How To Do Payroll For Your Small Business

When you run a small business and must focus on various facets in order to succeed, it can be difficult to keep track of the numerous labor and tax laws that apply to each of your employees.

However, calculating payroll for your business should not be a difficult task as you have a few options to consider whether you want to accomplish this task manually or use specialized payroll software. Well, in order to help you out and make things a bit easier for you, in the following sections, we’ll provide an overview of the steps involved in each process, as well as which option is best suited to your company. 

Please keep in mind that this content is intended purely for educational purposes, and if you want specific advice, it’s best to talk to a professional.

How to Process Payroll Yourself

Doing your company's payroll on your own saves money, but takes time and is prone to errors. To begin, follow these steps:

Step 1

Have each employee fill out a W-4 form. Employees must complete Form W-4 to document their filing status and keep track of personal allowances to be paid. The more allowances or dependents an employee has, the fewer payroll taxes are deducted from their paychecks each pay period. In addition, you must file a new hire report for each new employee you hire. Please keep in mind that there is a new version of the Form W-4 from 2020, so this is the form you should have new hires complete beginning January 1, 2020.

Step 2

Look for and register for an Employer Identification Number (EIN), as you need to ensure that you have your EIN ready before you start doing your own payroll. An EIN is comparable to a social security number for your business, and the IRS uses it to identify a business entity and anyone else who pays employees. If you don't have an EIN, you can apply for one at the IRS website. You may also need to obtain a state EIN; for more information, consult your state's employer resources.

Step 3

Decide on a payroll schedule. After obtaining your Employer Identification Number, obtaining insurance, and displaying workplace posters, you must add three notable dates to your calendar: employee payment dates, tax payment due dates, and tax filing deadlines.

Step 4

Determine and withhold your income taxes.

Then, when it comes time to pay your employees, use the IRS Withholding Calculator and your state's resource or a reliable paycheck calculator to determine which federal and state taxes to withhold from their pay. In addition, keeping tabs on every employee's wages can be difficult to organize. If you must keep track, it's better to organize them in a spreadsheet-database hybrid.

Step 5

Pay your payroll taxes. Paying payroll taxes is the fifth step. When it comes time to settle your taxes, you must submit your federal, state, and local tax deposits, as applicable.

Step 6

Submit tax forms and employee W-2s. Remember to send in your employer's federal tax return and any state or local returns that may be required. Finally, don't forget to prepare your annual filings and W-2s at the end of the year.

Alternative: Use a Payroll Service

Using a small business payroll provider is a low-to-medium-cost and dependable option. This is how it works:

Step 1

Select a full-service payroll company. If you don't know how to do payroll yourself, use payroll software to reduce the possibility of errors or fines. Many payroll processing services will handle your payroll taxes, filings, and new hire reporting for you, and you can complete payroll online. Signing up takes only a few minutes, so you can start doing your own payroll the same day you sign up.

Step 2

Fill in the blanks with the names of your employees. Before you can process their payroll, you must first set them up. Adding employees for the first time is usually faster; if you're switching to a new payroll provider, you'll also need to add your current employees' year-to-date payroll information. In any case, you must enter employee names, addresses, Social Security numbers, and tax withholding information. 

Step 3

Keep track of the hours you work and import them. The United States Department requires employers of labor to keep wage records, such as timecards, for up to two years. Certain states may have more extended retention requirements; be sure to check your state's specific requirements. 

Final Thoughts

This guide is meant to help you understand how to do payroll for your small business with the least amount of headaches. There are a lot of resources online, but it is hard to find them all in one place. We hope that this article will help future small business owners alleviate some of their payroll concerns and lessen their headaches over getting it right.