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Payroll Guide for Employers and Employees

Payroll Guide for Employers and Employees

Managing payroll can often appear to be an overwhelmingly large task, with numerous tasks to complete. But don’t worry, we’ve simplified it for you.

Five essential employer payroll responsibilities

No matter the size or complexity of the job, payroll can be simplified into five fundamental tasks:

  • Paying your employees’ wages
  • Calculating and paying their benefits, such as vacation, sick leave, insurance, and retirement
  • Deducting taxes on behalf of the federal and, potentially, state governments
  • Paying all payroll taxes (including some you owe as an employer)
  • Filing reports to show the government you’re doing all these things correctly

You’ll need a process to help you get everything right. You can break that process down to what you do at hiring (setting up the new employee in your payroll), what you do on payday, and what you have to do for the tax agencies.

Payroll setup tips

Before anyone starts working for your company, there are crucial housekeeping tasks that need attention. Taking care of these tasks is essential for maintaining a smooth operation and ensuring compliance with government regulations.

  • Learn the rules for paying salaries or wages. There are some common misunderstandings. Did you know, for example, that paying a salary doesn’t automatically excuse you from paying overtime? Check with the Department of Labor.
  • Get your employees to fill out an I-9 form and provide any supporting documents that it calls for. This is to prove they can work in the US.
  • Complete and send a “new hire” form to the state where you’re reporting the employee’s wages and taxes.
  • Ensure that your employees fill out a W-4 form, as it aids in calculating the appropriate amount of income tax to withhold from their paychecks. Additionally, reach out to the state tax office in the location where the employee works to determine if there’s a state-specific version of the W-4 form to be filled out. If your business is expanding to a new state, make sure to register with and report to the relevant state authorities accordingly. This proactive approach will help you stay compliant with tax regulations and ensure a smooth payroll process.

What to do on payday

To begin processing payroll, calculate the amount owed to each employee for the pay period, and then make the necessary deductions. These deductions encompass various benefits, like insurance or retirement contributions, as well as income tax withholdings. It’s important to note that not all payroll taxes are deducted from the employee’s pay; some employer payroll taxes are your responsibility to pay separately. Being mindful of both employee and employer payroll tax obligations will help you accurately manage and fulfill your payroll responsibilities.

After completing all necessary calculations and deductions, proceed to pay your employee. If applicable, update records of vacation and sick days. Finally, provide your employee with a pay stub that provides a comprehensive summary of all the calculations and details related to their payment. This ensures transparency and keeps everyone informed about their earnings and deductions.

Dealing with tax

You will have to pay tax to the government at federal and state levels. They will require you to:

  • file tax forms – forms like the 941 and W2 go to the IRS, but your state tax agency may have additional requirements, so ask them
  • pay taxes – including the money you withheld from employee pay, plus the payroll taxes you owe as an employer

Tax agencies usually provide businesses with a specific schedule indicating when tax payments are due. These deadlines can vary, with common intervals being quarterly or annually. However, some businesses may have to make more frequent payments, even on a weekly basis.

It’s important to note that there might be a significant time gap between when you collect tax from your employees and when you actually need to remit it to the tax agencies. To prevent accidentally spending these funds, many businesses opt to set up a separate bank account dedicated to holding the tax money until it’s time to make the payment to the tax authorities. This practice helps ensure that the required tax amounts are available when they are due and prevents any financial strain or issues with tax compliance.

Your payroll record-keeping obligation

If you employ a conventional bookkeeper, you’ll experience the challenge of locating somebody who’s the appropriate fit. The last thing you want is to overpay for somebody who’s too senior but at the same time, you want somebody who will be able to handle the essential tasks as your business continues to develop.

When you employ a virtual team, you’ll obtain support from individuals who represent different expertise areas and experience levels, implying that they’ll identify the best-suited team members for the task you need completing.

Tax agencies, like the IRS, have specific record-keeping requirements for businesses. It is essential to retain records for a minimum of four years. If requested, you should be prepared to furnish an employee’s personal information, copies of filed tax forms, details of tax payments, salary or wage amounts, expense reimbursements, and retirement payments.

For comprehensive guidance on record-keeping, refer to the record-keeping section of the IRS employer’s tax guide. Adhering to these record-keeping practices ensures compliance with tax regulations and simplifies any future audits or inquiries from tax authorities.

What are employee payroll responsibilities?

Before employees start working, they must complete a W-4 form and state tax form. The details provided on these forms are crucial for calculating the appropriate tax withholdings from their pay. Additionally, employees are obligated to inform you promptly of any changes in their circumstances that may impact their tax status.

Furthermore, it is the employees’ responsibility to review each pay stub carefully. Encourage them to verify the accuracy of their pay, benefits, and tax deductions. Regularly reviewing pay stubs helps ensure that everything is reported correctly, minimizing any potential discrepancies or errors. This collaborative effort between employers and employees ensures a smooth and accurate payroll process.

Payroll is what keeps business booming

For small business owners, payroll is a vital system that ensures accurate and timely payments to employees on scheduled dates. It involves numerous calculations, meeting deadlines, and completing various forms. Despite the complexity, managing payroll is a worthwhile endeavor, as it ensures your employees are compensated appropriately and on time. Just imagine how much busier you’d be without the support of your valuable team.

If you’re concerned about staying on top of payroll tasks, there’s no need to worry. There are resources and solutions available to assist you in streamlining and managing your payroll efficiently, allowing you to focus on running your business with peace of mind.

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