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Payroll is an essential function of any business. As an employer, it’s your job to ensure your workers are compensated correctly and on time. From tracking hours worked to calculating employee wages, your responsibilities can be overwhelming. That’s where payroll systems come into play.
Payroll software helps automate the entire payroll process so you don’t have to complete every step manually. Understanding the methodology of payroll systems, the costs associated with payroll, how to set up a system, and how to find the best software solution can be the difference between an intuitive, efficient system and one that causes headaches every payroll period.
Every business with employees needs a system to track employee hours, deal with deductions, and issue accurate and timely payments to workers. You can handle payroll manually or implement an automated payroll system to deal with all the necessary tasks involved.
Processing payroll manually can be a massive drain on time and resources for a growing small business. You’ll do the following by hand:
If you’re trying to handle payroll and run your business, it’s easy to become overwhelmed.
Editor’s note: Looking for the right payroll service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
Payroll technology automates all the necessary requirements for accurately running payroll. It can do the following:
Most importantly, payroll technology allows you to run your business instead of spending time on administrative tasks.
In addition to handling everything on your payroll checklist, many payroll companies provide a 100 percent accuracy guarantee. If there’s a mistake, the payroll company takes responsibility, and your company isn’t on the hook with the IRS.
The payroll process can seem daunting, especially with your first small business. However, after partnering with a payroll provider, buying payroll software or otherwise setting up a payroll system, your payroll process will be streamlined.
You have several options when it comes to payroll processing:
You may find that less expensive payroll options suit your small company’s needs. However, to ensure you’re filing taxes accurately and efficiently, larger companies should consider payroll providers or software.
If you’re leaning toward hiring an accountant, learn how to find an accountant with the skills your small business needs.
If you’d prefer outside help with your payroll, evaluate the following crucial considerations before choosing a payroll service:
Payroll providers offer a seamless solution by automatically calculating deductions and gross and net pay. Additionally, all the necessary paperwork is in one place, easily accessible to all employees.
When setting up a payroll system, take the following steps:
Once you’ve decided on a payroll provider, your employees must complete the necessary forms during onboarding. Here are some payroll forms you should be familiar with:
When choosing a payroll schedule, consider what works best for your business and employees. Some standard payroll periods are monthly, semimonthly, biweekly and weekly. More frequent schedules tend to be more expensive and complicated, burdening accountants and often impacting benefit premiums. However, most workers prefer being paid more frequently.
When building your payment calendar, you must also consider quarterly tax dates, holidays and annual tax filings.
When deciding how frequently to run payroll, consider that companies with more hourly employees may need to run payroll more often. Federal and state laws also cover payroll frequency, so you should review the regulations in your area.
You must also decide how you plan to pay your employees. Payment can be made in the form of a paper check, direct deposit or pay cards. Consequently, the more payment options you offer, the more it will cost to run payroll.
Ask your employees if they prefer direct deposit or direct deposit alternatives like pay cards. While 93 percent of employees prefer direct deposit, this method requires a bank account, which not every employee may have.
To avoid issues with the IRS, you must calculate payroll withholdings to ensure you deduct the correct taxes from employees’ paychecks each pay period. You’ll need to deduct various taxes, including state and federal taxes.
Tax implications vary by state, but you might expect to pay these contributions:
Once you have a better idea of what you need, it’s time to research and evaluate the best payroll service for your business. Consider the following excellent options:
Payroll service costs vary widely. It’s crucial to assess your needs and set a budget to determine the right system. Payroll services typically have two cost structures: monthly payments and per-payroll payments. However, per-payroll payments are falling out of favor these days, and monthly pricing models are becoming standard.
Monthly pricing models include a base fee and a per-employee fee (sometimes just the latter). Base fees range from $35 to $170 monthly, while employee fees run about $5 to $20 per employee per month. A flat monthly fee allows for unlimited payroll runs at no extra cost.
Did you know? If you have contractors or 1099 employees, you can often pay them at no additional cost to your business.
While the best payroll companies charge for their services, free solutions may be ideal. Some options are Payroll4Free.com and eSmart Paycheck.
Before choosing a free payroll provider, assess your needs and choose a service that meets your business and industry requirements. Many free providers are situation-specific, providing services to international companies, businesses employing independent contractors and very small organizations.
Like setting up any business software, learning payroll systems depends on the company and its platform. Most popular payroll systems are highly intuitive and provide training and points of contact for basic support.
Payroll software automatically calculates and deducts state and federal taxes from your employee’s wages. It also handles payroll tax support, payments to the government and payments for your team’s taxable fringe benefits.
One of the primary advantages of working with a payroll software provider is not having to worry about taxes, tax laws and employee taxation changes. Payroll companies have team members dedicated to monitoring these subjects and implementing changes in your business. This kind of attention can keep you compliant, and you don’t have to spend time sifting through tax law.
Payroll functions both in an HR and finance capacity. It involves finance because payroll is one of your business’s overhead costs. Payroll is also an HR function because it involves tracking workers’ hours, time-off requests and benefits.
Many payroll services integrate with your existing time and attendance software and HR management tools. Some companies — like ADP — provide their own versions of these services to bundle with your payroll offering. (Read our ADP Payroll review to learn more.)
If you already work with an online payroll provider and want to switch to a new service, you can do so with minimal headaches.
The best time to switch is usually at the end of a quarter or the beginning of the year, but this is not a set requirement. Before switching, talk to your new payroll provider (or prospective service) and ask for advice.
Based on your business’s specific situation, it could make sense to ask your new payroll provider about the best time to switch, what information should be prioritized in the move, and how long the switch will take.
Here is some basic information you should have available when you switch:
Additional information or circumstances may be specific to your company’s situation. Talk with your new payroll provider to make the switch as seamless as possible.
With the right payroll provider, you’ll barely have to think about paying your team promptly and accurately. The same goes for withholding the correct taxes or plan premiums to comply with regulations and keep your employee benefits intact. Choose a platform that offers all the features you need while falling within your budget, and you’ll no longer work to make payroll happen. Instead, you’ll make payroll work for you and your team.
Max Freedman and Sammi Caramela contributed to this article.