56: What Every Business Owner Needs To Know About Payroll Whether You Are Starting A Business, You
56: What Every Business Owner Needs To Know About Payroll Whether You Are Starting A Business, You Are Self-Employed, A Solopreneur, Entrepreneur, Small Business Owner, Remote Online Bookkeeper, Virtual Assistant Or VA
When you own your own business and you have employees, or you are planning on hiring employees, you need to have a basic understanding of payroll. You must have this understanding whether you are going to process your own payroll, or you are going to hire someone to do your payroll for you. You, as the business owner are ultimately responsible for everything related to payroll in your business. There is a lot to know about payroll, but once you have the general understanding, it is pretty simple to understand. If you have questions regarding payroll for your business, this episode is going to be perfect for you. I am going to cover the essentials that every business owner needs to know about payroll. Have you found yourself asking these questions: What is the difference between an independent contractor and an employee? What are my payroll reporting requirements? How do I know how much to pay my employees? What are the minimum wage requirements? How do I remit my employee’s payroll taxes? What are employer payroll taxes? How do I prepare a W2 for my employee? What is the best payroll solution for me to process payroll? Or, how can the ADP payroll solution help me in my business? In today’s episode, I dive deep into these questions and more. I want you to ensure you fully understand the implications of payroll in your business. If you don’t have any employees yet, understanding how adding payroll to your business will be extremely important. Not only will you have an employee you are responsible for, but the expenses that come along with that employee will definitely have an impact on your bottom line. Whether you are just getting ready to start your small business, you’re a solopreneur, entrepreneur, small business owner, remote virtual online bookkeeper or virtual assistant, I’ll help you understand the basics of payroll. Understanding payroll doesn’t have to be complicated, so let’s get started so that I can break it down and simplify it for you today…
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Show Notes:
When you own your own business and you have employees, or you are planning on hiring employees, you need to have a basic understanding of payroll. You must have this understanding whether you are going to process your own payroll, or you are going to hire someone to do your payroll for you. You, as the business owner are ultimately responsible for everything related to payroll in your business. There is a lot to know about payroll, but once you have the general understanding, it is pretty simple to understand. If you have questions regarding payroll for your business, this episode is going to be perfect for you. I am going to cover the essentials that every business owner needs to know about payroll. Have you found yourself asking these questions: What is the difference between an independent contractor and an employee? What are my payroll reporting requirements? How do I know how much to pay my employees? What are the minimum wage requirements? How do I remit my employee’s payroll taxes? What are employer payroll taxes? How do I prepare a W2 for my employee? What is the best payroll solution for me to process payroll? Or, how can the ADP payroll solution help me in my business? In today’s episode, I dive deep into these questions and more. I want you to ensure you fully understand the implications of payroll in your business. If you don’t have any employees yet, understanding how adding payroll to your business will be extremely important. Not only will you have an employee you are responsible for, but the expenses that come along with that employee will definitely have an impact on your bottom line. Whether you are just getting ready to start your small business, you’re a solopreneur, entrepreneur, small business owner, remote virtual online bookkeeper or virtual assistant, I’ll help you understand the basics of payroll. Understanding payroll doesn’t have to be complicated, so let’s get started so that I can break it down and simplify it for you today…
Welcome Back…When I am having conversations with my clients about payroll, I always tell them that payroll is totally different from all the other aspects of bookkeeping they do for their business. When you add and employee to your business and start paying them, you need to have a good understanding of how payroll works within your business. Knowing all the responsibilities payroll brings to your business is an essential part of being a business owner because no matter how you have your payroll processed, you, as the business owner, are ultimately responsible for your payroll obligations.
First, let’s touch on the difference between an independent contractor and an employee. An independent contractor is technically a self-employed individual. They are contracted by you to perform the service you agree on, they normally have their own business, and they are responsible for paying their own taxes. An employee on the other hand is when you hire an individual to work for you. You are responsible for withholding taxes and providing benefits. As the business owner, you normally have more control over an employee than an independent contractor.
When you are ready to hire your first employee, you need to make sure you have your Federal and State ID numbers set up and you’ll need to get the proper information from your employee. You will have your employee fill out a W4 form and an I9 form to get this relevant information and make sure they are eligible to work for you. These forms will dictate how much you should be withholding for payroll taxes as well. You may have other state or local requirements that need to be met, so make sure you check with your state for any additional requirements. Make sure you are up to date on any minimum wage and overtime regulations by checking into The Fair Labor Standards Act and set your rate of pay for your employee as well as any benefits you may be offering to them.
Before you start paying your employees, you will need to set up a pay schedule. Will you be paying your employees on a weekly, bi-weekly, semi-monthly or monthly basis? Once you have this established, you will follow this schedule so that your employees are paid on a timely basis. You will start by calculating your employee’s gross payroll. This is done by taking the number of hours they have worked and multiply these hours by their hourly rate. When you calculate your employees net pay, you will start with their gross pay and then take into consideration any federal, state and local payroll taxes that need to be deducted. You will also deduct Social Security and Medicare taxes. These taxes will be paid by both your employee and you as the employer. If you have any additional deductions, you will take these into consideration as well when calculating your employees net pay.
Now that you’ve deducted payroll taxes from your employee’s paycheck, you need to make sure you are remitting these taxes on time. Payroll taxes are what most business owners struggle with. Any payroll taxes you withhold from your employees will need to be paid to the appropriate agency and will need to be paid on time. There are specific due dates that you need to follow when you are paying your payroll taxes and they are based on the total payroll taxes you need to pay. Not only will you remit the payroll taxes withheld from your employee’s paychecks, but you will also need to remit your employer’s portion of the Social Security and Medicare taxes as well. Both the employer’s taxes and the employee’s taxes will need to be paid according to your payroll tax deposit schedule.
You as a business owner will have your employer’s portion of the Social Security and Medicare payroll taxes that are accumulated with each payroll you process. Additional employer taxes also include Federal and State Unemployment taxes as well. These taxes are collected to fund unemployment insurance and are based on your employee’s gross payroll. These additional employer payroll taxes are normally due at the end of each quarter and may have reporting requirements depending on your state.
At the end of each quarter, you will be required to file the necessary quarterly reports needed for your business. The Federal 941 form reconciles the amount of Social Security, Medicare and other taxes paid with the total tax due. You will more than likely need to file a similar report with your state for any state and/or local income taxes withheld as well. These reports will let you know if you under or over paid any of your payroll taxes.
At the end of each year, you are required to file an annual Federal 940 report which reconciles your Federal Unemployment tax paid with the total tax due. You will likely have a state report that will reconcile your yearly state and local income taxes. You will also need to issue a W2 for each employee which will show how much you paid your employee as well as how much was withheld from their paychecks for taxes and any other deductions. These W2 forms will be sent to the Social Security Administration, your state and your employees. All of your payroll reporting is done on a calendar year basis, and everything is reset at the beginning of the next year.
Adding payroll to your business is a big responsibility, and you want to make sure you are doing it right. If you are thinking that you need additional help with your payroll processing, make sure you get the help you need. Most business owners do not process payroll entirely on their own. They utilize a payroll solution to help keep them in compliance, make sure their payroll is calculated correctly and their employees and taxes are paid on time. Another benefit of using a payroll solution is offering direct deposit to your employees. Most employees utilize this option, and some may even ask for you to provide it to them as an additional benefit.
If you are looking for a payroll processing solution for your business, I recommend looking into ADP’s solutions. ADP has been one of the leading payroll processing solutions for years. Some of the main reasons I feel ADP works for so many small businesses are: #1: Simplified set up. Once your payroll has been set up, running your regular payrolls is actually pretty simple. The key here is proper set up. Making sure each employee has the appropriate information entered so that the correct deductions are made is important. You want to make sure your paychecks are calculating correctly and your employees are paid the correct amount. #2: Ease of use. Having a payroll solution that you can log in from anywhere you have an internet connection so that you can process your payroll on your time will be important. You also want a system that is easy to understand when you are entering your employees time so that it doesn’t take you lots of extra time out of your day. #3: Integration with your existing bookkeeping system. Here is another reason I really like ADP for processing payroll. You can integrate your payroll with your bookkeeping system to save data entry. For example, you can integrate your QuickBooks Online with your ADP payroll system and as soon as you finish processing your payroll, ADP will post the transactions directly into your QuickBooks Online software. This eliminates any additional time it would take for you to not only process the payroll, but to also add these entries in your bookkeeping software. It saves you or your bookkeeper time, and time is money, right? #4: Automatic payroll tax payments and compliance. When you use ADP as your payroll provider, all you need to do is process your payrolls and ADP takes care of making sure all your payroll taxes are paid to the correct agencies. They also keep you in compliance with all your required payroll tax reporting and W2 processing. This eliminates you taking time out of your busy day to do this reporting on a quarterly and yearly basis. #5: Security. When you are processing payroll, you have extremely sensitive data from your employees, and you need to make sure you are keeping this information safe. By utilizing ADP, they have strict protocols in place for security. They currently help over 900,000 businesses with their payroll processing, and they will make sure your data is safe as well. #6: The ability to grow with your business. If you decide you want to add a 401K plan or need additional HR services, ADP has many resources for you. When you are just starting out with your first employee, you may not need these services, but you want to make sure you have a solution that will grow with you and your business when you decide to add additional options to your payroll.
I have used ADP to process payroll for my bookkeeping business for years. If you are looking for a solution for your business, if you need help with your year end payroll tax reporting, or if you have a bookkeeping business that you would like to find a better way to manage payroll for your clients, you can go to www.FinancialAdventure.com/ADP for more information. I have a form that you can submit so that you can save 15% off your ADP payroll processing services. I am working closely with ADP to make sure you are able to get this exclusive savings as a benefit for listening to this podcast, as well as any additional promotions they offer. If you have any questions, you know you can reach out to me by going to https://www.financialadventure.com/contact-us - I personally respond to all my messages and I would love to help you with any questions you may have.
Payroll can be stressful, but my goal is to help you eliminate stress when you are mastering your small business finances so that you can enjoy doing what you love most in your business. If you haven’t received your 5 Essentials For Stress Free Bookkeeping Guide, you can go www.FinancialAdventure.com/5Essentials to grab your free copy. I’ll post links for these and other valuable resources for business owners and bookkeepers where you are listening to this podcast and in the show notes.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.
