Highlights
- Payroll processing for small businesses can often feel overly complex and stressful.
- With a reliable partner taking over their payroll function, businesses can ensure compliance with tax and labor regulations and have more time to focus on activities that drive growth.
- At CertiPay, we provide payroll and HR solutions to help businesses thrive. Contact us today to learn more.
Running payroll for your small business can feel overwhelming. From collecting employee information to calculating taxes and deductions, there are a number of tasks you need to keep in mind.
This payroll checklist serves as a clear roadmap to navigate the challenges and ensure smooth, accurate payroll processing.
Let’s dive in!
Small Business Payroll Checklist
1 – Obtain an Employer Identification Number (EIN)
Before you can even start processing payroll, you need to obtain an Employer Identification Number (EIN). This unique nine-digit number is assigned by the IRS to identify your business entity and is required for various tax-related tasks.
Applying for an EIN online is free and only takes a few minutes. You need to provide your business’s legal name, address, and type of entity.
2 – Collect Employee Information and Forms
As an employer, you’ll need to collect specific information and forms from each employee before processing their first paycheck. This involves:
- W-4 form, or Employee’s Withholding Certificate. This determines the amount of federal income tax to withhold from an employee’s paycheck. Employees must complete and sign this form when they start a new job or if their personal or financial situation changes significantly.
- I-9 form, or Employment Eligibility Verification. This verifies an employee’s identity and legal authorization to work in the United States. Both employer and employee must complete and sign this form within three business days of the employee’s start date. Employees must provide acceptable documentation to prove their identity and employment eligibility.
- Personal information from your employees.
- Full legal name
- Social Security number
- Contact information
- Banking details for direct deposit
- Benefits enrollments (such as health insurance or retirement plans)
3 – Choose a Payroll Schedule
The most common payroll schedules are weekly, bi-weekly, semi-monthly, and monthly. Choosing the right one for your small business will depend on your employee preferences, your business’s clash flow, compliance requirements, and the nature of your business.
4 – Calculate Gross Pay
Determine the total amount that your employee will earn before any deductions or withholdings. The method for calculating gross pay varies depending on whether an employee is paid hourly, receives a salary, or earns commissions.
This step also involves considering PTO (Paid Time Off) and other applicable earnings such as:
- Overtime pay
- Bonuses, tips, and commissions
5 – Calculate Deductions and Withholdings
Deductions are amounts subtracted from an employee’s gross pay. They can be mandatory or voluntary.
Tax withholdings
One of the most significant deductions from an employee’s gross pay is tax withholding. This involves:
- Federal income tax
- State and local taxes
- Social Security tax (FICA): this includes Social Security and Medicare taxes, both employer and employee contributions.
Benefits contributions
Many employers offer benefits such as health insurance, retirement plans, and life insurance to their employees. These benefits often require contributions from both the employer and the employee. The employee’s portion of these contributions is deducted from their gross pay.
Common benefits deductions include:
- Health insurance premiums
- Dental and vision insurance premiums
- Retirement plan contributions (401(k), 403(b), etc.)
- Life insurance premiums
- Disability insurance premiums
The amounts of these deductions vary depending on the specific benefit plans and the employee’s coverage selections.
Other deductions
In addition to tax withholdings and benefits contributions, there may be other deductions from an employee’s gross pay. These can include:
- Wage garnishments (court-ordered deductions for things like child support or unpaid taxes)
- Union dues
- Charitable contributions
- Parking or transportation costs
- Uniform or equipment costs
Employers should be aware of any mandatory or voluntary deductions and ensure they are properly calculated and withheld from the employee’s pay.
6 – Calculate Net Pay
After determining the gross pay and applicable deductions, the next step is to calculate the net pay, which is the amount employees will receive after all taxes and other withholdings have been deducted from their gross earnings.
7 – Pay Employees
Once you’ve calculated the net pay for each employee, it’s time to distribute their wages. There are several payment methods available, and the choice depends on your business’s preferences and capabilities, as well as your employees’ needs.
Direct deposit is probably the most popular and convenient option for paying employees. To set up direct deposit, you’ll need to collect each employee’s bank account information, including the routing number and account number.
8 – Maintain Payroll Records
Record-keeping not only helps avoid penalties and fines but also provides valuable documentation in case of audits or disputes.
Small businesses should keep the following payroll records:
- Employee information
- Timesheets – Detailed records of hours worked by each employee, including regular hours, overtime, and any paid time off
- Pay stubs
- Tax records – Copies of federal and state tax returns, as well as records of tax deposits and payments
- Payroll registers – A comprehensive record of all payroll transactions, including wages, taxes, and deductions for each employee
- Employment agreements and policies
Reduce Payroll Headaches with CertiPay
As a small business, you probably face unique challenges when it comes to payroll management. Whether it’s staff shortages, ever-changing tax regulations, or lack of expertise, managing payroll can be a time-consuming and stressful task.
But it doesn’t have to be.
At CertiPay, we provide comprehensive payroll and HR solutions to help your small or medium-sized business thrive. By taking the hassle out of processing paychecks, we enable you to focus on growing your company. Our payroll solution keeps your business compliant while ensuring effortless, timely, and accurate payment for your employees.
Ready to simplify payroll and reclaim your time? Contact us to learn how we can help.
