21 May 5 Payroll Management Basics Business Owners Need to Know
The Basics of Payroll Management
Maybe you have a team of twenty, or maybe you just hired your first employee, either way, you know how important it is to make sure your employees actually get paid.
If you’re not familiar with payroll management, you’ll quickly find yourself searching for answers.
Payroll management comes with an entirely different learning curve than say bookkeeping or year-end services, and without understanding the basics you’ll hinder future employee relations with your business.
Things like pay periods, unemployment tax, and worker’s compensation are just the beginning.
If you’re feeling overwhelmed, that’s ok – let’s explore some of the most important payroll basics for your business.
We won’t get into every possible rule of payroll management, here are a few basics to get started with creating an efficient payroll management system for your business.
5 Payroll Management Basics
1. When Is Payday?
As an employer, one of the first decisions you need to determine is the frequency of your pay schedule. Your pay period is the beginning and ending dates of this schedule. Examples include weekly, biweekly, and semi-monthly.
As you can imagine, the primary concern of your employees is when they get paid. Your pay schedule establishes the amount of work days included in an employee paycheck.
Payday is the date when your employees are given their paycheck. Your pay period is usually a fixed number of work days before the date of the paycheck.
Your payday is used to determine the period in which you need to pay and file payroll taxes, and as you can see, quite an important basic.
2. When Do You Need to Pay Payroll Taxes?
Generally speaking, you need to pay federal and state payroll taxes by the 15th of the following month.
Most business owners with employees need to pay taxes on a monthly basis, if you need to process more often, don’t worry – the state and federal government will notify you if you need to pay taxes more frequently.
As we all know, the government has no problem telling us when they want more money!
Full-service payroll providers usually withhold these taxes each pay period and pay them to the IRS & EDD when they’re due. This is just one benefit of having a dedicated bookkeeper and payroll management system in place for your business.
But remember, you also need to file some forms since you’re actually paying your employees. And you better, otherwise you won’t have them for long!
Here are the forms used for filing payroll taxes:
- State Form DE9
- State Form DE9C
- Federal Form 941
- Federal Form 940 (FUTA tax return)
Federal Form 941, State Forms DE9 & DE9C must be filed each quarter, and Form 940 must be filed annually.
Employers are also required to send Forms W-3 and W-2 to the Social Security Administration (SSA) every year.
Again, most payroll services electronically file these for you.. If you’re more of the DIY employer, learn more about these forms here.
3. How to Collect Employee and Employer Taxes
Taxes are no fun, we get it.
But you can’t just pull the wool down over your own eyes when it comes to paying payroll taxes….or else.
Payroll taxes involve two parties — employees and employers — both of whom are required by law to pay taxes on wages.
Payroll taxes are owed to both the IRS & EDD government agencies.
Employers are responsible for collecting federal withholding tax, Social Security, Medicare tax, CA withholding tax, & CA SDI from employees’ paychecks. This amount is based on what employees indicate on their W-4 form. (which they complete before beginning work at your business)
Employers portion of payroll tax is a matching amount of Social Security and Medicare, along with FUTA, CA SDI, CA ETT.
FUTA is a federal employer tax that, along with state unemployment tax (if applicable), provides unemployment compensation to workers who have lost their jobs.
Depending on which state you conduct business in, some employers may also be required to collect and pay state income tax.
See this IRS Employment Tax Guide to learn more about these payroll tax basics.
4. Federal, State, and Local Employment Laws
That’s employment taxes, now let’s talk about employment laws.
When setting up a payroll management system for your business, it’s important for you to understand federal, state, and local labor and employment laws, even if sometimes these laws have different standards.
Still think you can DIY payroll management?
Let’s look at a quick example of different standards – minimum wage. The federal minimum wage is $7.25, here in California it’s $10.00, and in San Francisco, it’s $12.25.
The Fair Labor Standards Act (FLSA) establishes minimum wage, premium pay for overtime, and protections for working children.
Employers – or those responsible for managing your payroll – need to know these FLSA requirements as well as state and local wage and hour laws. Beyond that, you should always follow the provisions more favorable to your employees.
From January 1, 2017, to January 1, 2022, the minimum wage will increase for employers employing 26 or more employees. This increase will be delayed one year for employers employing 25 or fewer employees, from January 1, 2018, to January 1, 2023.
The scheduled increases may be temporarily suspended by the Governor, based on certain determinations.
You can check specific FLSA requirements in California here.
Start there and then talk with a bookkeeping & payroll management professional to make sure you’re following the letter of the law…or it could cost you big-time!
5. Who’s Keeping Track of the Time?
Lastly, as an employer you need to keep track of hours worked for hourly, non-exempt employees.
Most workers are classified as either exempt or nonexempt employees, depending on their wage or salary and the position they hold.
Here is a nice little Department of Labor fact sheet that will help you better understand timekeeping requirements employers need to know.
With all the things involved with running your business, understanding the basics of payroll management should not be ignored.
Bottom Line Management can help make all of this a heck of a lot easier for you, just schedule a free consultation and leave the payroll management & taxes to us!
Carlsbad Payroll Management Services
Bottom Line Management will manage your payroll accurately and efficiently, making sure your employees are paid on time. We will make sure the Quarterly returns (941, DE9, DE9c) and Year End returns (940 and W-2’s) are properly e-filed with IRS and EDD. We do this thru our trusted third party payroll contacts.
Call Bottom Line Management today for a no-cost consultation.
Our payroll services can benefit companies of any size and from any industry. Find out how Bottom Line Management can improve your payroll process today!
Stress less — let Bottom Line Management take care of the details. Your CPA will thank you!
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