When running a small business, one of the most important steps is to set up a functional payroll system. Doing so will enable you to process payments on time and prevent any future complications that will cost you financially.
Starting payroll systems is not as easy as it sounds. There are tons of rules and regulations to adhere to, and choosing the wrong system will affect your business.
This article will explore tips on creating functional payroll systems for small businesses.
1. Consult the Department of Labor Website
Payroll has to adhere to various government regulations, including laws regarding minimum wages and overtime payments. Consult the Department of Labor website so you know the different expectations, and how you can plan around them financially.
2. Apply for an Employer Identification Number (EIN)
To hire workers and process payments, you will need an EIN. This identification number is necessary for reporting taxes and for providing other employee documents for the government. You can apply for the EIN through the IRS website.
3. Choose a Suitable Payroll System
When starting payroll systems, choosing the most suitable one for your business is crucial in maintaining organization. The most common payroll systems include ones that are internally managed, professionally managed, or software managed.
Internal management of payroll works for smaller businesses, but it has the tendency to grow overly complicated.
A professionally managed payroll system involves hiring or outsourcing bookkeepers. Software managed payroll means you essentially use digital platforms to sort out your payroll. For example, you can use a check stub creator to produce online pay stubs for your employees.
4. Set a Payroll Schedule
Dedicate a certain schedule for you to process payments to your employees. Businesses often process payrolls weekly or biweekly.
Make sure this is a payroll schedule that you can follow. Before you decide on a time frame, evaluate whether you can afford to pay your employees according to the schedule. Keep in mind as well that having shorter schedules mean you will have to record cash flows more often.
5. Take Note of Different Employee Terms
Different employees may have different compensation terms. For instance, someone may have requested more time off, or another worker has called in sick several times. What is your policy regarding these situations? Noting these differences will assist you when the time comes to process payrolls.
6. Record Your Payroll Diligently
When starting payroll systems, remember that you have to record almost regularly to stay ahead of tax requirements and to ensure your information is accurate. Without this step, you will have to deal with a lot of confusion and possibly face financial losses from inaccurate reporting.
Starting Payroll Systems Can Be Easy
As a small business, starting payroll systems may seem daunting. Perhaps you’ve heard about the complicated procedures involved, and that it requires a lot of time to choose a suitable system.
While this may be true, being aware of the above tips will help you start a reliable payroll system that processes accurate reports and allows you to pay your employees on time.
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