Doing payroll may seem extremely complex and difficult, especially if you do not have experience in this area. However, if you follow an organized payroll process, you can complete your payroll quickly and accurately.
The steps you must follow include getting your tax info and the tax info of your employees, calculating gross pay, calculating net pay, paying employees, and keeping accurate records. Finally, you have to be able to make adjustments to your calculations when necessary, such as when payroll tax laws are passed. Read on to learn more about the payroll process.
Input business tax IDs
The first thing that you must do when processing payroll is to input your company’s tax IDs. You likely already know about the employer identification number (EIN) you must get from the IRS. This can be obtained for free in a matter of a few minutes.
Depending on your company’s jurisdiction, you may also have to get state, city, or county tax IDs. You will likely only have to do this one time. You should be able to save this info in your payroll program so that you have it when you process payroll in the future.
Input employee tax info
After entering your company’s tax info, you should enter employee tax info. This info can be found on the W4s and I-9s the employees have to submit. These forms will tell you how many deductions and garnishments you must take out of each employee’s pay.
As with business tax info, you likely only need to put tax info in for each employee once and save it. However, you may need to make changes to their deductions or wage garnishments. Double-check to ensure everything is correct when changing employee tax info.
Calculate employee pay before deductions and taxes
Once you have all the tax info squared away, it is time to calculate the gross pay for each employee. This is how much an employee would get paid if they do not have to have deductions and taxes taken out of their wages or salary. If you are using a payroll application, it will likely calculate gross employee pay for you.
If you are doing payroll manually, all you have to do is multiply an employee’s pay rate by the number of hours they worked (if they are an hourly employee). If they are a salary-based employee, all you have to do is pay out the same amount of their yearly salary during every pay period.
Calculate net pay
Once you have calculated the gross pay for your employees, you must calculate the net pay for your employees. This means you must figure out the number of deductions and taxes you must take out of their gross pay.
The number of deductions and taxes you must take out of each employee’s pay may vary from pay period to period. This is because there may be changes in tax law, or employees may add or subtract deductions. This is one of the trickiest parts of processing payroll. You must do this step carefully to ensure you pay employees accurately.
Disperse payment
Once you have finished calculating the net payment amount for each employee, it is time to disperse the payment. There are many ways you can distribute payment. Some employees still get paid with old-fashioned paper checks. However, direct deposit is very popular these days. While direct deposit and paper checks are the most common methods of dispersing payment, they are not the only ways to pay employees.
Some companies pay employees using prepaid debit cards. However, these cards often have fees, so employees may not want to get paid this way. It’s also possible to pay employees in cash, although this is not recommended. This is because it is more difficult to keep accurate records when paying employees with cash.
Keep records
You must keep accurate records for each pay period. When it comes time to pay taxes for your businesses, you will need these records. You also need these records to show that you follow all applicable payroll laws.
Finally, these records will come in handy if you have a dispute over payment with an employee. You should keep payroll records for several years. Make sure you keep well-organized records to quickly find what you need if you need to access these records in the future.
Make adjustments when necessary
You must follow the same process to ensure your records stay organized, as you may need to make adjustments in the future. For example, you may need to change the method of dispersing payment.
You may decide to move from paper checks to direct deposits. You will also certainly need to change the deductions for some of your employees in the future. As long as you keep your records organized, making these adjustments will not be too difficult.
