If you have a small business with a few employees, a payroll program is just a matter of cutting checks to your employees, right? Unfortunately, it is a little more complicated than that. You'll have to decide whether you want to use payroll services or do it yourself with small business payroll software. Understanding your payroll options and important factors to consider will help you find the right payroll program for your small business.
Types of Employees
First, you need to understand what type of employees you have. A common law employee is a person who works for you and is covered by state and federal laws. With this type of employee, you will be responsible for withholding any taxes that your employee requests. In addition, you will have to pay FICA taxes, such as social security and Medicare taxes, as well as Federal Unemployment Insurance taxes. State and local taxes vary, so you will have to check local regulations.
A statutory employee is paid by your company, but does not actually work for your company. Statutory employees are also called independent contractors. Generally speaking, you will not have to do any withholding or pay any taxes on a statutory employee. However, you will have to file year end reports to the government on any independent contractor you have paid $600 or more over the course of the calendar year.
Do-It-Yourself
Once you get an understanding of federal, state and local requirements, you may choose to handle your payroll yourself. The advantages of handling your payroll yourself are that you will not be paying any additional fees to process payroll and you will have complete control over how your payroll is handled. The disadvantage of handling your payroll yourself is that doing payroll is very time consuming, particularly if you are already spending many hours on your business. In addition, if you are processing payroll manually, you will be spending even more time on this task.
Do-It-Yourself with Software
If you want to maintain control over your payroll while minimizing the amount of time that you spend and the mistakes that you make working on payroll, consider purchasing payroll software.
Payroll software features might include direct deposit options, the ability to generate tax forms and the ability to automatically calculate taxes and deductions based on wages. Some software packages include other options like tracking bills, creating financial reports and following inventory.
Generally speaking, you will pay a monthly fee for the software. Some companies offer discounts, so compare pricing and services.
Outsourcing
If you choose to outsource your payroll, you may be saving yourself some headaches. Outsourcing can actually be cost effective depending on the number of hours that you spend working on payroll versus what you could be doing with that time elsewhere.
Before you sign on with an outsourcing firm:
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