Small Business Payroll 101
Small Business Payroll 101

Small Business Payroll 101

From the biggest corporation to the newest mom and pop, it takes a lot of moving parts to run a business of any size. And while the operational differences between large and small businesses are significant, one thing remains the same: payroll.

Payroll processing is something you’ll have to do on a regular basis. And it’s important to get it right every single pay period. If you’re wondering how to do small business payroll, there are several payroll processing options from which to choose. But which is best for you? Keep reading to discover the pros, cons and estimated cost for three of the most common types of payroll processing for small business owners.

Keep Small Business Payroll In-House

The key question here is: how much is your time worth? As the lone facilitator who pays employees, you’re responsible for payroll taxes including federal (Social Security and Medicare tax), state and local taxes withheld from employee paychecks. The tax rates can change on a yearly basis, and without access to a client support system, it’s up to you to stay current and avoid any penalties.

Processing payroll yourself not only requires a close eye on fluctuating tax rates, but you’ll need to process completed employee paperwork (such as a form W-4) for every new hire. Such manual data entry is time consuming and prone to errors, which can incur harsh penalties from the IRS.

The out-of-pocket expense for processing payroll in-house is minimal but consider how much your time is worth and the number of hours worked each pay period to process the checks. Coupled with the likelihood of making a payroll mistake and steep fines, this might not be the true economical option you seek.

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Hire a CPA

If you don’t feel like going it alone, you might consider hiring someone to process payroll. Whether that means hiring an in-house HR administrator or outsourcing the task to an accountant, either way it’s not going to be cheap.

An accountant can help you keep an eye on the bank account and complete necessary payroll paperwork like submitting a Form 941, which is required every quarter by the IRS. Outsourcing payroll will also free up time you can dedicate to directly improving your company. You will get experienced guidance that should be able to avoid any payroll penalties for your business.

Not only is it expensive to use an outsourced CPA for payroll, you may feel like you’re losing control and oversight of the business spending and activities when you stop doing it yourself. And, if in the future you ever decide to bring accounting back in-house, you’ll have to refine your skills and start from scratch with a new payroll system.

Partner with an HR & Payroll Company

As a small business owner, you have a lot on your plate. The last thing you need to worry about is processing payroll and possible tax penalties. Partnering with an established HR and payroll company that can handle everything might make the most sense for your business.

While you may think outsourcing to a payroll service is cost prohibitive, once you analyze the benefits you may think differently. A payroll partner will handle all the deposits and tax filings and should cover any compliance or tax penalties if they occur (which, they shouldn’t). They’ll also maintain accurate records that are available in case of an audit. A payroll company keeps up-to-date on federal and local regulations, automatically searching for any available tax credits or opportunities. They’ll ensure your business is compliant at all times.

If you do choose a payroll partner, make sure the company offers additional HR services like recruiting, onboarding and benefits. As your company grows, or maybe even right now, an HR partner who provides more than just payroll can save you countless hours of administrative work, so you can focus on what matters most—your people.

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What’s the Cost to Do Your Own Payroll?

Again, the real question is, how much is your time worth? The DIY approach only costs your time, and maybe some frustration. Investing in some payroll software may help, but it too has its limits.

Hiring a CPA to handle payroll is expensive, but it does come with some reassurances. Anyone can plug numbers into payroll software, but a good CPA will look for any tax breaks that might benefit your business. The cost of a CPA will depend on where you live and what exactly his or her responsibilities entail. Generally, they charge by the hour.

A payroll partner, such as Paycor, can take an overwhelming payroll and tax situation off your to-do list. Most payroll companies offer package deals charged monthly or per paycheck. The fee can vary depending on factors like volume, tax requirements and service bundles. The most basic packages should include paycheck processing, direct deposit and standard tax filing. There may be additional charges depending on complexity of tax duties, multiple state requirements and if you have employees in other countries.

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