So you've opened your doors, you've hired your first round of employees, and now you need to pay them.
While payroll may seem like an easy task, it's full of twists and turns that can trip up even seasoned bookkeepers.
Here is what startups need to know about payroll accounting to ensure it's done accurately and in a timely manner.
Decide pay dates
Your first step is to set up your payroll.
It's a safe bet that your employees want to know for certain when their paycheck is coming.
You have several choices: weekly, bi-weekly or semi-monthly. Choose one and stick with it.
In addition, you need to decide how you'll set up your payroll. Will you issue checks and/or offer automatic deposit? When is payday? Is it the first and the fifteenth or another combination of days?
Know the answers to these questions before onboarding anyone.
Set up payroll
Paying your staff involves much more than just paying them for their hours worked or their regular salaried rate. It also includes all of the following:
Some of these items depend on where you live, so stay up-to-date on the rules and regulations.
Another thing to note is what constitutes an employee. Why? You'll need to know this before taking care of the taxes.
You need to know who is paid hourly and therefore eligible for overtime for hours worked over 40. You also need to know who is salaried even though they are exempt from the Fair Labor Standards Act.
It's also important to know who an employee is or who might be an independent contractor or freelance employee.
You certainly don't want to misclassify and employee as this can land you in hot water with the IRS.
Knowing your employees' classification is vital to their benefits such as overtime and unemployment insurance.
Pay the taxes
Both you and your employees must pay taxes on their wages to the federal, state and often local government.
It's on you to make the actual payments, not your employee. So, each pay period, you need to calculate and withhold income tax, Social Security, Medicare and Federal Unemployment Tax.
You then need to make the employees' payments as well as your contributions to each agency.
Bottom line – payroll tax filing and reporting is your responsibility, not that of your staff.
Have money on hand
Another important thing to remember is that you have to have money in the bank to pay your employees and the tax payments.
It can be tempting to use the money set aside for payroll taxes because it may sit in your account for several months before it's due, but you can't spend it on operating expenses.
If you manage your own payroll, set the tax funds aside until you're ready to send in the tax payments.
Payroll accounting and record keeping ensures that you have accurately posted to your payroll accounts.
You will need to set up a payroll account in your chart of accounts list.
This ultimately helps you print reports and manage your money better.
While you may have the best intentions when it comes to your payroll setup, maintenance, reporting, and accounting, it's usually best left to people who handle it on a daily basis.
Why? These professionals stay current on the latest local, state and federal regulations to make sure you are legally compliant.
Be sure and research your options when it comes to payroll accounting as mistakes can be costly.
The average entrepreneur isn't a payroll expert, and outsourcing it is often a good option.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.
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