How To Manage Your Payroll - A Guide For SMB Owners

As the owner of an SMB, we’re sure you have a lot of tasks that can get repetitive and take up a huge chunk of your productive time. The problem is, a lot of these tasks, especially those that are administrative in nature, are crucial to your establishment’s functioning and cannot be sidelined. 

‍

SMB payroll management is one such task. Simply put, payroll management is the process of calculating how much your employees are owed and paying them either by direct deposits into their accounts or by issuing paychecks.

‍

The frequency of how often you will need to do this depends on your business policy. Some SMBs issue weekly payouts, some fortnightly, while others pay their staff once a month. 

‍

While you may be able to manage payroll manually because you currently have a small team, investing in payroll management software will help you

‍

• Save time, 
• Organize your payroll processes, 
• Make it more efficient, and 
• Manage payrolls even when you scale your business up. 

‍

We’ve put together this helpful guide on how to manage payrolls specifically for SMB owners and managers so that you can leverage industry best practices and technology to make business operations more efficient. 

How to set up your payroll

Setting up payrolls for your SMB has more elements to it than just investing in software for payroll automation.  Here’s a closer look at how you need to go about doing it.

Register for your Employee Identification Number

‍

An employee identification number or EIN is one of the many important documents and legal requirements you will need to run your business. 

‍

EINs are unique numbers, just like social numbers, that are required for every employer to hire and pay their employees. You will also need to mention your EIN every time you file taxes with the IRS. 

‍

You will need to apply for your EIN online on the IRS website, and go through an online verification process as well, post which you will receive your unique EIN immediately.

Set up the payroll process

‍

Once you have your EIN, you can begin setting up your organization’s payroll process in earnest, depending on your payment schedules and your business. 

‍

Here are some things for you to consider while doing so.

Choose a platform that suits your needs

There are plenty of payroll software that you could choose from, such as Gusto and QuickBooks. Choose one that fits your budget and your business needs. If you feel you cannot invest in one just yet, you may be able to make do with MS Excel for the time being.

‍

While choosing a platform, be sure to choose one that can help you 

‍

• Automate tax deductions based on your state laws, 
• Schedule payments, 
• Integrate with bank accounts, 
• Calculate vacation pay, 
• Benefits management and 
• Generate payroll reports.

Set up a payment schedule

This is where you decide the frequency with which you want to pay your employees. Decide if it’s better for you to pay them once a week, fortnightly, or monthly.

Tax payments

Paying taxes is another important part of managing your payroll. First, figure out what taxes will apply to your payouts, including local and state taxes. Then, you will need to find out how much you need to withhold to pay those taxes, and how often you will need to pay them.

‍

You will also need to plan for holidays, annual tax returns, and quarterly tax returns at the beginning of each fiscal year. 

Address payment options for employees 

Figure out how your employees prefer to be paid, and what works best for you. While most businesses choose to write paper checks to pay their employees, or to transfer their salaries directly into their bank accounts, payment cards and cash are also other options used regularly. 

Track time

If you have freelancers under your employ, or if you have employees who get paid an hourly rate, it will be essential that you track the amount of time they spend being productive for you to be able to compensate them accurately. 

‍

Some payroll software have in-built time trackers that activate every time employees sign in for a shift and stop when they log out. 

‍

However, if your payroll system does not have these capabilities, you may need to consider a separate time-tracking tool.

‍

This makes an efficient time tracking system, such as Prio’s time tracker, a must-have tool in your arsenal. Prio’s time tracker can help you track the amount of time an employee spends on a task by simply clicking a button to start a timer when they start, and stopping it when they’re done for the day.

‍

The tool also helps you track breaks, so you know how many hours were spent on the job during working hours. You can even have your remote team and freelancers track their productivity by sending them access to Prio’s free time tracker via an email link.

Payroll processing and calculations

Another important aspect of your payment process is that you need to collect certain important tax forms and work authorization documents before your new employees start working. The data on these forms are important and must be added to your HRMS and/or payroll management system.

‍

It would also be prudent for you to either file these documents safely for future reference or to at least secure them in digital formats.

‍

One of the forms every new employee has to submit is a Federal W-4, which is a form that lets you know how much of an employee’s salary needs to be held back towards federal taxes, based on factors such as marital status, number of dependents, other jobs and alternate sources of income.

‍

Every time any of these factors change, the employee has to submit a new federal W-4 form.

‍

Similarly, there is a state W-4 form that your new employees may need to submit as well. This form tells employers how much has to be withheld from salaries towards state taxes. 

‍

While federal W-4 forms are mandatory, state W-4 forms depend on state taxation laws. 

‍

As an employer, you will be required to fill and maintain an I-9 form for every employee you hire, verifying their identity and their employment status. This needs to be completed irrespective of whether these employees are US citizens or expatriates. 

Payroll best practices for SMBs

Here are some payroll pro tips that you ought to concentrate on to make payroll management for your SMB easier.

Automate your payroll

‍

You may think you do not need a payroll automation system as an SMB, but you could not be more wrong. These systems are designed to help you comply with local, state, and federal taxation and employment laws. 

‍

They are meant to save you the time and effort you would spend otherwise on documentation, calculations, and piles of paperwork. This is time that you could spend on growing your business instead of on these administrative tasks.

‍

Payroll automation will also make it easier for you to grow your team and your business over time. 

Differentiate between an employee and a contractor

‍

Know that your taxation laws are different when you pay an employee, and when you pay a contractor or freelancer.

‍

An employee is directly under your payroll, and you are responsible for paying taxes on the salary you pay your employees. A contractor, on the other hand, is someone you hire for a service or task for a limited time period. Contractors and freelancers are responsible for their own taxes. 

Check the rules and regulations for your state

‍

Payroll compliance often varies drastically from one state to another. This means you ought to check the official small business website of your state and familiarize yourself with the payroll and taxation laws that apply.

Keep all records secure

‍

Be sure to safely store all payroll records at the end of each fiscal year. Should you ever be audited, these records will be very handy to have around to ensure you get a clean slate. 

Always stay ahead of deadlines

‍

Whether it is about withholding taxes when you pay your employees, or about filing taxes on time, always ensure you stay ahead of deadlines because the IRS takes offenses on these counts very seriously. 

Discover Prio’s range of tools for SMBs

We at Prio have a range of tools all designed to make managing SMBs and remote teams a breeze for managers and business owners. 

‍

From time trackers, invoice generators, and project management tools to scheduling, reporting and team management software, Prio has multiple affordable and efficient solutions. 

‍

Come on board and discover a world of convenience with Prio today!

‍