Own a Business? Here Are Some Tips for Managing Payroll

If you own a business, one of your primary recurring tasks is paying employees. Depending on the size, scope, and business model of your enterprise, you have many important decisions to make to ensure they are accurately compensated for their work. Below are steps you should consider taking as you set up your payroll details.

Choose A Payment Schedule

The first step in paying employees is determining how often you are going to run payroll. You can opt to pay employees more frequently than the law requires, but not less. Most employers pay their employees weekly or biweekly (often on Fridays). You can also pay on a semi-monthly or monthly basis. The key is to ensure your payment schedule is compliant with local and state laws, which can vary from place to place. Having a sense of what your employees prefer helps ensure you’ve selected the best-fitting cadence of a payroll schedule.

Decide Employees’ Type of Wage

Selecting the ideal type of wage for your employees depends on your unique business model. For larger operations, it’s likely you will need to have more than one type. The options are full-time, part-time, temporary, and contractor wages. Depending on the type of work they will be performing, you need to choose what fits the situation. For example, if you own a business that offers a seasonal service, it’s likely most of your employees will be categorized as part-time or temporary.

Categorize Employees

Once you’ve decided on employees’ type of wage, you need to categorize them according to their type of compensation. There are three main types of compensation to consider. The first is hourly wages. This is ideal for small businesses with part-time positions and employees who don’t work consistent schedules.

Second, annual salaries are yearly earnings paid at a fixed amount each pay period. Salaries are preferable for full-time employees who have predictable schedules.

Third, commissions are earnings paid when an employee achieves some form of sale. Many employers opt to include commissions on top of hourly or salaried pay.

Classify Employees

Another aspect to consider is your employees’ classification: are they exempt or non-exempt? The main difference between exempt and nonexempt employees has to do with how they’re paid and whether they’re eligible for overtime pay. Non-exempt employees are typically paid hourly and perform more manual or technical duties. They’re “not exempt” from federal overtime regulations and are entitled to overtime pay for any hours worked beyond 40 in a work week. Conversely, exempt employees usually hold administrative, professional, or executive positions. They’re “exempt” from overtime regulations and not entitled to overtime pay.

Consider Taxes and Withholdings

When your employees start working for you, they’re required to fill out a federal W-4 tax form which determines the percentage of their gross pay to withhold per paycheck. It’s their choice, but if you own the business, it’s up to you to keep accurate records of their elections and calculate the correct amount of withholding. In addition, based on your location, you also need to consider whether your employees are subject to any local or state income tax requirements in addition to federal income tax. If so, the proper amounts of withholding depend on you as the employer to be calculated accurately and submitted each year on the employee’s W-2 form.

Set Up A Payroll Processing System

Now that you’ve categorized your employees and established a payroll schedule, it’s time to select how you’re going to process the payments. Larger corporations tend to have payroll specialists in a human resources department or even a separate payroll department. If you own a small business, it’s likely you don’t have that large of a resource. Business owners typically process the payroll in-house or source it to a payroll vendor.

Run Payroll

You’ve made all the necessary preparations and now it’s time to run the payroll. The most popular method of paying employees is via direct deposit into their checking or savings account. However, paying with paper checks is also popular with part-time or hourly employees and allows them to instantly access their funds without needing a bank account. Another popular method of paying part-time employees is using a paycard, which is similar to bank-issued debit cards and allows them to make purchases, pay bills, and even withdraw cash at ATMs.

There are many steps to consider when paying your employees, but once you make the necessary decisions and get a process in place, payroll should be one of the most seamless recurring tasks you undertake as a business owner. For more information on other tools and resources you can use to manage your business, please visit the Business Online Services section of our website.