As your business grows, you will likely face the challenge of how to pay employees. If you are a Quickbooks user, some of the options offered by Intuit can look cost effective. Or maybe you just want to do everything with a spreadsheet. After all, payroll is just hours x pay rate, right? Not exactly.
Here’s just some of what is really involved:
• New hire reporting
• Workers compensation insurance (varies by state)
• Withholding the correct taxes from the employee checks (federal, state, local)
• Calculating employer payroll taxes
• Timely payment of employee and employer taxes
• Timely filing of tax returns (monthly, quarterly, annually)
• I-9 forms/E-verify
Overwhelmed? Good. Payroll is more than just paying employees. There is a lot of legal compliance involved and it takes a lot of education to stay on top of that.
There are companies who specialize in processing payroll and many have affordable options for small businesses. Statistics show that roughly 40 percent of small businesses incur an average of $845 a year in IRS penalties. If you outsource nothing else for your business, outsource your payroll processing.
Companies such as SurePayroll and Ceridian will help you set up your payroll, do your new hire reporting, tax payments, tax filing, and even provide labor law compliance assistance. Your responsibility is entering the hours and actually running the payroll. You will also need to let the payroll company know when anything changes with your taxes (i.e. unemployment tax rate).
Integrated Solutions Not Mandatory
Many accountants and even business owners believe that the only payroll option is one that integrates with your current accounting solution. I disagree. With an integrated accounting solution, all employee data is stored in the accounting software. Quickbooks is an excellent example of this. Most small business accounting software does not provide enough control over user accounts to prevent someone from accidentally seeing payroll information. If you are doing most of your own accounting work and have other staff members in that accounting software, you do not want a payroll solution that integrates with your accounting software. The drama that can occur because the details of employee checks became known by the wrong person(s) will make any reality tv program look like the Lawrence Welk Show. For this reason, I prefer to utilize a separate payroll solution and simply record the payroll with a journal entry which contains summary data only. By the way, all payroll data (reports, employee files, etc.) should be kept in a locked cabinet with access strictly limited.
Why don’t I recommend the integrated payroll product with Quickbooks? Because I’ve seen very few clients succeed with it. If you don’t specifically go into the payroll module you will miss making timely payroll tax payments and filing tax returns. Payroll is very complex and it takes a lot of training and hard work to understand it. Quite honestly, I think your time as a business owner is better spent on other areas of your business. Payroll is one part of your business you should leave to the experts.