Payroll Management 101 - The Basics

Payroll and accounting may be the last things you want to think about when running a business. Despite the potentially difficult tasks of managing employee wages, there are some things to know before you start.

Most important is your staff. You can't have a business without them, and they won't work unless you compensate them in some way...and most people aren't accepting candy cigarettes and bubble gum anymore.

You may feel extremely overwhelmed at the idea of running this part of your business, but the following will help lead you in the right direction.

Each company must determine how often its staff will be compensated. This schedule can help ease the flow and management of company money. In addition to pay periods, the company management, whether department managers or a group of company heads, will come up with a compensation scale that will correspond with each employee's tasks and experience levels along with other factors.

There are a number of deductions and taxes to consider for each employee - including federal and state taxes as well as personal deductions specific to each employee. How much is deducted for each employee is determined by wage rate. Whether an employee is salary, hourly, part-time, temporary, freelance, or contract can also affect deduction amounts. Federal and state taxes, social security, Medicare, health insurance, 401k, and other retirement plans should all be taken into consideration when calculating the amount each employee takes home at the end of the compensation period. In order to avoid fines, extra taxes, fees, or even audits, employee compensation must be as accurately calculated as possible.

As if figuring out how much to pay and deduct for each employee weren't enough, you also have deadlines to worry about. Taxes and fees - amounts and deadlines are determined by company size and type - are due at different times throughout the year; a company's fiscal year can also change these due dates. Inaccurate or late payments can lead to fines and penalties that can easily put a company into the red.

This brings up the cash your company has available to use for compensation. Your management department is responsible for keeping a log of cash in versus cash out and making sure that there is enough money to compensate employees. This is important, because, as discussed above, most employees won't work for nothing.

Your payroll department is responsible for getting the compensation to the employees. Setting up direct deposit and printing and sending out paper checks is up to the management of the company. Another part of this department is sending out tax forms each year. These forms, which can include W-2s and certain 1099s, must be printed and postmarked no later than January 31 of each year.

The options for managing payroll may seem as daunting as the payroll process itself. Some small companies may find that someone in-house can easily manage a few employees. However, when you increase your staff, you increase the work involved in properly compensating employees as well as meeting various tax deadlines for the company itself. Some software can help with this task, or you may choose to outsource your bookkeeping and payroll to another company just for ease and peace of mind; this option tends to work better if the company is larger or has a non-standard compensation process.

Thoroughly examining your options will help you feel more confident that you are making the right decision for your company financially and for the sake of your employees