Payroll for your business does not have to be a difficult task. If you want to learn how to manually process payroll, you have a few possibilities.
We’ll walk you through each process step by step, as well as which option is ideal for your company, in the sections below. Please keep in mind that the information provided here is only for educational purposes. If you require specific counsel, consult a professional.
How to do payroll taxes
The federal, state, and local taxes taken from an employee’s paycheck are known as payroll taxes. Among them are income tax, Social Security, and Medicare. You’ll need to know the current tax rates to figure out how much your payroll tax should be. The Social Security tax rate, for example, will be 6.2 percent in 2020, while the Medicare tax rate will be 1.45 percent.
How to process payroll by yourself
Summary: Doing your company’s payroll yourself saves money, but it takes time and is prone to mistakes.
If you’re good with numbers, you might be able to pay your employees and independent contractors by yourself. However, given the potential for payroll errors (and the resulting fines), make sure you’re entirely satisfied with what you need to do before diving in.
To get started, follow these steps:
Step 1: Have everyone fill out a W-4 form.
Employees must complete Form W-4 to establish their filing status and keep track of personal allowances in order to be paid. Employees with additional allowances or dependents had less payroll taxes deducted from their pay stubs each pay period. You must file a new hire report for each new employee you recruit.
Step 2: Look for or register for Employer Identification Numbers (EINs).
Make sure you have your Employer Identification Number (EIN) ready before you start doing your own payroll. Similar to how an SSN is used to identify individuals, the IRS utilizes an EIN to identify a corporation and anybody else who pays employees. You can apply for an EIN on the IRS website if you don’t already have one. You may also need to obtain a state EIN number; for additional information, consult your state’s employer resources.
Step 3: Decide on a pay schedule
After you’ve gotten your EINs, gotten insured (don’t forget workers’ comp), and put up workplace posters, you’ll need to mark your calendar for three important dates: employee pay dates ,due dates for tax payments and filing deadlines.
Step 4: Determine and deduct income taxes.
When it’s time to pay your employees, use the IRS Withholding Calculator and your state’s resource or a trustworthy paycheck calculator to figure out which federal and state taxes to withhold from their pay. You must also keep track of both the employee and employer portions of taxes as you go.
Step 5: Pay your employee’s payroll taxes.
When it comes time to pay taxes, you must submit your federal, state, and local tax deposits, as appropriate (usually on a monthly basis).
Step 6: Submit tax forms and W-2s for employees.
Finally, remember to file your employer’s federal tax return (typically every quarter) as well as any state or local taxes that may be required. Last but not least, remember to prepare your yearly filings and W-2s before the end of the year.
How to process payroll using a payroll service
If the DIY option isn’t for you, payroll services make it easier for small business owners to pay their employees and get back to their core business functions.
Most payroll providers compute employee pay and taxes automatically and submit your payroll taxes and filings on your behalf to the Internal Revenue Service (IRS) and your state’s tax department(s).
Step 1: Select a payroll service that offers a full range of services.
If you don’t know how to perform payroll yourself, payroll software can help you avoid mistakes and fines. Many payroll processing providers will take care of your payroll taxes, filings, and new hire reporting while also allowing you to finish payroll online. Signing up takes only a few minutes, and you can begin processing your own payroll the same day.
Step 2: Fill in the blanks with your employees’ names.
Before you can handle their payroll, you must first set up your employees. It’s usually faster to add employees you’re paying for the first time;
If you’re switching payroll providers, you’ll also need to upload your current employees’ year-to-date payroll information. In either case, you’ll need to input employee names, addresses, and phone numbers. Tax withholding information, as well as social security numbers.
Step 3: Keep track of your working hours and import them.
The US Department of Labor requires employers to maintain track of salary data such as timecards for up to two years. Certain states may have lengthier retention periods; make sure to check your state’s unique rules.
Step 4: Complete your initial payroll run.
You’re done when you click Send.
Step 5: Maintain a record of your tax payments and filings.
The Internal Revenue Service (IRS) requires that tax forms be retained for three years. Certain states may have lengthier retention periods; make sure to check your state’s unique rules.
How to process payroll by hiring an accountant
Consider employing an accountant if you don’t want to learn how to conduct payroll for your company or use a payroll service. A qualified accountant can process your payroll and ensure that all of your tax payments and filings are completed.