Did you know you can pay up to a 15% penalty not paying or filing your payroll taxes properly? For a small business, those penalties can break the bank.
A small business owner needs to understand the payroll processing workflow. Implementing a straightforward payroll process keeps you in compliance and doesn’t take up too much of your limited time.
Read on to learn about processing employee payroll and how to make it easy for your business.
What Is Payroll Processing?
Payroll processing is simply the act of inputting and documenting pay information. It includes entering all the employee data (name, address, hours worked, deductions, etc.), producing a paycheck, and filing payroll taxes.
Depending on the size of your company, this may take a few minutes or few hours. It has both financial and legal implications.
Processing Employee Payroll – Step by Step
Payroll companies will do these tasks for you, but the small business owner needs to understand the process outlined below.
Create a Payroll Policy
I know that this may seem unnecessary, but creating a comprehensive payroll policy will help you better understand local and federal labor laws and state overtime laws.
Don’t forget to include pay periods and dates in your policy.
Input Employee Information
Employees should complete both a W-2 and I-9 form when they are hired. All of that employee information is then entered into your payroll system.
If you have a direct deposit option, you will also want to collect employee consent and banking information. A note on direct deposit, it isn’t free.
Make sure you consider the number of extra fees associated with a direct deposit before you put it as an option in your payroll policy.
Create and Collect Employee Timesheets
You must keep accurate hours of your employees’ time electronically or via pen and paper. This information will be used to calculate your employees’ pay for a specific time period.
After you create and share the timesheets with your employees, you must collect them and enter the information into your payroll system. Again this can be done manually or electronically.
The Final Step – Process Your Employee’s Payroll
After all the policies are in place, and the data is entered, you must now approval payroll and submit it to your bank or payroll company for processing. This final check allows you to verify your process and ensure accuracy.
Consider having a second person review timesheets before they are submitted. It is a second check on your process and helps to prevent errors.
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