Business Owner’s Guide to Payroll Reporting
According to 2018 Small Business Administration data, 30.2 million small businesses operate in America. Those small businesses employ 58.9 million people. That’s 47.5% of the American workforce.
If you’re a business owner, you know the struggle it is to keep track of payroll. You also know how essential proper payroll reporting is for your business. The last thing you need is to run afoul with the IRS.
Tax issues can sink a small business.
Don’t let that happen to you. Check out our guide to small business payroll reporting to stay on the right side of the law.
In-House or Outsourcing
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When it comes to payroll reporting, a small business owner has two options. You can either do the accounting work in-house or outsource it to a payroll company.
According to a recent study, 65% of all small businesses want to outsource payroll. It’s a time-consuming process.
If you’re the owner of a fledgling operation, you have little time to spare, so knowing the advantages of both methods will help you decide before tax time.
In-House Payroll
While 65% of all small businesses want to outsource their payroll, 80% of those same businesses say they’re better suited to handle their business’ finances.
Thankfully, there are many software applications available to help your accounting. You can put away your green visor and abacus for good! If you have the time, in-house payroll can be advantageous.
- If you do it yourself, you don’t have to pay an employee or processing fee
- You maintain control of all sensitive data like employee information
- Integrated software allows you to estimate payments for future projects
- You also have the flexibility to pay your employees and establish bonus structures
- Customer support services are available to ensure accuracy
In-house payroll does have its drawbacks. If you’re inexperienced, you leave yourself liable to mistakes and delays that could upset your employees. Your employees expect their pay on time, and they deserve it.
Inexperienced or sloppy accounting will also leave you open to tax liability. An incorrect end-of-year report could cost you thousands.
Outsourced Payroll
Companies who outsource payroll do it to save time and also to have peace of mind. Keeping payroll in-house, especially if you’re going to hire a dedicated staff member, is an expensive endeavor.
Outsourcing your books to another company comes with costs, but there are many reasons why 65% of small businesses want to do it.
- Outsourced payroll reduces your risk of tax reporting errors and penalties
- Your employees benefit from accurate and on-time paychecks
- Accurate and on-time pay keeps you in compliance with federal and state labor regulations
- Fewer administrative duties give you more time to generate revenue
- End of year reporting to the IRS is accurate
Though it may not seem to be any downside to payroll outsourcing, there are some costs and risks.
Employing this type of service can cost you up to $200 per employee each year. You also leave your business and employee information open to a possible data breach.
If you decide to outsource payroll, discover more from Your FundingTree.
Payroll Processing Steps
You may decide your small business doesn’t have the capital to pay for payroll services. If you do it yourself, there are crucial steps you need to follow to make sure it’s correct.
Step 1: Data
All new employees must fill out an IRS Form W-4. This form provides you with your worker’s federal withholding information. It’s also necessary for the deduction of any employer-provided benefits like health insurance.
Step 2: Net Pay
An employee’s gross pay is the compensation you pay before withholding taxes. To calculate net pay, you’ll deduct all federal, state, and local taxes.
Employer-provided benefits like retirement savings are also necessary reductions.
Step 3: Payment
After you calculate the net pay, you must then pay your employee. You have several options for payment. You can cut a paycheck, deposit on a pay card, or perform a direct deposit into an employee’s bank account.
You are also required to provide a paystub showing all withholdings. These paystubs could be on paper or through a digital service.
Step 4: Report and Deposit
Payroll tax reports and deposits are due to the IRS every quarter. Different states and municipalities also have deadlines that are either quarterly or monthly.
You must deposit all taxes withheld from employee paychecks on these dates along with the amount of FICA and other taxes you owe.
Remember, as a business owner, you responsible for calculating, deducting, and paying employee taxes. You are also responsible for calculating, reporting, and paying the business owner portion of payroll taxes.
FICA Tax Rates
Tax forms aren’t the easiest to read. It’s why so many, even those who file a simple 1040-EZ, hire an accountant to do their taxes. You’re required to report and pay FICA taxes.
FICA taxes are employer tax contributions to Medicare and Social Security, and they match the tax amount your employee pays.
For example, the current employee Social Security rate for employees is 6.2%, and the employee rate for Medicare is 1.45%. You match that 6.2% and 1.45% and pay it to the federal government.
4 Important Tax Planning Tips For Small Businesses
Year-End Reports
While you file quarterly, you must also perform end-of-the-year tax duties. You must calculate, post, and distribute Form W-2 for all persons employed during the fiscal year.
Both Form W-2 and 1099 must be in your employee’s mailbox by January 31st. You must also file your fourth-quarter contributions with the feds.
Don’t forget to double-check employee information to remain in compliance with the January 31st deadline.
Payroll Reporting for Small Businesses
Owning a small business is part of the American dream. Payroll reporting, however, is a task many small business owners find grueling. If that describes you, you need to research outsourcing.
Outsourcing your company payroll gives you the serenity you need. It also frees your time as an owner to tend to more important business matters.
Do you need more small business tips? Check out the rest of our page.
