8 Steps to Doing Payroll for Small Businesses
How do you do payroll as the owner of a small business? It’s not something many people think about until they’re faced with the task of doing it themselves. But it doesn’t have to be daunting or confusing, especially when you have the right steps and information to follow along with! Payroll is an integral part of running any business, big or small, and these 8 steps will get you on your way to taking control of your own business’s payroll in no time at all.
Step 1 – Decide if you want to do payroll yourself or outsource it
First, you’ll want to decide whether or not you want to do the payroll yourself or attach it. If you’re using a payroll service, it’s typically easier and cheaper than doing it yourself. We recommend talking with your accountants, who can advise you on the best option based on your company’s size and needs. To help determine if outsourcing is right for you, check out our list of things to consider below.
A large part of the decision comes down to time investment – if time is an issue then there are other costs associated with hiring a payroll service provider that may be prohibitive.
Step 2 – Get your bookkeeping software ready
Now that you’ve opened the software and it’s all set up, you should update the bank account info. You can either enter a credit card and then download transactions or just enter bank account information. Either way will work so choose what’s easiest for you!
The next step is setting up a payroll account, which means going into your Settings tab and clicking on Create New Account. Once again, there are two options here: import or enter the info manually. We’ll go over entering the information manually so click on Add A New Account under Accounts On This Computer. To complete this step, fill in all of the fields with your information. Oops!
Step 3 – Set up an employee profile
This is an important step as it allows you to assign deductions, withholdings, and payments related specifically to each employee. For example, if they contribute $20/month to their retirement fund or have garnishments related to student loans.
To add an employee profile click on the + sign in the upper right-hand corner of the Add Employee Profile page and complete the following fields: First Name, Last Name, Social Security Number, Date of Birth, Current Address, and Home Phone Number. From there you can set up how much they will be earning by inputting their pay rate hourly or monthly. As well as what tax status they will be under; Single, Married, or Head of Household.
Step 4 – Check your company’s tax IDs
A new business owner’s tax ID is the Employer Identification Number (EIN), which replaces an individual’s Social Security number. For example, if you’re starting a restaurant, your EIN will be your Social Security number and business name—if you only have one location, this ID is just a random eight-digit number. If you open more than one location of the same business in a given year, that business will have different tax IDs. But don’t worry about all of that yet!
Step 5 – Set up employees’ wages and deductions in the software
Set up employees’ wages and deductions in the software. Setting up employees is like building a house with some pretty basic furniture—you need the walls, ceiling, floors, doors, stairs, and furniture. You can’t get too caught up with the fancy ornaments of your business when you’re just getting started—which is why it’s important not to gloss over this step when you’re making your payroll. In order to set up wages and deductions for an employee in QuickBooks:
From the navigation bar on the top left corner of the screen click Employees > New, Employee 2a) Under Create new record make sure you are on the Wages/Deductions tab.
Step 6 – Enter hours worked by your employees into the system
Entering hours into the system is one of the easiest things you can do when it comes time for payroll. This can be done in one of two ways:
– If you are using a paper time card, have employees manually enter their time into the system.
– If your business uses a punch clock or manual timesheet, simply import this data into the system.
The best part is that once you’ve imported employee hours and calculated overtime with our payroll calculator, your work is done until payday! Then, all you’ll need to do is print paychecks or use direct deposit as described below.
8 Steps to Doing Payroll for Small Businesses
Step 7 – Record payouts from your bank account when making payments to staff members
Record payouts from your bank account when making payments to staff members. There are a few different ways you can do this, the simplest way is by manually recording the payroll transactions in your accounts payable ledger. Alternatively, if you’re using an online banking system and have mobile access, you can simply make the transfer yourself in order to avoid having to manually record it. There are also automatic transfers through services like eWAY – simply input your details and every time funds need transferring from one account to another you can set up an automatic transfer with just a few clicks of a mouse.
Step 8 – Keep track of contributions to retirement plans, like 401k, through the payroll software
The last step is to keep track of any retirement contributions. These can be deducted from your employees’ paychecks, and you must make sure they are contributing enough before you start deducting contributions. Simply enter the contribution rate and amount in payroll, and it will show up on their pay stubs as a deduction, reducing how much they take home. Track which employee contributed how much in payroll software. For example, if one of your employees contributes $200 per paycheck to his 401k plan, payroll software will do the calculations automatically and subtract $200 per paycheck.