Before we dive further into this topic, let’s first see what exactly a payroll is. It can be defined as a software application business employed with the goal of automating and managing the process of paying your workers.
It calculates employee income and taxes, the number of hours they worked, and issues salaries through check or direct deposit. Even if you have a small company, that consists of one person only, you will still be obligated to utilize this tool at some point.
Although this whole process can be, sometimes, tedious and time-consuming, you need to know that it’s an integral part of every company, which is why it must be set up. Now that the basics are covered, it’s time to learn how this system works.
How Does It Function?
Payroll software must be merged with other essential business tools in order to ensure that all workforce is paid on time (with the right amount of money), in a timely and appropriate manner (this refers to payment cards, checks, and direct deposit).
Every member of your team should be able to easily access it if they want to edit their personal information, alter payment methods, etc. Even though this tool generally isn’t very pricey, if you still want to skimp on costs, then you should browse the web to see where you can find a low-cost payroll for small business entities and then compare prices you previously came across. Bear in mind that it’s of huge importance to opt for the one that’s reliable, easy to use, and flexible enough so that it’s capable of managing and automating payments to employees of all kinds, at any location in the world.
The whole point of payroll software is to streamline various tasks, making it simple for people to tackle frequently complicated rules and regulations, checklists, and payroll flows, and, at the same time, adhere to tax laws.
Now that you have a better understanding of how this system works, it’s time to uncover the best and most effective ways you can utilize it.
You Need To Gather Payroll Forms
If you manage to select the right software for your firm, the next step is to gather payroll forms. During this process, your workers must complete certain forms during onboarding. These are the forms that must be taken into consideration:
- W-9: This form is normally employed by contractors in order to provide the tax ID number
- W-2: This one demonstrates the amount of money you paid your workforce and the amount of taxes you kept from their paychecks in the previous year
- W-3: Form W-3 summarizes information from every single W-2 you had
- W-4: It determines the amount of taxes every employee is going to retain from their salaries
- 1099: It showcases compensation for contract employees or nonemployees
- 1096: This one summarizes all the information from the 1099s
- 940: This form reports the Federal Unemployment Tax Act Taxes
- 941: Form 941 shows payroll taxes and worker income
- 944: Form 944 demonstrates federal income, along with the FICA taxes. In some instances, it represents a replacement for Form 941
- 1095-B: This form is intended for business owners who provide their workforce with self-insured health plans
- 1094-B: It summarizes information from every single 1095-B that you had
Select A Payroll Schedule
When picking a particular payroll schedule, you need to focus on the things that work best not only for your company but for your workers too. Speaking of this, you have payroll periods that are semimonthly, monthly, weekly, and biweekly.
Generally speaking, schedules that are considered frequent have the tendency to be a lot pricier and more complex, which can be a huge burden for your accountant, and simultaneously, affect benefit premiums.
However, a vast majority of employees want to be paid more often. Furthermore, when crafting a payment calendar, you need to take into account holidays, quarterly tax dates, and annual tax filings.
Calculate Gross Pay
Every worker has their own salary, hence you as their employer must calculate their gross pay separately. If your worker is regularly salaried, then this calculation is not going to be complex, because you’ll deal with the same calculation every paycheck.
On the flip side, as soon as something changes when it comes to this, you’ll need to calculate gross pay differently. If you have an hourly employee, then this whole process is going to be a little bit different, especially if they log fewer hours than usual, or if they work extra shifts (because these shifts also must be paid).
Pick A Payment Method
Have you decided how you are going to pay your staff? If you haven’t, then that’s the next thing to do. There are several options at your disposal, pay cards, paper checks, and direct deposit. Keep in mind that the more payment alternatives you provide the bigger expenses you’ll have as far as running a payroll is concerned.
Make Deductions
If you successfully calculate gross pay, then the next step that’s supposed to be taken is to make deductions from their income, such as Social Security, taxes, contributions, healthcare, 401(k), and other things.
It’s worth mentioning that things like Social Security and taxes are obligated and they apply to every worker. On the other hand, other things like deposits into retirement accounts are optional, which means that not every employee must have them.
If you want to make sure that you are correctly managing payroll, then you need to keep things very organized.
Send Net Pay To Your Workers
Now that you’re done with gross pay and deductions, the only thing that’s left is net pay, which represents the amount of money your employees are going to get. As previously mentioned, there are different options when it comes to transmitting cash, and it’s up to you to decide which one you are going to use.
Although there’s no doubt that payroll software is extremely beneficial for businesses of all types, according to some reports, we can expect to see some upgrades in the future that are going to make this tool even more flexible and useful.
