Paying staff is one of the most crucial tasks that a corporation can perform. It is critical to have a properly managed payroll system to correctly calculate overtime, gross pay, deductions, and net pay. Additionally, it is crucial to document all payments and general ledger adjustments.
If you’re not a professional accountant or have no experience processing payroll, the process can be complex and costly if not done correctly. Outsourcing to an accredited professional can save you time and money in the long run. Running payroll is a critical component of any business. But calculating and processing payroll manually can be time-consuming and difficult.
Using a payroll service can help your business avoid mistakes that can lead to expensive penalties. Read on to learn how to process payroll in 8 easy steps: collect time cards (or electronic forms), calculate gross pay, determine deductions, and calculate overtime.
Set Up Your Payroll Software
Payroll processing takes up much time for businesses that do it manually. It includes calculating each employee’s gross pay, determining deductions and allowances, filing payroll taxes, and delivering checks or direct deposits. However, when companies use a payroll service provider, these calculations are made automatically and can be reduced to just a few minutes.
It’s essential to have a system to handle these tasks, which mitigates risk and vastly improves your business operations. For example, decide how often you will pay your employees, such as weekly, biweekly, or semi-monthly, and establish a method for tracking work time. Also, determine if you will provide workers with paid sick and vacation time.
Set Up Your Payroll Taxes
Additionally, it is crucial to document all payments and general ledger adjustments. It involves collecting and tallying employee hours, preparing tax forms, and distributing paychecks. Before processing payroll, you must set up your deductions, allowances, and other withholdings.
It includes determining the income taxes, Social Security, and Medicare amount that must be withheld from each employee’s pay. You must also set up your weekly, biweekly, or semi-monthly payroll schedule. Finally, you must establish your federal and state tax ID numbers. This step is essential for accurate and on-time tax payments and filings.
Set Up Your Payroll Deductions
When processing payroll, it’s essential to understand what deductions are being taken out of each employee’s paycheck. Depending on your business, this may include taxes, health insurance, retirement contributions, or other beliefs. This step can take time, mainly if you calculate everything by hand.
However, if you have a spreadsheet that stores and organizes your income and deduction information, it can take just minutes. Once you have all your deductions and gross pay amounts, you can determine each employee’s net pay. Then, you can pay them and distribute their pay stubs. It is a crucial component of managing your business. Errors during this process can cost you money and leave your company liable for penalties.
Set Up Your Payroll Withholdings
Once you’ve collected employee timecards, it’s time to start calculating and processing payroll. This process involves withholding the appropriate taxes from employees’ paychecks, preparing and filing payroll tax returns, and distributing pay stubs. It’s also essential to establish the pay schedule. Most small businesses choose to process payroll biweekly or semi-monthly.
Processing payroll is a necessary task that requires proper accounting and compliance with federal and state laws. A professional payroll service can help mitigate the risk of mistakes that could cost your business significant fines and penalties. In addition, a professional payroll company can save you time and money. Patriot’s online payroll has a simple three-step process and offers free USA-based support.
Set Up Your Direct Deposit
Direct deposit is one of the most used ways to pay employees. It eliminates the need to buy check stock, print payroll checks, and deliver them by hand. It also saves time and money on postage and envelopes. Employees will generally need to fill out a direct deposit form that includes their routing number, account, bank names, and the type of account (checking or savings). Some employers may require additional details like their home address and email. Once the forms are received, it can take up to two pay cycles for direct deposits to kick in. So make sure to set this up well before your first payroll date.
Set Up Your Payroll Checks
A crucial component of every firm is payroll. But when carried out manually, it may be time-consuming and prone to mistakes. That’s why many companies choose to use a payroll and HR provider.
You need to know your employees’ net pay—their gross wages minus payroll deductions to print paychecks. It includes federal income tax, Social Security and Medicare withholdings, health insurance premiums, garnishments, and FICA contributions. Next, you must record each employee’s paycheck in your general ledger. It will create a liability account called accrued payroll. You can then distribute the paychecks to your team members by hand or mail. You can also provide them with electronic pay stubs if you prefer.
Set Up Your Payroll Tax Payments
It’s essential to remember that calculating payroll and properly withholding taxes takes time. It’s also a legal responsibility that requires compliance with federal, state, and local laws.
For businesses with employees, the process includes the following:
- Collecting employee time and attendance data.
- Calculating wages based on wage rates and hours worked.
- Distributing paychecks.
- Submitting tax payments to government agencies on behalf of the employer.
It can take considerable time, especially for large companies with multiple locations or locations in more than one state.