A lot goes into running payroll smoothly to ensure people get paid on time and that there are no mistakes that could bring hefty fines from the IRS.
This payroll guide looks at frequently asked questions, starting with the basics.
Payroll refers to the revenue a company must provide its employees for a specific time frame on a designated day. An accounting or human resource department within a company usually handles payroll. In the case of small businesses, the owner or a trusted associate may directly manage the payroll process.
In addition to compensating employees, payroll encompasses the taxes employees are responsible for paying, such as withholding taxes. Commonly referred to as Pay-As-You-Earn (PAYE) taxes, these are the taxes that employers deduct from each employee's wages. The federal, state, and local governments determine income tax withholdings.
In addition to Social Security and Medicare, employees and employers must contribute to payroll taxes. The Internal Revenue Service (IRS) specifies that the current tax rate for Social Security is 6.2% for both the employer and the employee, totaling 12.4%. Similarly, the current rate for Medicare is 1.45% for both the employer and the employee, summing up to 2.9%.
The unemployment tax is another essential payroll tax. The unemployment tax aims to compensate employees who have lost their jobs. Federal and state systems have been established to ensure the collection of these taxes.
Discover the crucial reasons why proper payroll management is essential for your business success:
Paying Employees
Organizations must ensure that their employees get paid promptly and accurately, and a reliable payroll system can help. Failing to provide employees with their complete salary or hourly wages not only amounts to stealing from them but also violates the law. The U.S. Department of Labor, Wage, and Hour Division has established a comprehensive set of guidelines that cover various aspects, including minimum wage, paydays, overtime pay requirements, permissible deductions, and employee exemptions. Failure to adhere to these regulations can result in severe consequences for employers, such as compensating employees for back wages, paying waiting time penalties, covering attorney fees, paying liquidated damages, and potentially facing criminal or civil penalties.
Withholding and Filing Taxes
The federal government requires businesses to set aside a portion of each paycheck for the employer and employee. These withholdings cover Social Security, Medicare, Unemployment, and Federal Income Tax. Additionally, employers have the responsibility to pay state income taxes and state unemployment and disability taxes. Certain states may sometimes request additional taxes, like a job-training tax. It is crucial to fulfill these tax obligations as failure to do so may lead to mild penalties, gentle reminders or requests for payment against the taxpayer's property, and even potential tax audits.
Compliance
Filing payroll taxes comes with its own set of rules and regulations at the federal and state levels. Failure to file on time could result in substantial fines or penalties. Additionally, any mistakes made with an employee's pay must be promptly corrected to avoid liability. Maintaining compliance is of utmost importance. Businesses must collect a W-2 form from each employee and submit it to the Social Security Administration by April to steer clear of any legal issues with the IRS.
If you plan to process payroll independently, be wary of outdated practices like paper filing that can lead to inaccuracies and penalties. Online payroll services help make sure payrolls run smoothly and can remove headaches when tax season arrives.
Here is an in-depth, step-by-step guide on how to process payroll. Below are the basic steps for setting up and processing with the tools necessary for maintaining accuracy and compliance.
Step 1: Setting Up Payroll
Gather Essential Payroll and Tax Information: Before processing payroll, gather all essential information, such as Employer Identification Number(s), employee paperwork, payroll schedules, and more.
Review Employee Compensation: Review and document employee compensation terms, considering total hours worked, overtime, PTO, and deductibles.
Step 2: Paying Employees
Most businesses pay employees with printed paychecks or by direct deposit based on a pre-determined pay schedule. Employees may also get earned wage access through on-demand pay services.
Step 3: Keeping Payroll Records and Reporting
Keep Records. Many federal and state laws require employers to keep and maintain records for specific periods, including W-4 forms, filing tax forms, and deposits. Online payroll services are a great way to keep up with all of the forms for tedious tax requirements.
Report Payroll Taxes. There are many payroll tax reports that employers are required to submit quarterly or annually. State tax agencies will have information for specific tax filing requirements.
There are multiple strategies to efficiently handle payroll. Discover which payroll process is suitable for you below.
Manual Payroll Processing
With a manual payroll process, an individual or group is responsible for all payroll calculations, direct deposits, and check printing. Maintaining meticulous records and devising a reliable system to compute each payroll payment accurately is essential.
One of the most significant advantages of manual processing is the cost-saving aspect. Unlike automated systems, there is no need to invest in software or pay someone else to handle payroll tasks. However, it's essential to consider the value of your own time and the duration of the payroll process. You might discover you're not saving money in the long run.
Here are a few more downsides associated with manual processing:
Outsourcing Your Payroll
Outsourcing payroll means using software or service to manage all aspects of the payroll process, including taxes. This option offers the least involvement on your part, but it comes at a higher price.
Tips On How to Choose a Payroll Service Provider
Outsourcing payroll allows businesses to focus on growing and managing their business. So how do you choose a payroll service provider? Here are a few things to keep in mind.
Excellent Customer Service
Check out review sites like G2 Business Software Reviews to compare companies and read reviews. You may consider companies with excellent customer service and smooth implementation processes. Look for comments about how simple the payroll solution is or if companies offer setup assistance, training, and support.
Essential Payroll Features for Your Business
Make sure the solution you choose has essential features necessary for your business. For example, you may need accessible reporting tools, multiple payment options, PTO management, or tax credit assistance.
Payroll Integrations with Systems Already In Use
Is it necessary for your payroll solution to integrate with time and attendance or performance management tools? Look for a payroll company that will integrate payroll with your existing systems to avoid duplicate tasks using multiple tools.
Schedule a Payroll Solution Demonstration
When in doubt, check it out. By scheduling a demo, you can have the payroll service provider walk you through their tools and what implementation will be like if you choose to use their company.
Why Should a Company Switch Payroll Providers?
As businesses grow and encounter negative experiences, they often reach a point where it becomes clear that switching payroll providers is necessary. Discover the four most common reasons why businesses choose to make this switch:
When is the best time to switch payroll companies?
When switching payroll companies, there is no specific "optimal time" to make the change. Many people prefer to switch payroll providers at the end of the year. It is possible to seamlessly transition even in the middle of the year with help.
Is it hard to switch payroll companies?
Switching to a new payroll company doesn't have to be a daunting task. However, certain companies are more adept at managing these transitions than others. Payroll migration and poor customer service are the two significant challenges you might encounter when navigating the process of changing payroll companies. Get to know more about these two challenges with our Is it Hard to Switch Payroll Companies for more details.
How do I choose a new payroll provider?
When searching for the perfect payroll provider to cater to your business's requirements, it's crucial to consider several factors. Here are a few essential questions you might want to ask:
Get the full scoop with Proliant's How Do I Choose a New Payroll Provider.
Staying on top of evolving payroll trends is not merely a matter of compliance; it is a strategic imperative offering many benefits to forward-thinking organizations. Embracing the latest technologies and automation tools enhances operational efficiency. It also reduces the risk of costly errors, ensuring accurate and timely payroll processing. Implementing employee self-service portals fosters a culture of transparency and empowerment, contributing to higher job satisfaction and retention rates. Vigilance in adhering to compliance standards shields businesses from legal consequences and establishes a foundation of trust with employees.
Moreover, the ability to navigate globalization challenges ensures that organizations can seamlessly expand their operations across borders, tapping into new markets without compromising payroll accuracy. By harnessing analytics and business intelligence derived from payroll data, organizations gain valuable insights that can inform strategic decision-making, enabling them to optimize costs, adapt compensation models, and cultivate a more agile and resilient workforce. Ultimately, staying at the forefront of payroll trends is an investment in any modern business's long-term success, resilience, and competitiveness. Let's dive deeper into the Top 9 Payroll Trends in 2024.
How do I find rules and regulations for my state?
The U.S. Department of Labor provides information on all rules and regulations for payroll requirements, including state payday requirements and minimum wages.
What is the difference between an online payroll service provider and PEO?
Payroll companies and professional employer organizations (PEO) can help manage your payroll and other HR functions. The main difference is how much control you maintain over your business. When you outsource payroll to a payroll company, you retain autonomy. In contrast, a PEO will partner with a co-employment arrangement. As a result, your business operates under the PEO's FEIN instead of your own.
Learn more in the Proliant payroll blog: What is the difference between a payroll company and PEO?
Employers must deposit and report employment taxes regularly, typically quarterly for most businesses. In addition, employers withhold taxes from their employees and are required to pay their share of taxes, which are called employer payroll taxes. These taxes include Social Security, Medicare, and state and federal unemployment.
These duties include:
By fulfilling these responsibilities, you avoid penalties and fines and ensure that your employees receive their total wages without any discrepancies. Additionally, you can use the financial reports generated to analyze your business's payroll expenses and make informed budgeting and resource allocation decisions.
