One of the most essential and time-consuming tasks of running your own small business is setting up payroll and making sure you comply with all local and federal regulations.
While this process may seem straightforward at first, it’s easy to make mistakes along the way that can cost you time and money later on-especially if you’re just starting out and don’t have the know-how to deal with payroll issues that come up. Here are five mistakes to avoid when setting up payroll for your small business, so you can stay within the law and ensure that your employees get paid correctly every time without undue hassle.
Not Having Wages Deducted at Source
Have your payroll software calculate and take taxes from employees’ paychecks at the source. This saves you a lot of headaches because you don’t have to worry about making tax payments yourself, and employees can look forward to a small boost in their paychecks each month as a result. You should also be sure that your system will automatically transfer employee contributions to government-run pension plans. In most countries, these are mandatory contributions made by both employers and employees. Not deducting them will lead to big fines for you, so do yourself a favor and check whether there are any applicable laws or if your provider offers automatic transfers into pension accounts during setup!
Not Enrolling Employees in Tax Schemes
Most small businesses understand that payroll taxes are legally required. What’s sometimes not understood is that employers are also responsible for making sure employees receive adequate benefits coverage-including Social Security, Medicare, and life insurance. You can help reduce your tax liability by enrolling eligible employees in these payroll tax programs, but it’s important to take care of them quickly. The longer you wait after an employee has started working, the more expensive it becomes to sign them up. If you don’t establish these types of arrangements early on, you might end up with steep fines and penalties-and less cash to invest in your business.
Not Tracking Employee Timekeeping
Even if you aren’t planning on paying hourly wages, you should still track your employees’ time. Tracking how long it takes them to perform tasks is crucial when it comes time to assign salary or offer promotions. Also, if an employee ever files a complaint of unpaid wages (which happens a lot), knowing how much time they spent on a specific task can help you defend yourself against these allegations. It may not seem important now, but tracking timekeeping from day one is going to save you a lot of headaches down the road.
Failing to Set Financial Reminders for Tax Obligations
You’re probably aware that you need to make quarterly tax payments. But do you know when? If not, familiarize yourself with your estimated taxes (see below) and avoid penalties by setting reminders-either on your calendar or through an app. Keeping track of business expenses: As a small-business owner, you can deduct most of your daily operating costs from your annual income. However, if you want any hope of getting that deduction, then there are some rules that require compliance. Read up on them before year’s end so you can save money come tax time. Forgetting About Employee Benefits: We all know about 401(k) plans but perhaps don’t realize how they can affect payroll tax deductions.
Keeping Paper Records Instead of Going Digital
Before computers, keeping a paper record of payroll was practical-but now it’s an unnecessary hassle. Cloud-based payroll programs make everything easier from managing deductions and updating rates to distributing paychecks and filing taxes. In addition, you can access your records from anywhere-your computer or your phone-so there’s no more fear of misplacing a file. Keeping digital records not only makes it easier for you, but also creates an electronic history that won’t be lost if your company moves or if a natural disaster hits. Cloud-based services also automatically send reports and tax forms straight to your accountant so you don’t have to worry about meeting deadlines.
Having a payroll software onboard will solve all your above problems and much more, leaving you with a great amount of time to optimize more of your business process and focus on growth rather than running after Payroll and HR work.