For any business, payroll processing is necessary to ensure legal compliance and proper payment of taxes, wages, and benefits. While you can process your payroll by yourself, using payroll processing software or hiring a payroll service can relieve you of the burden involved. To start processing your payroll, the U.S. Internal Revenue Service (IRS) requires you to have an employer identification number (EIN), which identifies your business for tax purposes. With that in mind, here are some insights into a payroll checklist for small businesses.
Why Do You Need a Payroll Checklist?
Depending on the number of employees you have, processing payroll can be a daunting task. As such, there are high chances of making mistakes such as:
- Failing to include new hires
- Including former employees
- Calculating benefits, taxes, wages, and deductions incorrectly
- Omitting important details
Typically, making such errors will not only arouse problems in your business accounts but will also amount to legal non-compliance. One way to avoid such problems is to create a payroll checklist that will guide you through every step of payroll processing.
Essential Components of a Payroll Checklist
The following are the steps you should follow when processing your payroll to avoid errors:
- Review your workforce – Any changes in your workforce will directly impact your payroll. That said, check for changes in employee addresses, terminations, new hires, pay changes, and update your payroll accordingly.
- Complete and submit timesheets – While the U.S. Department of Labor does not define full-time employment, a typical U.S. full-time employee works for 35 to 40 hours per week. Therefore, complete the timesheets for full-time, part-time, and freelance employees as required.
- Enter additional payments – Apart from wages and salaries, include additional payments such as bonuses, benefits, retro payments, and commissions to calculate gross payments.
- Review taxes and deductions – The federal government requires every U.S. resident to pay taxes on their earnings. Therefore, you need to deduct taxes from your employees’ income dependent on their state of residence and tax requirements. Additionally, you should deduct health insurance premiums, workers’ compensation insurance premiums, and retirement contributions, among other deductions. Once you deduct these costs from the gross payment, you will be left with the net payment that every employee is supposed to receive.
- Review net payments and disburse them – Before making the actual payments, you need to review every detail in your payroll once again. This is because a slight mistake can cost you and your business huge fines and penalties.
Information Needed to Process Payroll
As mentioned earlier, you should have an employer identification number before you can process your payroll. Additional information and accounts needed for payroll processing are as follows:
- Tax identification numbers
- Tax information for all employees, including part-time workers and freelancers
- Remuneration details for employees
- Schedule for payment of taxes, wages, and benefits
- Payroll budget account
- The necessary federal and state withholding accounts, which include workers’ compensation insurance accounts and a new hire reporting account
- Direct deposit information for employees where applicable
With the right payroll checklist, you will be able to process your payroll correctly and keep accurate records of your accounts. Looking for no-cost financial consulting? Contact the professionals at Economic Development Collaborative. Our qualified business advisors are here to help your small business grow even during the pandemic.