Which Payroll Option Is Right for Your Small Business?


Posted 2 years ago in Small Business Tips
by Meg Sproul

Your business has grown large enough that you need to hire an employee or two. Congratulations! Now that you’ve finished the hiring process, it’s time to make the next big decision: how to pay people. As a business owner, you have a few of options when it comes to handling payroll. You could handle it yourself, use a software solution, or hire an accountant.

We’ll start with the easiest options: those that require the least amount of effort on your part.

Option 1: Hire an accountant

While paying your employees every couple of weeks may not seem complicated, it requires more work than you may initially realize. Payroll involves filing multiple tax forms for each employee, withholding state and federal tax, and ensuring that you have enough money in the bank to pay everyone on time. If you don’t think you have the time to dedicate to all this, you should consider hiring an accountant.

A certified personal accountant is a trained expert in U.S. tax law, meaning they’re much less likely to make a mistake. In addition, hiring an accountant takes the payroll process completely off of your plate so you can focus on other aspects of your business. The downside is that a good CPA may cost more than you can afford, depending on your cash flow. Consider your budget and your own time availability as you decide whether this is the best option for you.

Option 2: Use payroll software

If you don’t have the money to hire an accountant, and don’t have the time to handle payroll yourself, consider using payroll software. There are many great software solutions designed to make life easier for small businesses. This plethora of options means you can pick the software that best meets your needs and your budget.

Using a software solution takes the pressure of handling payroll off of you. It ensures that your employees get paid on time, and often it can even take care of tax withholding. Start researching software solutions by checking out Intuit Payroll, Paychex, and Gusto.

Option 3: Do it yourself

If you have the time to dedicate to it and you’re tax-savvy, you may be able to handle payroll yourself. Before you dive in, be sure you keep careful track of every deadline and double check your work for errors–nothing makes your employees angry quicker than messing up their paychecks!

If you’re determined to handle payroll yourself, there are 5 essential steps to keep in mind:

  1. Have each employee complete a W-4 to determine their filing status and personal withholdings for state and federal taxes.
  2. Have your Employer Identification Number (EIN) ready. An EIN is essentially a tracking number used by the IRS to identify business entities who pay employees. If you don’t have an EIN yet, apply for one here.
  3. Decide on a pay schedule. Will you pay your employees once a month or every two weeks? Determine paydays and be sure to post them somewhere public.
  4. Use your employees’ W-4 to withhold taxes and then pay the proper amount of state, federal, and local taxes.
  5. File tax forms and W-2s. Every quarter, be sure you send in your employer federal tax return. And, at the end of the year, don’t forget to send your employees a correct W-2 so they can pay their state and federal taxes.

For more on handling cash flow at your small business, check out how to successfully manage multiple income streams.

Privacy Preference Center

      Necessary

      Advertising

      Analytics

      Other