As a business owner, you know just how critical a function payroll serves. That said, it can also pose one of the most challenging recurring tasks you’ll have to complete. For small business owners, it can be especially difficult when it comes down to handling your taxes, and deductions, all while making sure everybody is getting paid on time. The first step to concurring this obstacle is asking yourself “What is payroll?”. Luckily for you, today, in this post, we’re diving into what payroll means to small businesses, and the steps taken in the payroll process, and then, we’ll talk a little about how a payroll management system can streamline all of this for you. Let’s get started!
What is Payroll?
Fundamentally, when we’re answering the question “What is payroll?”, we refer to the process wherein your employees are properly compensated for their work. It’s important to note that payroll goes far beyond just dishing out wages. You have to factor in your employees’ gross pay, withholding taxes, and deductions for the various benefits they may receive, on top of making sure that the net pay is precise and delivered to their respective employees. You can count on payroll including:
- Tracking employee hours
- Identifying gross pay
- Withholding the proper deductions
- Issuing payments
- Documenting the transactions for records
If you don’t have an effective system in place, these will become increasingly difficult as you continue to scale. So, to mitigate the headache, invest in a payroll management system. It’s a must-have for your fiscal success.
The Payroll Process: How Does it Work?
Now, for the meat and potatoes! We need to get into the details of the payroll process. That’s the only way you’ll be able to verify that you’re doing it correctly. Let’s dive into a quick breakdown of what payroll is and how it works for your business.
Collecting Employee Information
Your payroll process is going to start with essentially getting all the information you need from employees to pay them. That will include the hours they’ve worked, wage rates, and any deductions they might have–whether you’re talking about retirement contributions, health insurance premiums, etc. If you’re working with salaried employees this process is a lot more cut-and-dry, but because hourly workers require time tracking, payroll is a little more involved.
Calculating Wages
After you’ve rallied all of the data that you need from your employees, you can start calculating their pay! This will include factoring in any overtime, bonuses, or other adjustments that will impact the total amount they’ve earned before the deductions. It truly doesn’t matter whether your employees are salaried or hourly, your payroll management system will make sure that all of your calculations are accurate.
Withholding Deductions
Your deductions are all the amounts that are subtracted from your employees’ gross pay. This can include taxes, social security, and any other benefits contributions. It’s no secret that these deductions can be complicated, especially if you have an array of packages or exemptions. That’s what makes having a reliable payroll management system so important! You want everything to be accurate and compliant, right?
Issuing Payments
Once you’ve done all of your calculations for wages and deductions, you’re ready to start cutting checks. A lot of businesses utilize direct deposits, but literal checks are definitely still an option for some. Again, with a payroll management system, a lot of this can be done automatically. Start mitigating human error and start taking advantage of automation!
Reporting and Documentation
Last but certainly not least, we have your reporting and documentation. It’s crucial that you keep a record of your payroll transactions for tax purposes. Your payroll management system will usually deliver some customizable reporting solutions, so this shouldn’t take too much of your time.
The Importance of Payroll in Small Businesses
When it comes to small businesses, your payroll is a lot more than a mundane routine task. This is a very fundamental and essential element of maintaining healthy cash flow, maintaining an elevated company morale, and keeping compliant with local, state, and federal regulations. So, what is payroll? It’s the backbone of your employee relations, retention, and fiscal transparency.
Benefits of Using a Payroll Management System
Your payroll management system will be the golden key to streamlining all of the payroll tasks for your business. Here are a few advantages you can look forward to:
- Time-saving automation
- Accuracy and mitigated errors
- Streamlined tax filing
- Scalability and growth
- Employee self-service
Now that you understand what payroll is and how it works, you know that it is essential for any business. Whether you’re gathering the information of your employees, issuing wages, or calculating deductions, each of these elements will significantly impact your business’s success. With the right payroll management system, all of these steps and calculations are a piece of cake to complete. Are you ready to start streamlining your payroll and managing your financial tasks? Get in touch with the Estess CPA team! We’ll work with you closely to understand your financial goals and the needs of your business and help you reach them! Click here to speak with the team! Let us handle the numbers.
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