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Planning for Future Growth: Implementing Payroll Before It Becomes an Emergency

Payroll
Article
04/17/2018

Your business never stands still. You’re continually building it toward your vision of success. For many businesses, that means growth. But before you hire employees to take your business further, you’ll need to know how to process payroll in order to pay them correctly, on-time, every time.

You’ll need payroll as your business grows

Payroll is about much more than just signing checks. It’s a complex and time-consuming process. And as long as you have employees, it never ends.

You’ll need to understand tax withholding, minimum wage legislation, the Federal Insurance Contributions Act (FICA), the Fair Labor Standards Act (FLSA), IRS Forms 941, W-2, W-3, and more. And just when you think you have it all figured out, the rules could change.

These charts from the IRS1 may help demonstrate what’s at stake when you take on payroll yourself. For example, if you’re even a month late making your tax deposit to the IRS, it could potentially cost you hundreds to thousands of dollars in penalties, depending on how much you owed.

Failure to Deposit Penalty Percentage Rates for Unpaid Tax

Number of Days Late

Percentage Rate Underpayment

Penalty on $3,000

1 – 5

2%

$60

6 – 15

5%

$150

16+

10%

$300

More than 10 days after first IRS bill

15%

$450

 

Other Penalties

 

Rate

Maximum

Failure to File Penalty

5.0% per month of unpaid tax on the due date, reduced by the amount of failure to pay penalty for the same month

25%

Failure to Pay Penalty

0.5% per month of unpaid tax, then 1.0% per month after Notice of Intent to Levy

25%

With all of the complexity involved in processing payroll, along with the potential for hefty penalties, disgruntled employees, and high rates of turnover if you get it wrong, it’s not something you should put off for an emergency. Because that emergency could put you out of business.

That’s why millions of U.S. businesses outsource their payroll processing rather than doing it themselves.

So, how do you process payroll with a payroll company?

Start by budgeting for the payroll services you’ll need

Outsourcing payroll can be cost-effective, especially when you’re able to plan ahead and set aside a piece of your budget. Some points to consider include:

  • How many employees you may hire, now and in the future
  • How much tax and regulatory support you may need
  • How involved you want to be in the actual payroll processing
  • How, where, and when you prefer to contact client support
  • Whether you’ll eventually want to outsource time and attendance and HR

And perhaps most importantly, what is your peace of mind really worth?

Don’t force yourself into choosing a bargain-basement provider because of cost. In payroll, as in business, you get what you pay for.

In fact, the time you put into thinking through how you want to do payroll may end up saving you time and money, as you’ll keep more of your time doing what you do best.

Get your documentation in order

Once you know what you’re looking for in a payroll provider, have the following documents ready in order to make the transition as easy as possible.

  1. Proof of employer identification number (EIN) — Form SS-4; this is a letter the IRS sent you when you registered for your EIN – make sure you register for your EIN if you haven’t yet
  2. Signed and dated paperwork (The payroll provider should send these documents electronically once they receive your Form SS-4.)
  3. A voided check from your business bank account
  4. Employee information, such as names, addresses, and salaries.
  5. Proof of state withholding and state unemployment ID numbers — a copy of a state return would be best
     

This will help kick-start the onboarding process, so you can start processing payroll as soon as your first employee walks in the door.

Take the path to a better payroll process

As you research payroll providers, look for a company with experience. One that will take the time to get to know you and your business, and will be your partner for years down the line.

Remember, a little planning now could make a big difference for you, your business, and your employees each payday.


1 Source: https://www.irs.gov/pub/irs-pdf/p3151a.pdf

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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