to each employee, past and present. Your W-2s must be postmarked by midnight on January 31.
There are several things that go into payroll, and if you don't have time to dedicate, you could end up in a mess. Evaluate your options and decide if it is cheaper for your company to outsource your employee payroll or to hire a payroll accountant.
As an employer, you need to be familiar with how your employee payroll works. You need to keep up to date with the payroll laws and make sure your company is in compliance. It is your responsibility to deposit the federal unemployment tax and file your Form 941. Your payroll processing company typically will send you reminders when your taxes are due, so you don't incur any fees.
Always keep good records of your payroll in case you are ever audited by the IRS or state. You must provide them with a detailed report of your employee payroll and the more information you have, the better your chances are to avoid a penalty. The IRS makes billions of dollars each year on audits, most of them being payroll audits of businesses who failed to properly run their employee payroll.
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