Small business payroll
What you need to know
- While it is possible for you to complete your small business payroll process on your own, there are several risks associated with doing so.
- The best option is to utilize the services of a payroll software for small business so you don’t have to worry about falling out of compliance.
- Even better, signing up for Homebase and integrating your payroll process with a top provider will reduce the time and headache that comes with paying your team.
How do I do payroll for my small business?
You have several strategies to choose from when it comes to processing payroll for your small business. If you choose to take on the challenge yourself, first you need to ensure that you are registered as a business with the IRS and have an Employee Identification Number.
You then need to ensure that every member of your team of employees completes the tax Form W-4, which determines their tax filing status and personal allowances. You might also need to obtain a state EIN number, so be sure to check with your state government to determine if it is required.
The next step is to calculate how many federal and state taxes you need to withhold from the pay of each of your employees. You can use the IRS Withholding Calculator and whatever resources your state provides, as well as a paycheck calculator that you trust. It’s also important that you keep track of both employer and employee tax portions as you are moving through the process.
You’ll also need to choose a payroll schedule, obtain worker’s compensation insurance, display workplace posters listing employee benefits and tax regulations, and add these important dates to your tax calendar: employee pay dates, tax payment due dates, and tax filing deadlines.
It will be your responsibility to submit taxes to federal, state, and local government, including the base fee that is required in your area. You must also submit your employer federal tax return each quarter. Then at the end of every year, you need to remember to prepare your annual filings, including your W-2s for every employee.
There are many more steps to completing the payroll process on your own, and it can be difficult and exhausting to accomplish, especially if you do not utilize any HR services to help you along the way.
The best payroll option is to use payroll software for small business. If you use an online payroll service you’ll save the headache of having to remember every single step yourself and run the risk of falling out of compliance, even accidentally.
Furthermore, if you use a time and attendance tracking software like Homebase, you’ll save even more time on running payroll. Homebase integrates with the top payroll companies to allow you to sync hours worked by your team to your payroll system. Those payroll companies include ADP, Wells Fargo, Intuit Quickbooks, Bank of America Merchant Services, and many more.
Get started with Homebase time tracking today to see how much easier your payroll process can be.
Do I need a payroll system for small business?
As mentioned above, you do not necessarily need to utilize payroll companies for small business, you have the option of manually completing the payroll process yourself each pay period. However, it is not the optimal payroll option.
Payroll and HR are two areas where you should seriously consider obtaining some assistance in order to complete the tasks in the most efficient way. One of the benefits you’ll see when you use payroll of accounting software is that you can easily automate certain payroll responsibilities, including year-end reporting.
And if you use Homebase, which will integrate with your payroll software, your payroll calculations, deductions, wages and hours worked, and more will be calculated automatically as well. Then you won’t have to input your information into your system on your own—Homebase will do it for you, saving you time and a few headaches along the way.
How much do payroll programs for small business cost?
You might be surprised how affordable even the best payroll software for small business can be. Each company is different, there are several ways to arrange the pricing models. But there are 3 common trends you see among payroll software solutions.
Some companies charge per pay frequency, which means you will be charged a base fee for each employee each time you run payroll for your business, whether that’s weekly, bi-weekly, semi-monthly, or monthly. With this pricing model you can expect to pay around $1.50 to $3 per team member, a base fee between $20 and $40 per period, totaling to around $140 a month if you have 10 employees.
Other software solutions charge per employee, per month. With this pricing model, which is increasing in popularity, you get unlimited payroll runs and instead pay a fixed monthly rate based on the number of team members you have. The per employee, per month option is great for businesses who have irregular pay periods or need to run payroll for bonuses or commissions.
In terms of payroll solutions that offer a more “DIY” approach to payroll, you might see fixed rate monthly pricing, such as $65 for under 10 workers or $125 for more than 10 team members. The only caveat here is that the companies might cap the number of employees you can run payroll for with their software.
If you choose a popular service, Homebase will most likely integrate with your small business payroll software, free of charge. You won’t be subject to more fees to make your payroll system even easier than your new software made it for you.
How do I pay myself as a small business owner?
You must first determine your business type before figuring out how to pay yourself as a small business owner. Your payroll process will be guided by your business type.
After you’ve decided what type of business you are running, determine if you need to operate with an owner’s draw or a salary for yourself. Most business owners utilize an owner’s draw, as the IRS considers sole proprietorships, LLCs, and partnerships as self-employed entities who are not paid through regular wages like salaries.
Salaries are used by owners of C corps and S corps who are integral in day-to-day operations. The IRS does not expect these business owners to utilize owner’s draw, they are expected to take salaries.
Then you can calculate the amount you will receive as payment. Pay yourself based on the duties you perform and how much net profit you pull in each month from the business. Calculate your pay based on this amount instead of your total revenue, because you want to take into consideration your business expenses like utilities and rent, team payroll, and more.
The IRS also requires you to pay yourself a “reasonable amount.” This means you should look at what you would be making if you held the same role at another company. Once you’ve figured out the amount you want to be paid, you can insert it into the pay schedule you’ve already created.
What is the best payroll service for small business?
The best payroll company for small business is one that makes your payroll process easy, efficient, and accurate every payroll period. We integrate with many great payroll services that connect with your time tracking that is done automatically.
Using a payroll service that integrates with Homebase means you don’t have to worry about missing any time tracking errors like missed breaks, overtime oversights, inaccurate clock-in times, and more. The best payroll for small business takes the difficulty and guesswork out of your weekly, bi-weekly, or monthly process.
We recommend taking advantage of free trials for different payroll services to find the one that works best for you. Keep in mind that another big aspect of a good payroll system is one that has an excellent customer service offering, so try calling each company with a question in mind to get an idea of how they can help you should you decide to use their services.
How much does a small business pay in payroll taxes?
As a business owner you are responsible for two different buckets of payroll taxes: the portion of employee wages you deduct to pay taxes on behalf of your team, and the portion you pay for each of your employees that comes out of your revenue.
The FICA tax and FUTA tax come out of your revenue. The FICA tax is shared between you and your employee, 6.2% goes toward social security, and 1.45% goes toward Medicare. Both you and your employee contribute the same amount.
As for the FUTA tax, this covers the unemployment insurance for your team. The total amount is 6%, but many states provide a 5.4% credit, meaning you are only required to pay the remaining .6%.
It’s no secret that payroll taxes, both federal and state, are confusing and a large hassle for business owners. Luckily if you sign up for a free Homebase account, you will have access to HR pros who can offer training, expert advice, and live help on issues like payroll and any other questions you may have in regards to managing your team and running your business.