Nearly 7.7 million U.S. business owners do payroll for their employees, according to the the U.S. Census Bureau. If you’re a small business owner just starting out, set up your payroll procedures correctly right from the beginning. Your payroll will go smoothly from that point forward, paving the way for future growth, and you won’t waste time struggling with payroll every month.
Here are 5 valuable payroll tips for your small business:
1) Correct Classification
Classify your employees correctly from the start, or you could face tax issues later. You may have a mixture of full- and part-time employees, onsite contractors, independent contractors working remotely and even offshore labor working for you. The way you classify each person determines how taxes and benefits are calculated.
The biggest risk is classifying someone as a contractor when he functions as an employee. If a person you hire does the same work as other employees, is managed and directed by you and receives some benefits from you, the IRS sees that person as an employee, even if you hired him as a contractor. Companies face penalties for not classifying workers correctly, so read IRS Publication 15 for details on each classification.
2) Automate the Routine
Research payroll services for your business, keeping in mind that certain tasks can be automated. Payroll tax calculations, payment of federal and state taxes, Social Security and Medicare deductions and local business taxes are all items that a payroll system should calculate and pay for you.
3) Outsource the Effort
Consider outsourcing your payroll duties; a contract payroll expert or a virtual assistant specializing in payroll can do all the work for you. If you use a cloud-based payroll system, you can give them access to the tools but remain in control of the system. The Small Business Administration gives several reasons why outsourcing your payroll is a benefit to your business, including:
- IRS penalties are avoided, because payroll taxes are paid correctly and on time
- Payroll experts are up on the latest tax codes and regulations
- Tax calculations for employees living and working in different states are done correctly
- Implementation of direct deposit reduces trips to the bank and paper processing
4) Alternative Compensation
Develop ways to compensate your employees with benefits that may be tax-exempt instead of straight wage increases. Subsidize health, dental and vision insurance for your employees. Provide a partially funded child care program. Purchase smartphones and tablets for employees to use on the job. Set up a matching retirement plan. Tax-free company benefits let the employee keep more of their money in their pocket, and it reduces your payroll complexity.
5) Expansion and Payroll
If you have plans to expand your company outside the U.S. or hire employees to work overseas, consult a tax attorney or payroll expert specializing in global payroll matters. These can quickly become complicated, and only people familiar with the laws of various countries should give you direction.
What are other payroll tips? Feel free to add your own in the comment section below: