Does the thought of doing payroll yourself make your head spin? You’re in for a surprise.
Once you get the hang of it, payroll is like second nature. You just need the right tips and tools to get there.
Follow this guide on how to do payroll yourself, starting from square one.
How to Do Payroll Yourself Without Experience
It never hurts to take a course before jumping in the waters. Understanding the basics of accounting can make a world of difference.
Take an introductory accounting course at your local community college. Some Universities even offer free accounting courses through Coursera and edX.
For payroll training specifically, check out Lorman, Ashworth College, and the American Payroll Association.
Employees vs. Independent Contractors
Payroll is not a one-size-fits-all process.
Businesses with one employee will have a different process than mid-size companies. Some businesses exclusively use independent contractors, so they’ll have a different process as well.
Remember, independent contractors are self-employed, so they take out their own taxes. You aren’t responsible for payroll taxes either. These are called 1099 employees because they require a 1099 tax form.
Hourly employees are called W-2 employees. Unlike independent contractors, you are responsible for payroll taxes, worker’s comp, and unemployment benefits for each W-2 employee.
There are several elements to payroll. The payroll process for one employee starts the moment they’re hired and ends with their final paycheck.
The first step of payroll is to collect all necessary information from a new hire. This includes a copy of their ID, contact information, and social security number. You can obtain this information through your W-4 and l-9 forms.
Employees also enter how many dependents and allowances they have on their W-4. This impacts how much payroll taxes are taken out.
Paying Your Employees
Next, you need to choose a time clock system that works for you and your staff. Gone are the days of the punch card. Now, it’s all about time-tracking software.
Quickbooks has its own time-tracking system. If you only have one employee, you probably need nothing more than a spreadsheet.
Here are a few more time-tracking options:
You have to track the hours of W-2 employees. But it’s not necessary for 1099 employees.
Independent contractors can create paystubs for their own accounting and use time sheet apps to track hours. 1099 employees are also encouraged to use Quickbooks’ self-employment tax software.
You should also choose a pay schedule. Most businesses choose a bi-weekly schedule. This means employees are paid every two weeks.
Calculate and Pay Taxes
Before issuing a paycheck, sign up for an EIN number if you don’t have one already. Think of this as your company’s social security number. This number will appear on your employees’ W-2 forms.
Next, calculate the income tax for each employee. The IRS provides a free online calculator to help you calculate their tax withholding.
Go over everything with a fine-tooth comb to avoid any tax penalties!
Lastly, you’ll need to prepare your employees’ W-2 forms. Make sure to send these out at the start of the new year. The quicker your employees get their W-2’s, the quicker they’ll get their return!
Get Ready for Pay Day
Feel a lot more comfortable about taking on payroll? Keep this guide on-hand as you get used to the process.
Understanding how to do payroll yourself is just one piece of the puzzle. Discover even more resources to grow your business with the latest insider tips!