Payroll processing is simply part of running a robust business. However, unless you are an HR expert, the requirements and regulations may be sending you several directions at once. You may be tempted to take shortcuts; however, thorough payroll processing ensures that all your employees get paid promptly and accurately.
If you utilize the following steps and remember how important accuracy is, you will have a solid pay-management structure that helps keep your company afloat instead of sinking it.
What Is Payroll Processing?
So what is payroll processing? Put simply, payroll processing is the act of compensating your talented employees for all of their hard work. To do this, you not only must pay employees on time, but also factor in accurate deductions and benefits, commit to a specific pay period and ensure that employees are always paid according to that pay period.
How Is Payroll Processed?
1. Create or Find Your Company’s EIN
The EIN, or employer identification number, is how the government locates your company within its database. They use it to make sure you are within compliance. If you don’t know your EIN or need to set one up, contact the IRS.
2. Compile Employee Tax Information
You will need to have state and local tax forms as well as an I-9 and a W- 4 for all associates (including yourself). Also, make sure you have everyone’s deductions information, including benefits as well as payouts for retirement and health plans. Garnishment documentation will be required for employees who owe money for back taxes or child support settlements.
3. Decide on a Payroll Schedule
Paying out weekly, monthly or somewhere in between is a matter of what works best for your company. Frequent payments tend to be more motivating for workers but more labor intensive for you. A calendar should be used to keep track of paydays, holidays and taxation requirements.
4. Determining Gross Pay for Each Employee
This is a fairly straightforward calculation: hours X pay rate + overtime = gross. Overtime is a federally mandated rate of 1.5 X pay rate X every hour over the 40-hour work week.
5. Calculating Net Pay for Each Employee
This formula is gross – deductions = net pay. It is a bit trickier than gross pay because of all the deductions involved:
- federal taxes
- state taxes
- local (city and county) taxes
- Social Security
- health insurance
- workers’ compensation
- 401(k) contributions
- other deductions (regional or personal)
6. Pay Employees and Keep Records
There are a wide range of payment methods from cash to mobile wallet. Direct deposit is still the most popular.
The important thing is that your payment method is dependable and your transaction records are flawless. If you do pay cash, employees should sign for it in the presence of at least two people.
The Importance of Careful Payroll Processing
Maintaining the confidence of your staff is key to any business. Your best workers may have been loyal to you for years. However, if they sense financial uncertainty within the business, they may question their future and start seeking out other opportunities.
To keep your employees confident in the company’s everyday operations, accuracy in payroll is key. Workers who can’t count on the accounting department to do its job may wonder how the rest of the business is faring.
You should also consider common legal issues. One of the top five lawsuits against companies by employees is wage law violation. This is a 77% increase over previous years.
The good news? All of this can be avoided by ensuring a transparent and smooth payroll processing system!
Payroll Processing: Ensuring That Employees Are Paid What They Deserve on Time
Payroll is not some nebulous science. It is simply a job that needs done. With a little hard work and a steady method in hand, you will get it done for your workers, your government and your business.