Your business has finally reached the point where you need to set up a payroll system for your employees. You’ve got the necessary federal and state credentials for depositing payroll taxes, but you haven’t done anything with them to date. Now you need to determine the instrument with which you pay employees, the frequency, and how you classify them. You also need a system that meets your needs and won’t suck up valuable time you could be spending elsewhere. Following are some tips to help you set up a smart payroll system that meets your needs.
Classifying Your Employees
There are two main classifications of employees by the federal government: independent contractor and employee. While you might use the words contractor and employee interchangeably, you only have control over someone who is classified as an employee. You can’t control the comings and goings of an independent contractor as long as they perform the work they’re assigned in a timely manner. When you hire someone as an employee, you are responsible for their FICA and state taxes. If you bring someone on as an independent contractor, they are responsible for their own taxes. You need to make sure your employees are classified correctly in your payroll software to avoid problems.
Paying Your Employees
Multiple payment options are available to you as an employer. There’s direct deposit, online payments through third-party providers, and even the check. The concept of using checks might seem outdated, but it’s still a viable instrument for businesses who only have a few employees. It can get expensive to use certain types of payroll systems to pay a handful of people, and checks are easy to print out on almost any printer these days. If you’re concerned about theft via counterfeiting, you can always use checks that have security features such as holograms that make it near impossible to counterfeit.
Using Software Versus Doing Payroll Manually
It’s still possible to do payroll by hand. You calculate your employees’ hours, then use the tax tables provided by the IRS and state taxing body for the deductions. The same goes for any benefits you might offer such as retirement or health care. But ask yourself if this is something you really want to do. Chances are good that you don’t.
Software has the advantage of speed and accuracy. The tax tables are programmed into the software and automatically make the deductions so you don’t have to wonder if you’re taking out the right amount of taxes. Don’t be afraid to spend some money on software, either. The better the software, the lower the potential for mistakes.
Payroll runs smoothly and quickly once you’ve decided on how you classify your employees and how you pay them. It’s a matter of entering the correct data into the software every pay period and checking over the reports to make sure you have the right deposit amounts for taxes. Pay attention to what you’re doing and you’ll find that your payroll runs smoothly each and every time.
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