Remaining on top of your payroll is often stressful and requires a lot of time. If you handle your payroll in-house, the process is even more difficult. No matter how large or small your business, having an organized payroll system is important. This will protect you from penalties from the IRS while ensuring your employees receive their pay on time.
1. Choosing the Right Software for Your Business
One of the most important payroll tips involves your software. Your best option is software being hosted in the cloud. All your payroll information will be located in the same place. You can access whatever you need, whenever you need it. You can also make an investment in a management program. Even something as simple as switching to an electronic paystub system could transform the way in which you do things. This will make your payroll process easier and less stressful.
2. Knowing the Tax Deadlines for Your Payroll
If you have not completed your payroll by the end of the year, you will not be ready to file your business income tax. Your best option is ensuring the deadline for your W-2s is met first. If you have an accountant, their advice is invaluable. An extension can be filed for your business income tax. No extensions are available for your W-2 deadline.
If you file your W-2s late, you will immediately receive fines for all of your delinquent W-2s. For every W-2 up to thirty days late, you will be fined $50. The fine after thirty days is $100 each. If you do not file your W-2s or you do so six months late, you will receive a fine of $260 each. If there is proof your filing requirements were disregarded intentionally, the fine is $530 each.
You can receive a few extra months to straighten out your business finances by filing for an extension. You will still be required to pay your business taxes. The difference is you will have enough time to prevent making any expensive mistakes. You do not want to rush anything regarding your taxes.
3. Ensuring the Exemption Statuses for Your Employees are Updated and Correct
Non-exempt and exempt employees are paid differently. If you classify an exempt worker as non-exempt or vice versa, you will have serious issues with your payroll. Non-exempt workers must be compensated and tracked for any hours exceeding forty each week. The rules of the FLSA demand compliance from all employers. The same rules exclude exempt workers from standard overtime pay.
If a misclassification is discovered during a payroll audit, your best option is contacting an employment attorney. When the status of a worker changes, they must be reclassified for your payroll.
4. Understand What Records Must Be Kept and for How Long
According to the statistics of the IRS, three times more payroll taxes are collected as opposed to business taxes. The type of taxes is irrelevant to the IRS. If a small business owner makes an error, they will be subjected to an IRS audit. Making certain you are prepared is the best way to prevent any errors. You need to ensure you have good records for your tax filings and your payroll every single year.
You should keep all of your records for at least four years. Many experts recommend keeping your records for seven years. The IRS has rules pertaining to employment records. This is three years for all of your taxes and four for your employment records. If you are claiming tax deductions based on your employment records, you need to keep all of your documents for at least four years.
You should consider keeping both paper copies and electronic documents. You can use cloud-based payroll and accounting software. This will record all of your financial information. If there are questions or you are audited, it is easy to check your records.
5. Automating Your Federal and State Taxes
You should seriously consider automating all of your state and federal taxes. This will make certain you do not forget your payroll tax deposits. This will also ensure your taxes are paid on time.
6. Verifying Compliance with the IRS
Prior to filling out any required documents, you need to make certain all of your payroll documents are compliant with the IRS. You need to be able to guarantee all of your employees have an (EIN) employee identification number when you are doing payroll. You also need to be familiar with your payroll laws. Another good piece of payroll advice is making certain your payroll system is organized. This will effectively protect your business from IRS penalties. If you do not understand your compliance laws, you will not be able to ensure your payroll is compliant. You can find additional information on the online website for the IRS or through an accountant.
7. The Importance of Diligence When Collecting Taxes
As a small business, you are required to withhold a portion of all your employee’s paychecks. This is how you pay your taxes to the government. The most important are the local, state and federal income taxes. You are additionally responsible for your employee’s share of FICA taxes and state and federal unemployment taxes. The other taxes include your employee’s share of Medicare and Social Security taxes for FICA.
If you are uncomfortable calculating your employee’s taxes, you want to consider retaining an accountant. This will ensure the correct amount is always being withheld from your worker’s paychecks.
8. Ensuring Your Employee Tax Forms are Current
When you are doing payroll, make sure you are using the current W-4 form for your employees. This ensures the form specifies the current allowances for tax withholdings. There will be instances when you may need to re-verify the information for your employees on Form I-9. If the authorization of your employee to work has expired, this will be necessary.
9. Payroll Tips for Creating a Budget
Make sure you budget for taxes and wages while planning your payroll. You are required to pay Medicare and Social Security taxes. You most likely need to pay unemployment taxes as well. Planning for these expenses ahead of time is important.
10. Your Payroll System Audit
Another good piece of payroll advice is not relying on your automated payroll system to show you any issues. Your attention is probably required to find any employees no longer with your company or misclassifications. The same is true for any errors accidentally made by your employees in their timekeeping entries. Your best option is making one of your employees a payroll administrator. They can find any issues your payroll system will not.
11. Keep Track of the Employment Laws
You must be in compliance with the employment and labor laws at the local, state and federal levels. The (FSLA) Fair Labor Standards Act is one of the best possible examples regarding federal law. This act defines the rules for the minimum age of your employees, overtime and minimum wage. You need to monitor your payroll to ensure all of your workers on the payroll are in compliance with these laws.
12. Be Aware if Employee ID Numbers are Required
Certain states require employer ID numbers to be obtained for processing your taxes. The majority of businesses already have the required ID numbers. If you need one, you can apply by contacting the IRS.
13. Filing and Paying Your Taxes on Time
The most important action you can take is making certain your tax payments are made on time. The type of tax determines when your payments are due. Your FICA tax and income tax are paid either semi-weekly or monthly. You need to pay your federal unemployment tax every quarter. There are different deadlines for your other tax forms. Tax Form 940 is used for your federal unemployment tax. You need to file every year. Income tax Form 941 is filed for your federal income tax every quarter.