Getting a small business up and running is an exciting but incredibly busy time for entrepreneurs. They need to build the foundation of their company, making sure that they have the staff and resources necessary for long-term viability.
Fortunately, their lives can be made easier with the adoption of a payroll system. This service can assist a company with the accurate payment of employees' wages to help ensure there are no unwelcome surprises on workers' paychecks at the end of a pay period.
There are a number of payroll services a business owner can choose from, some of which might be better suited for their company than others.
Here are five tips to help entrepreneurs set up an effective payroll system for their company's needs:
1. Establish a Compliant Foundation
One of the first steps startup leaders will want to take is to set the groundwork for regulatory compliance. Running into legal trouble early on could have a devastating impact on up-and-coming companies. A first step is to contact the Internal Revenue Service to receive an Employer Identification Number, otherwise known as an Employer Tax ID. Some businesses, depending on their state or municipality, may also be required to get a region-specific tax ID.
2. Identify Company-Specific Needs
Before selecting a small business payroll service provider, company leaders should create a list of what they are looking to get out of the system. Small Business BC advised entrepreneurs to account for the ability to track payroll metrics, direct deposit needs and basic tax and salary calculations for individual workers. Ultimately, startup leaders will want to choose a provider that offers a comprehensive service suited for their company’s' unique characteristics.
3. Classify Workers
There are differences between independent contractors and employees, and it is crucial for entrepreneurs to be able to classify workers correctly. As the U.S. Small Business Administration pointed out, knowing the distinction affects how companies should withhold income taxes, pay unemployment taxes and withhold Medicare and Social Security taxes.
Centripetal Consulting Group offered a general rule of thumb to help company leaders: Employees are individuals over whom the business has authority in terms of what they do and how their work is accomplished. Contractors, on the other hand, are not necessarily under the company's jurisdiction with regard to how work is performed.
4. Stay Organized with Records
Small business finance teams should create an organizational system to help keep track of important documents. The U.S. SBA noted that companies have a legal obligation to keep certain records for designated periods of time. It is especially important for businesses to keep hold of their W-4 and W-2 forms, copies of tax forms and dates of all tax deposits.
5. Invest in Small Business Payroll Services
Payroll services can be an invaluable asset to small businesses. These programs can improve operational efficiency, help keep employee records organized, and provide enhanced security.
Human error often results in inaccurate database entries when companies handle their payroll systems manually. With payroll services, startup leaders can ensure that data is reliable. Additionally, electronic services prevent the need for keeping track of piles of physical employee records, which can be unnecessarily time-consuming to sort through. The minimization of operational costs afforded by payroll software can make it a more cost-effective solution than most traditional methods.