When starting a small business, you need to start thinking about more than just the products or services—you also want your payroll paid on time. There are many different types of payroll software options out there and it can be hard to figure out which one is right for you. This article highlights some common questions that come up when deciding whether or not to use them as well as how they work in general
If you are just starting your small business, there is no need to worry about payroll software. You can simply use a cash register and pay employees by hand. However, if you are already in the process of running your small business, then payroll software is an option that should be considered. Read more in detail here: payroll software for small business.
Payday is usually a happy occasion for most individuals. It is, however, a major cause of worry and aggravation for many small companies and startups that are just getting started.
Why? Payday implies payroll, which is complex and time-consuming. Small company owners reported spending more than six hours each month on payroll taxes, according to 20% of respondents. Some employees said they spent more than 10 hours each month, or three work weeks per year, simply dealing with payroll.
Fortunately, automating payroll makes things a lot easier—especially if you’re a first-time company owner. Here are four reasons why you should consider purchasing payroll software as soon as you open your doors.
1. Whether it’s a salary or an owner’s draw, you want to calculate your compensation correctly.
Paying yourself should be as simple as writing a check and depositing it, right? (or, even better, simply direct-depositing money into your account). However, depending on your organization form, business strategy, and years in operation, there are many methods to pay yourself.
Here are the major kinds of owner payments to be aware of when you choose how you want to pay yourself for the first time:
Salary
A salary is a regular payment made to your employee(s), who may also be you. You should pay yourself a salary if you own a S or C company and are engaged in day-to-day business operations.
S and C corporation owners must ensure that they are paying themselves a fair wage as an employee. Of course, the term “fair” is subjective, but it usually refers to paying yourself what you would earn in a similar position at a different business.
Payroll taxes kick in when you start paying yourself a salary, and a payroll service can help you make sure you’re deducting the right amount.
The owner’s sketch
LLCs, single proprietorships, and partnerships may all benefit from an owner’s draw. It’s exactly what it sounds like: a method for business owners to take money out of their company for personal purposes.
In a few instances, this payment type varies from a salary:
- It’s more adaptable. You may pay yourself whatever you want, whenever you want (as long as your company has the funds). This makes it an excellent choice if your cash flow is erratic and you need to retain more money in the company during the slow season, for example.
- You are not immediately taxed. Owner draws are not taxed at the moment of withdrawal. Keep in mind, though, that you must pay taxes on them when filing your individual return.
2. You don’t want to be responsible for calculating and paying your own payroll taxes.
When individuals complain about taxes, they usually focus on the money side of things. For small company owners, however, sorting out all of their tax obligations is frequently the most difficult aspect. Many payroll systems, fortunately, can make life simpler by automatically deducting the proper amount of taxes and submitting them.
Payroll taxes were clearly the second-most onerous tax in terms of administration and expense, according to the National Small Business Association’s (NSBA) 2018 Small Business Taxation Survey.
Why are payroll taxes so inconvenient? Let’s have a look at a few of them:
- Businesses must pay a variety of agencies and authorities.
- The filing deadlines for each of these agencies are different.
- After your workers are paid, you must pay payroll taxes within a certain period of time.
- Regulations at the state, federal, and municipal levels are always changing.
- Your audit risk increases if you take an owner’s draw.
That’s before you factor in additional complications like having workers in different states or having to pay incentives or overtime.
Yes, even if you’re the only employee, payroll taxes must be paid.
If you’re the sole employee, you’re not exempt from liability. There are no specific exemptions for “solopreneurs” or single owners from the IRS. You’ll need to deduct the proper amount and make payments to the IRS (and typically a state tax body) at least once a quarter after you start paying yourself a regular paycheck.
If you pay yourself via an owner’s draw, keep in mind that the money will be taxed on your individual tax return.
3. As you hire contractors (and ultimately employees! ), you’ll want to remain compliant.
Hiring individuals to assist you with your company may make your life both simpler and more difficult. On the one hand, more assistance may free up time for you to focus on your company. When it comes to hiring contractors and workers, on the other hand, there are a lot of regulations to follow.
A payroll service may assist you in many ways:
- Reports on new hires are being sent out. Many states require you to give them information such as your new employee’s name, address, Social Security number, and date of employment within 20 days of hiring them (or sooner). Many payroll software providers, fortunately, can submit new hire reports to the state on your behalf.
- Obtaining papers for new hires. Don’t bother with filing cabinets or desktop folders. Not only can payroll software assist your new employees in filling out federally required documents like I-9s, W-4s, W-2s, and 1099s, but it can also keep all of those records organized for quick access.
4. You don’t want to make any errors with your payroll.
Some errors, such as typos on your website, are humiliating but easily corrected. Other errors, such as making a payroll error, have real-world consequences.
For errors companies made with their employment taxes, the IRS fined nearly $5 billion in fines in the 2017 fiscal year. Furthermore, certain payroll errors may result in a tax audit.
Rather of spending hours pouring through figures and paperwork, consider using payroll software to assist you in avoiding errors such as:
- Payroll rules and regulations are not kept up to date. One of the most significant benefits of payroll software is that it allows you to keep up with changing state and federal regulations (like the 2017 tax reform, for instance). As a result, you don’t have to be concerned about getting fined for breaking the law.
- Employees are not being paid properly. When you have workers, you must ensure that you pay them on a regular basis and in the right amount (which includes amounts for any accrued sick time or vacation, depending on where you are located). Otherwise, your employee(s) may file a lawsuit, and your company license may be revoked. By automatically paying your workers and keeping track of each payment, payroll software may help insulate your company against wage disputes.
- Not having the appropriate reports on file. As previously said, you’ll need to maintain different papers on hand for a set period of time in addition to filling them out whenever you employ someone new, process payroll, or figure out how much tax you owe. Filling out forms using a centralized provider, such as payroll software, allows you to keep them organized and ready to use whenever you need them.
What to look for in a decent payroll solution for small businesses
Different payroll companies provide different services, however most may assist you with the following:
- Payroll tax calculation and filing
- Forms for new employees are being filled out.
- Determining the amount of payroll deductions
- Employees (including yourself!) must be paid.
- Taxes de retenue
- End-of-year tax returns
- assisting you in avoiding the most frequent payroll errors
- When you have tax deadlines to fulfill, we’ll send you an alert.
- Getting W-2s and 1099s ready
- Employee records management in general
When searching for a payroll service, bear in mind that you have a lot of choices. You don’t have to use a costly payroll solution designed for companies with hundreds of workers. Today, there are a number of small-business-focused providers whose primary aim is to make payroll simpler at a cost that won’t bankrupt your company.
However, time is money, and payroll software may help you save time that can be used to expand your business. But, more significantly, it may restore the pleasure you used to have when payday arrived.
If you’re just starting your small business, then you may not need a payroll software. However, if you are already running a company and want to do payroll yourself for free, then it’s time to start looking into options. Reference: how can i do payroll myself for free.
Frequently Asked Questions
Does a small business need payroll?
A: A small business can be a sole proprietorship, partnership, or corporation. The owner of the company is responsible for paying taxes using payroll and other forms of income including donations and investments. If you are self-employed then it is up to you to pay your own taxes on these types of earnings.
Do I have to use payroll software?
A: You definitely dont have to, but payroll software is usually the most popular choice. Its easy to use and saves time for your business.
How do I start payroll for a small business?
A: You can start payroll for a small business by signing up on the Employment Portal.
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