So, you’ve embarked on your entrepreneurial journey and welcomed your first batch of employees. While setting up a payroll system for your startup might appear straightforward, it’s riddled with complexities that can trip up even the most seasoned bookkeepers.
Read on for our comprehensive guide to what startups need to know about payroll accounting to ensure it’s done accurately and on time.
Decide pay dates
Your first step as an employer is to set up your payroll process. It’s a safe bet that your employees want to know when their paycheck is coming, and these affordable payroll solutions will help you reassure them.
When it comes to setting up your payroll process, you have several choices: weekly, bi-weekly, or semi-monthly. Choosing the right one that suits your style of work and sticking with it can bring stability and confidence to your startup. As your business grows, considering outsourced payroll services to payroll outsourcing companies can further streamline the process.
In addition, you need to decide how you’ll set up your payroll. Will you issue checks or offer automatic deposit? When is payday? Is it the first and the fifteenth or another combination of days?
It’s a wise choice to know the answers to these questions before onboarding anyone.
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Set up payroll
Paying your employees includes much more than just paying for their invaluable hours and regular salaries; so many other things go into it. It may also include all of the following:
- Any monthly or end-of-year commissions/bonuses
- Overtime pay
- Health insurance
- Other benefits such as paid holidays, sick leave, and vacation pay
- Payroll taxes that include federal and state income taxes, unemployment, worker’s compensation, Medicare and Social Security
- Your businesses’ share of payroll taxes
Keep in mind that some of the aspects mentioned above are location-specific, underscoring the importance of staying abreast of the ever-changing rules and regulations.
Classify employees
Another thing to note is what constitutes an employee. Why? It’s because you’ll need to know this before paying the taxes. You need to know who is paid hourly and, therefore, eligible for overtime for hours worked over the standard 40-hour work week. You also need to know who is salaried even though they are exempt from the Fair Labor Standards Act.
Knowing who might be an independent contractor or freelance employee is also important. You certainly don’t want to misclassify an employee, as this can land you in hot water with the IRS. Knowing your employees’ classifications, such as overtime and unemployment insurance, is vital to their benefits.
Pay the taxes
Both you and your employees must pay taxes on their wages to the federal, state, and often local government.
You, not your employee, are responsible for making the actual payments. So, you must calculate and withhold income tax, Social Security, Medicare, and Federal Unemployment Tax each pay period.
You must then make the employees’ payments and contributions to each agency.
The bottom line is that payroll tax filing and reporting are your responsibility, not that of your staff. So, use one of the several payroll tax services that are ready to help you with this daunting task.
Have money on hand
Another essential thing to remember is that you must have money in the bank for online payroll processing to pay your employees and the associated tax payments.
Using the money set aside for payroll taxes can be tempting because it may sit in your account for several months before it’s due. Still, you can’t spend it on operating expenses. If you manage your payroll, set the funds aside until you can make the tax payments on your employees’ behalf.
Record payroll
Payroll accounting and record keeping ensure that the payment compliance services you provide your employees stay on track and continue without hiccups.
You must set up a payroll account in your chart of accounts list. You may also consult some small business payroll services to assist you as you set up your brand-new startup.
This ultimately helps you print reports and manage your money better.
Final thoughts
While you may have the best intentions regarding your payroll setup, maintenance, reporting, and accounting, it’s usually best left to people who handle it daily.
Why? These professionals stay current on the latest local, state, and federal regulations to ensure your legal compliance.
Be sure to research your options regarding payroll accounting, as mistakes can be costly. The average entrepreneur isn’t a payroll expert, and outsourcing is often a good option.
Feeling overwhelmed with payroll accounting? Don’t worry, Escalon has helped over 5,000 companies across a range of industries to optimize routine business functions, like HR and payroll, and operate more efficiently. We’re here to support you. Talk to an expert today.
