Small business owners are often asked to wear many hats. But one of the most overlooked pieces is how to manage payroll. Small business owners rarely have the funds to staff an HR department to handle it all, so it typically comes down to the owner to try and cobble something together in their spare time.
However, payroll management doesn’t have to be fraught with challenges and other headaches as long as there’s a bit of up-front planning. Once you have all the information and documentation in one place, it’s easy to run payroll once a week, twice a month or whenever you need to.
How the Payroll Management Process Works
While payroll can essentially be done by anyone with the right information, managing payroll is much easier when you’re prepared. It’ll save you tons of time on the back end, but it does mean spending some additional time up front.
Here’s what that might look like.
Step 1: Gather the Information
The first step in how to do payroll yourself is to gather all the relevant information. Things like employee names, addresses and pay rates, but don’t forget taxes, retirement contributions and other deductions. You’ll need a W-4 (or W-2) from each worker, as well as the pertinent state income tax withholding forms and an I-9 for employment eligibility.
You’ll also need to enter your business’ tax info such as an EIN and state tax ID number, in addition to your payroll schedule (weekly, bi-weekly and monthly). If you won’t be printing checks, make sure to gather the pertinent banking information from your employees.
Step 2: Calculate the Gross Pay
After the initial setup, it’s time to calculate the pay. Salaried workers will be easy enough, but if you have any hourly or contract workers, you’ll have to figure out what is owed to each. Grab the timesheets or invoices, making sure to account for any overtime or time-and-a-half that you might owe, and add everything in. If you have time clock software, you may be able to automatically export the data, otherwise you’ll have to enter it all manually.
Step 3: Enter Deductions and Calculate Net Pay
From the gross pay that you calculated in step two, the next step is to figure out all the deductions and tax withholdings for each of your employees. Each state does this a little differently, so this is where you’ll have to look into the proper deductions and considerations for your state. Things like Social Security, Medicare and FICA are all automatic deductions that come out of the gross pay, and so do certain state deductions.
In addition to employee taxes, employers also have to pay federal unemployment tax, state unemployment tax, half of Social Security and Medicare taxes and any applicable local taxes.
Step 4: Balance Your Books
After you’ve calculated all the amounts and relevant taxes, make sure it all balances with your accounting software. In addition to giving you another place to verify all the work before the money leaves your account, balancing your books is an important piece of managing payroll yourself.
Step 5: Cut the Checks
The only thing left to do now is to cut the checks. You’ve done all the work and verified it, so now it’s time to send those payments out.
But even if you use direct deposit, you’ll still have to create some paystubs to go along with the payments you’ve made. Paystubs are used by your employees and contractors to qualify for loans and other products and services, and they’re even legally required in some states. If you’re in a pinch and need to create some paystubs, we can help you out.