Are you getting ready to hire your first employee? You’re going to have a lot to manage as you interview, hire, and train your new hire.
One of the things that you can’t overlook is paying your employee. You’re going to need to run payroll to pay your employee.
More than half of employees have had errors on their paychecks. Some of the mistakes cause employees to look elsewhere for work. You need to know how paychecks work so you don’t make these mistakes and lose employees.
How do paychecks work? Read on to find out.
How Do Paychecks Work?
You know that a paycheck is employee compensation for work already performed. The one thing that you’re responsible for is tax withholdings.
When you hire an employee, you collect Form W-4, which an employee fills out. This tells you how much you should withhold in federal income taxes.
When you calculate paycheck, you take the gross pay and subtract all tax withholdings. That gives you the net amount that the employee is paid.
At the end of the year, you give employees and the IRS Form W-2. This form has the total amounts earned and withheld during the year.
Payroll Taxes and Laws
Many business owners get lost in all of the laws around hiring, firing, and paying employees. There are a few sets of laws that you need to worry about.
There are federal and state payroll tax laws. These laws require you to pay your payroll taxes and submit the taxes you withhold from employees to the IRS and state tax authority.
Then there are state and federal labor boards. These laws govern how often employees should get paid, how to handle payroll mistakes, and whether or not you need to distribute a paycheck stub to each employee.
Both tax and labor agencies strongly urge you to maintain payroll records. At a minimum, you need to track the pay period, how much the employee earned, the taxes withheld, and the net payment.
Make Payroll Easier
Are you thinking twice about hiring a new employee because paying them seems like a huge headache? Don’t be intimidated, there are plenty of tools and systems that you can use to help you run payroll fast.
If you have a couple of employees, you don’t need to invest in an expensive solution. You just need something simple that does the job. You also want to upgrade from using spreadsheets.
Check stub creation services fit for your needs. You just enter the salary or hours worked, and they take care of the rest.
Ready to Cut Your First Paycheck?
You need to grow your business, but there are many hidden costs to hiring an employee. Now that you know how paychecks work, you can be prepared to hire and scale your business.
How do paychecks work? You calculate the net earnings, tax withholdings, and pay your share in payroll taxes.
Check out the Forms and Templates section of this site for forms to help you hire your next employee.
