Is payroll a pain? Or maybe you're just getting started with employees and want to make sure you're doing everything on the up-and-up. Here's a quick guide to making your business payroll as pain-free as possible.
Classify your workers as employees or contractors
The way you classify your workers determines whether you pay employment tax and withhold other taxes from their pay. You'll need to select the appropriate classification when you send a job offer, and making the right choice is critical. The IRS can levy hefty fines and penalties on companies that classify workers as contractors when they really should be employees. Not sure how to classify your workers? Check out this post.
Classify employees as exempt or non-exempt
If you've determined that your workers are employees, you'll need to classify them as exempt or non-exempt in your payroll system. Many people mistakenly think that exempt = salaried and non-exempt = hourly. As it turns out, the Fair Labor Standard Act (FLSA) has more nuances that most people realize. It's a common mistake to classify a salaried employee as exempt from overtime pay, only to find out that the employee doesn't actually fit the definition of exempt. Again, your business can get into deep trouble by making a mistake in this area. Learn all the ins and outs on the Department of Labor's site, or speak with your accountant.
Collect the right paperwork during onboarding
At a minimum, there are four basic forms you need to collect when you bring on a new employee, and ideally you do so on the employee's first day of work.
- Form W-4 for federal income tax withholding
- Form I-9 to verify employment eligibility
- Job application, even if you already have a resume on file. The job application will give you permission for reference and background checks, and also requires the employee to sign off on his or her listed experience and education. As an employer, you're protecting yourself from fraudulent claims made by an applicant.
- State withholding and registration. You'll need to look at your state's specific requirements for forms and income tax. Your payroll system may include the appropriate forms.
Implement a user-friendly time sheet process
Another big payroll pain point: employees fall behind on time sheets, and you have to track them down in order to run payroll. We always recommend that our clients use a time tracking software that's integrated with the payroll system. Most importantly, that time tracking software needs to be easy for employees to use, or they won't use it.
As you think about time tracking, it can be tempting to ask your employees to track every little detail. However, the more information you ask people to submit, the more onerous you make the process—and the more likely people are to fall behind or not track their time at all. Think through what you're going to do with the data you're collecting. What is the minimum information you need in order to run payroll and, for service-based companies, bill your clients?
Use a cloud-based payroll system with all the latest tax updates
We recommend Gusto as the payroll system of choice to all of our cloud-accounting clients. Gusto is easy to use, always up to date, and allows for automation for salaried employees. Small businesses with at least 5 employees can also offer benefits. Gusto's simple time tracking tools integrate seamlessly with your payroll, and everything rolls into Xero for more efficient bookkeeping. We've tried a lot of different payroll systems, and nothing comes close to the efficiency and user-friendliness we found in Gusto.
Remit payroll taxes in a timely manner
You already know you need to remit the payroll taxes withheld from your employees' paychecks to the IRS, right? It may be difficult to believe, but we see businesses failing to remit payroll taxes in a timely manner all the time. This is another area where you business can quickly find itself in BIG trouble. Do not fall behind on remitting your payroll taxes!
Is payroll still too painful?
In addition to cloud-based accounting support, we offer full-service outsourced bookkeeping. Contact us today to get started.