How To Manage Payroll For A Small Business PEO & Human Resources Blog

Here’s a guide to help you learn what it takes to properly manage payroll for a small business. Hiring an accountant keeps your books up to date, ensuring financial accuracy. Besides payroll management, they handle tax deadlines and take on compliance responsibilities, steering you clear of penalties. An accountant can add tremendous value to a small business’s overall financial health and culture, fostering trust and financial stability.

• PEOs like Justworks are a good fit for small businesses with complex hiring and potential business liability—for example, if you hire international employees or have a lot of turnover.
• It’s also important to keep records of any agreements with vendors and suppliers, bank statements, documents showing payment of estimated quarterly taxes, and annual tax returns.
• Over a 52-week period, she worked in 26 weeks, for a total of 1032 hours.
• An updated and accurate profit & loss statement would give you an idea about your business’ profit on a monthly basis.
• In 2020 alone, the IRS assessed an estimated $6 billion in employer penalties for miscalculations or missed payments on employment taxes.

Establish any benefits programs that you will offer employees, such as retirement plans or health insurance. You’ll need to account for these deductions when processing payroll and send money to the correct benefits program. 1099 Workers, or “independent contractors,” are technically self-employed. They receive a contract that outlines their duties and job requirements.

Best Payroll Services

It also includes more advanced tasks such as the preparation of yearly statements, required quarterly reporting and tax materials. The importance of accounting for small businesses can’t be underestimated. Whether you’re starting a brand-new business or you have some experience under your belt, creating a solid accounting plan can help you monitor and maintain your financial health. The downside is that outsourcing means your business’s financial information is being viewed by someone else, which you may or may not be comfortable with.

The payroll policy must include information about the frequency explaining how often payroll will be processed, such as weekly, bi-weekly, semi-monthly, or monthly. Any wages or other forms of pay made to an employee are subject to federal income taxes. The taxes that are withheld are determined by several factors, including how much each employee is paid, the number of personal allowances an employee claims on Form W-4, and other details. It’s uncommon, but there are times where an employee may claim to be tax exempt. If this is the case, you don’t need to withhold any federal income tax from that employee’s wages. Managing payroll manually is a challenging, time-consuming task that often leads to errors.

Part of payroll management is setting up payment systems to disburse salaries and pay for expenses. Today, most small businesses use Internet banking services to transfer funds to their employees, but some still pay with checks. While some payroll management services offer bespoke solutions, most small businesses find their cost out of reach.

The 12.07% figure is based on the fact that all workers are entitled to 5.6 weeks’ leave. This means that a worker’s total working weeks in a year is 46.4 (52 weeks in a year minus 5.6 weeks of leave). Kevin would qualify as an irregular hours worker if his contract says that the hours he works will be wholly or mostly variable in each pay period. Kevin’s contract could be a ‘casual’ contract, otherwise known as a zero-hours contract. All references to ‘worker’ refer to all individuals whose employment status is either as a ‘worker’ or an ‘employee’, meaning they are entitled to paid holiday. Visit employment status for further information on employment status and definitions.

Key Benefits of Human Resources Information Systems

Many products can handle payroll tax filing and payments on your behalf, but you’re still ultimately on the hook for meeting those obligations. An employer should discount weeks 6, 23 to 25 and 46 to 48 in Table 9, which is 7 weeks, as there was no pay in these weeks, reflecting that the worker performed no work. As 7 weeks have to be discounted, the employer must go back a further 7 weeks to take the total to 52 weeks of pay data when calculating holiday pay for this period. Under the Employment Rights Act 1996, the holiday pay reference period starts from the last whole week ending on or before the first day of the period of leave. This will typically be a week from Sunday to Saturday, but it could end on another day of the week if a worker is paid on a weekly basis. Small businesses can take advantage of Monday.com’s free plan that provides two seats and up to three boards, making it great for small HR teams.

Make Tax and Benefits Payments

OnPay offers HR solutions, making it an ideal solution for small businesses looking for a home-based software for all of your business’s essential functions. A well-managed payroll system neatly houses all your payroll documents for easy access in those situations. Any tax professionals you bring in to help you answer an IRS inquiry letter will thank you for having an organized payroll system.

Why Your Small Business Needs Payroll

Robust reporting capabilities within the HRIS allow for in-depth analysis of payroll data, aiding in budgeting, forecasting and strategic decision-making. Sage HR provides small businesses and HR teams with affordability, scalability and adaptability. The platform offers cost-effective subscription plans that cater specifically to the budget constraints of small enterprises.

The payroll process can vary for each business, but there are some core functions that need to be completed with each payroll run. Our partners cannot pay us to guarantee favorable reviews of their products or services. Employers should still only count back as far as is needed to achieve 52-weeks’ worth of pay data if this is less than 104 weeks. Depending on which days she takes off as leave, it will either be 6 hours or 9 hours from her total leave entitlement. Her statutory entitlement in days is the lower of 28 days or 5.6 x 4 days (22.4 days). Paul would not qualify as an irregular hours worker if his contracted hours are fixed during both week 1 and week 2.

This simply means that you don’t withhold federal income tax for that employee. As a small business owner, you might not be an expert in what is days sales outstanding dso taxes—you’re an expert in your own industry. But, handling taxes is all part of knowing how to manage payroll for a small business.

How to Manage Payroll for a Small Business: The Easy Way

You might feel like a payroll clerk when you’re manually entering each employee’s hours every two weeks. A PEO payroll service is a co-employer that manages your employee data and other core HR activities for your company, including payroll. Adopting payroll software has long been proven to provide myriad benefits and companies will take full advantage of increased benefits in 2024 to improve the experience of their employees and payroll staff. The best payroll services offer core capabilities, ample software integrations and other key features that may or may not match your company’s current size and payroll needs. You can process payroll manually, outsource it or use a payroll service platform.