As an entrepreneur, part of making sure your business is running effectively is getting your employees the money they’ve earned making the business work. A business is only as good as its employees, and you should pay them as such.
But doing payroll can be tricky. because mistakes on paychecks can cause problems and headaches for both you and your employees. If you need to learn how to do payroll effectively, here are some steps to take in that process.
1) Have Employees Complete W-4
The first step doesn’t even start with you, technically. Employees of your business must complete the W-4 form, or Employee’s Withholding Allowance Certificate, that documents their status.
This form gives them the ability to also keep track of their allowances, and the more allowances and/or dependents your employees have, the less they will have to pay in payroll taxes with each pay period.
2) Get the EIN
As the business owner/employer, you must have an EIN or an Employer Identification Number. This is essentially your company’s social security number; it helps to identify your business to the IRS for tax purposes.
You may be able to get by with your SSN if you are the sole employee of your business, but if you have employees other than yourself, you must apply for this on the IRS website. Otherwise, you cannot pay employment taxes or get proper tax identification.
3) Make the Payroll Schedule
Now that you’ve gotten your EIN and relevant tax information for your business and employees, it is time to decide on when you want to pay your employees. There are four schedules you can choose from depending on what you are aiming for.
This would also be a thing to discuss with your employees as to what works best for them as well. There are weekly, biweekly, semiweekly and monthly schedules that all have their pros and cons. But the most used schedule tends to be biweekly, however, it is important to look up your local laws concerning payroll.
4) Calculate Gross Pay and Deductions
To figure out what to pay your employees, you must get their net pay which is calculated by their gross pay subtracted by any deductions.
- Gross pay: the amount of time worked in a pay period multiplied by the hourly rate of the employee.
- Deductions: things that can be deducted from income when you do the taxes. Pay attention to how and what employees fill in for their withholdings.
- There are other things aside from deductions that should also be taken out, such as insurance and 401(k).
This may seem tricky but there are online tools that can help. Luckily, there is a trusted stub creator right here.
5) File Tax Forms
Finally, after the process of paying your employees, you can document and file their taxes to start the process over. But you must stay on top of this process, otherwise, you can run into problems.
You must set deadlines for these filings to take place. Once this is done, your business will be on its way to proper growth.
How to do Payroll the Right Way
As a business owner, you must know how to do payroll effectively. There may be hiccups along the way, but for your business to grow, payroll is something you should pay attention to.
Don’t get caught with your business being a mess. get your payroll together. For other great articles like this one, be sure to browse our blog.