Payroll

Payroll refers to the payment to all your employees. Payroll includes the following: deductions, bonuses, wages, salaries, and all the other financial records of a company. Most companies have various kinds of wages, either salary, hourly, or "other". Typically the "other" category refers to employees who work for a certain number of items produced, or they work for a season such as summer or the Christmas holiday time.

Your HR department or accounting department is generally in charge of payroll and they will make sure the paychecks are correct and distributed on time. For smaller organizations, the business owner or manager may be the person who is in charge of calculating and distributing the paychecks. There are great payroll companies who can take care of all your payroll needs if you find it too difficult.

In order to calculate payroll, you need to know the number of hours each employee has worked. Most companies use timecards or timesheets to calculate the number of hours an employee has worked during the week. Once the hours have been entered by the employee, a supervisor must look over them to determine if they are correct. The correct hours will be entered into a payroll software program that will calculate the correct paycheck or you can do it manually.

If you choose to calculate your employee's paystubs by hand, you will need to know the correct percentages of withholdings for Social Security, Medicare, Federal and State taxes, medical and dental insurance, retirement accounts, and other deductions. The balance that remains from the deductions is the net pay that the employee will take home. Small businesses may still pay their employees with a physical check that needs to be deposited while others may use a third-party payroll company who deposits the funds directly into the employees account.

Businesses need to constantly monitor their cash flow and make sure they have enough money in the account when payroll is due. Since payroll is usually the largest expense of a company, it is important to monitor your balances closely. Failure to properly compensate your employees for their hard work will quickly cause your company to fail and face potential lawsuits from employees. If you are the business owner, there may be times when you have to sacrifice your salary in order to keep up with your payroll. Unfortunately, this means you won't get paid for this time period. Smaller businesses tend to keep a small staff of employees that don't make a large salary so they can afford the payroll. A start-up company needs to build on the foundation that has been set before they can bring more employees on the payroll.

 Many companies who have accounting software generally purchase payroll software. Some accounting software actually includes payroll software. If you purchase payroll software, you will need to set up the payroll system. An HR individual who is trained in payroll should be able to set up an efficient payroll in a few hours. A person who is not trained in payroll may find that setting up a payroll system is difficult and requires a lot of time. You must know all the local, state, and federal laws when it comes to establishing payroll. It is also important to store information, such as W-4's and copies of their driver's license, from the employee's.

How to set up payroll If you aren't sure how to set up payroll, you should consider hiring an accountant who has training in payroll. Since many people cannot afford to pay an accountant, they attempt to establish payroll on their own. If you want to try setting up payroll on your own, here are some steps that may help:

The first thing you need to do to establish your payroll is to contact the IRS and inform them that you will have a payroll. Once you have done this, you need to contact your State and register your payroll with them. Each state will have a different filing date for payroll taxes and will have different payroll tax rates, regulations, and limits. You should ask for forms from your state the discuss payroll issues. Most states will have a web site that includes all the necessary forms you will need. Some states minimum wage could be higher than the minimum wage, and you are required to pay the higher of the two. This is why it is so important to check with your state on payroll information. Currently, the federal minimum wage is $6.55. You must also check with your state about overtime pay. There are different rules established that discuss if an employee is eligible to receive overtime.

Second, you need to ask for each employee's social security number and full name as it is given on the social security card. Each employee's name must be written exactly as it is stated on the social security card and the social security number needs to match up correctly. If you have misinformation in this area, you risk the chance of being audited and paying a hefty fine to correct your mistake. Your employees will need to fill out a W-4 and an I-9 form. The W-4 will be filed with the state and federal government and the I-9 form needs to be kept with the employees records. It is a requirement to inform your employees when their W-4's will expire, as they have the opportunity to change their withholdings. Once you hire a new employee, you have 20 days to report the new hire to the State.

Third, you must purchase workers compensation insurance. It is a Federal requirement to carry workers compensation insurance.

Fourth, always pay your payroll taxes. Failure to pay your payroll taxes will allow the IRS and State government to audit your books and they can seize your company and even personal assets.  

 Fifth, enter the appropriate amount in the wages boxes. A tipped employee can be paid less than minimum wage as long as the employee earns $20 or more a month in tips. It is a federal requirement to report the amount of tips an employee receives. Any employee who earns less than $20 in tips a month does not need to report this as income. If you have employees who earn tips, you need to balance this amount with the minimum wage. What this means is that if you report tips, the amount reported must at least equal minimum wage, if this amount doesn't balance out, the employer must fund the difference with a higher minimum wage. There are several forms required for companies whose employees make money from tips, be sure to ask your state and IRS agent what forms your business needs to fill out.

Sixth, fill out a form 941. The IRS will automatically mail you this form once you have registered your payroll with them. A form 941 must be submitted by the 31st day of the month following the quarter end. Don't forget to properly calculate your state unemployment amount and fill out the state unemployment worksheet.

Your payroll is now established with the IRS and with the state. Not only do you need to pay your quarterly taxes, you are responsible for creating W-2s for each employee and filing your company's yearly taxes. The information you submitted on your form 941 to the IRS needs to match up exactly to the amount you enter on the W-2s.

Employer Payroll Responsibilities Each employer will have bi-weekly, monthly, quarterly, annually, and yearly responsibilities when it comes to their employee's payroll. Once you have all the proper information from the employee and you have established your payroll, you need to calculate their paystub. The withholdings for federal tax, social security, Medicare, and state taxes need to be correct. If your company has a retirement account, you need to withhold money for their 401(k) or simple pension account. Each quarter, you must deposit the federal unemployment tax and file your form 941. You must also file your State quarterly taxes and state unemployment taxes.

It is the responsibility of the employer to inform their employees when they need to submit a new Form W-4 of they need to update their withholding information. You must create W-2s that reconcile with your Form 941. Each employee must receive a W-2 after the year ends. The deadline to mail your W-2s to your employees is midnight on January 31. If you have employees who are paid in other methods, you need to provide them with a Form 1099. You will then file your Form 1099, Form 940, and Form 945 with the Federal and State government. 

It is wise for an employer to keep all the records of payroll. If you are ever audited for payroll, you must furnish the IRS with every detail of your payroll reports. If you fail to have proper documentation, you could be looking at a serious fine. The IRS has even produced reports stating that payroll audits are their number one reason for auditing a business and they bring in over a billion dollars in fines from payroll audits.