How does a company do its payroll?
It will never be the most glamorous part of running a business but it is among the most essential. You could be the most likable boss in the world, but you won’t keep employees for long without paying them.
Moreover, an efficient, reliable, and well-recorded payroll will be a huge asset in the financial management of your whole business. To the untrained, however, it can feel like an intimidating and complex task.
A successful payroll requires understanding a wide range of regulations and gathering many mandatory documents. Employee Withholding Certificates, Taxpayer Identification Numbers and Certifications, and Employment Eligibility Verifications will all be needed to complete payroll.
Other information may also be needed, including employee records, bank details, medical insurance information, and retirement plan documents. Then, there are tools such as accounting or payroll software or business checks such as those provided by intuit quickbooks.
As with many tasks, payroll can be best understood if it is broken down into a series of steps. So, step-by-step, how does a company do its payroll?
1. Establish your EIN
Along with IDs for state and local taxes, the government will require any business to have an employer identification number. This allows the IRS to track and check any taxes related to payroll and ensure all regulations are met.
2. Collect employee tax information
The completion of employee tax forms such as the W-4 and I-9 is essential for information collection and storage. Before any first paycheck, payroll should also have an employee’s original job application documents alongside any addition or subtraction details.
3. Create a schedule
Employees need to plan their lives, so they will expect to be paid on predefined dates throughout their service. Whether monthly, weekly, or otherwise, payroll should establish a firm calendar around which to plan all its activities.
4. Calculate gross pay
The first step in calculating an employee’s paycheck is the most straightforward, working out their gross pay. This is a simple calculation of their hourly rate multiplied by their hours worked, plus any overtime and other additions.
5. Make the deductions
As frustrating as it might be, most workers will see several deductions made from their paychecks before they receive them. Federal, state, and local taxes, social security, medicare, 401(k) contributions, and more all need to be deducted by payroll.
6. Make the payment
Once payment has been calculated, it’s time to make the most popular step with every employee, and pay them. This could be by check, direct deposit, cash, or several other methods, each requiring slightly different processes.
7. Keep records
Absolutely fundamental for any successful payroll is the accurate and diligent keeping of records. This is essential in order to easily answer any future queries from the government, the employees, or the business itself.
8. Make corrections
None of us are perfect, not even payroll workers, so mistakes are inevitable and correcting them efficiently is vital. Clear and accessible records will make this easier, as will a clear process for managing each type of possible correction.
9. Remember the big picture
Payroll’s responsibility doesn’t end at ensuring each employee receives their correct wage in a timely manner. Taxes must be filed quarterly and annually and the IRS must be kept up to date with any recruitment.
10. Organization, organization, organization
Ok, so this is a repeat of many of the earlier steps, but that’s because it is absolutely essential for every successful payroll. Establishing and maintaining organized processes for data, planning, administration, and record-keeping is the most vital step in any company payroll.
Following these steps and keeping on top of each aspect of the payroll process will create huge benefits for businesses. An efficient payroll helps keep a happy workforce, a happy government, and avoids wasting company resources to solve unnecessary problems.
Other useful things a business can do to improve its payroll is to integrate state-of-the-art software and establish check suppliers. With all this in place, payroll might still not be glamorous, but it won’t be a headache either.
