How to Do Payroll for a Small Business: 7 Tips

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is Payroll?
A financial record of a business’s employees An annual record of employee wages The actual payment and delivery of paychecks to employees
Why You Need a Payroll System
Timely and accurate payments to your employees State and federal regulations are followed Payroll taxes get paid on time Proper deductions and withholdings occur
Can You Do Payroll Yourself?
Tips for Doing Payroll for Your Small Business
1. Get an Employer Identification Number (EIN)
2. Enroll Into the Electronic Federal Tax Payment System (EFTPS)
3. Research Local, State, and Federal Labor Laws and Regulations
How you need to calculate overtime Paid vacation requirements If you’re required to withhold money for state disability insurance If you need to withhold local income tax Your workers’ compensation insurance requirements
4. Select a Payroll Schedule
Weekly Biweekly Monthly
5. Request Workers to Complete Their New Hire Forms
State tax withholding form W-4 I-9 Employment Eligibility Verification Form Direct deposit authorization form (if you offer this service)
6. Calculate Net: From Gross Pay, Deductions, Allowances, Other Withholdings
Federal taxes Social Security State taxes Local taxes Medicare 401(k) contributions Wage garnishments Workers' compensation contribution Other benefits
Adjust the employee's gross pay by withholding pre-tax contributions to health insurance, 401(k) retirement plans, and other elected benefits.
Check the employee’s Form W-4 and the IRS tax tables for the current year to calculate and deduct federal income tax.
Withhold 7.65% of adjusted gross pay for Medicare tax and Social Security tax, up to the wage limit. (Your business is legally obligated to match this amount.)
If the employee’s year-to-date income has reached $200,000 or more, deduct 0.9% for Additional Medicare tax.
In states that charge income tax, withhold this tax according to the instructions found in each state’s employer’s tax guide or code.
Subtract any garnishments, contributions to Roth IRA retirement plans, as well as other post-tax dues to arrive at the employee's total net pay.
7. Keep Records, Adjust, and Fix Mistakes
Alternatives to Running Payroll by Yourself
Payroll Software
Gusto Workful Quickbooks Payroll Paychex Flex OnPay Payroll4Free Rippling ADP
Payroll Services Provider
CPA or Bookkeeper
The Takeaway
About the Author
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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