Every business grapples with handling payroll, not just doing it, but also getting it right. One of the easiest ways to ensure disgruntled employees is paying them incorrectly or late. One of the best ways to get your business in hot water with state and federal agencies is incorrectly or paying taxes late. Your business payroll has to run like a well-oiled machine, which is one of those things that might seem easier said than done. But it doesn’t have to be.
You have two choices for managing payroll. Handle it in house with a software program or outsource it to a payroll or HR firm. The decision depends on the complexity of your payroll and whether or not you want to handle the tax payments and reporting yourself. Many business owners prefer outsourcing payroll to protect the confidentiality of the information. In house or outsourced, either way there are a few things you need to keep your eye on.
Setting up tax deductions
Whether you are using an in-house or outsourced payroll service, it’s important to set up the deduction codes properly for federal and state taxes, unemployment, and local taxes along with deductions for any benefits you may have such as medical, dental, 401K, HSA, life insurance, etc. You should know which are pretax or post tax deductions. You should understand how the deductions are calculated.
Tip: Reconciling tax accounts throughout the year can save you headaches and potential fines later.
Auditing benefit bills
Make sure that all of your benefit bills are audited to verify employee deductions are correct and updated when necessary. Yes, this can be a time consuming process depending on your number of employees, but it is essential. This is especially important for benefits that are 100% employee-paid as adjustments can occur at any time during the year.
Keeping time
Use some kind of timekeeping system for hourly employees be it online or a paper timesheet. Time keeping can be done online through a variety of programs or written out and submitted weekly. But have some system in place to which you can refer back to should any questions arise down the road.
Updating unemployment tax rates
Confusion about taxes is another big pitfall. Unemployment tax rates are updated annually. Make sure the information is passed along to
your payroll provider or updated in your system.
Managing bi-state taxes
There can be confusion about state taxes, especially in our area where many people live in one state and work in another. We also have something in our area that is fairly unique – the Kansas City earnings tax. Simply put, if you live OR work in Kansas City, you must pay the e-tax, whether it is withheld from your paycheck or filed yearly.
Filing forms on time
If you handle payroll in house, keep a schedule of when all forms and returns are due. Set reminders. Tie a string around someone’s finger. Forgetting or overlooking to file forms can subject you to late payment penalties.
Planning ahead for bank holidays
If you use a payroll system with direct deposit, many times a bank holiday will throw off the dates that payroll has to be submitted in order to process in time. Most direct deposit payrolls have to be submitted at least two days prior to the pay date desired. If payday falls on a holiday, you’ll have to submit your payroll earlier to accommodate the holiday schedule.
Voiding or reversing paychecks
Voiding or reversing paychecks can wreck havoc on taxes and forms already submitted. Talk through any corrections with your payroll provider to make sure you are accomplishing what you intended to do.
Asking for help
All businesses process payroll. If at any time you aren’t quite sure about how to handle an issue, ask for help. Knowing when to outsource payroll can help you avoid headaches, fines and wasting time. Our team can guide you in the right direction by keeping your employees happy with correct paychecks and your tax payments and forms current to avoid fines.